What’s the financial position of a company limited by guarantee?

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As a company limited by guarantee has no share capital, it cannot raise money by selling equity subscribers' shares. This usually makes them more appropriate for non-profit projects, they may pursue their goal by raising funds through grants or borrowing – e.g. by debenture issuance.

Many membership associations set up as limited by guarantee companies introduce annual dues or an adjunct fee to cover critical operating costs.

The Companies Act does not expressly prohibit a limited company from distributing surplus profits to shareholders by guarantee and there are a limited number of companies doing so. In the vast majority of cases though, the corporation retains some income to promote the organisation's objectives.

In addition, the articles of association of the company will always prohibit the distribution of profits and, however, if members receive a share of income from a corporation founded for charitable purposes, the corporation will forfeit its right to charitable status.

A guarantee-limited business must file accounts and tax returns under the same time limits as a share-limited corporation. The key variations in the accounts are:

  •  Share capital on the balance sheet does not turn up.
  • Usually, a common language is used, along with a warning that the company is constrained by guarantee. Instead 'Income' should be named 'Surplus' and 'Shareholders Funds' should be replaced with 'Reserves.'
  • Limited by Guarantee Companies:

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