Although in a company limited by guarantee you don’t have shareholders, there must be one or more members which are entitled to:
- Attend general meetings
- Appoint and remove the directors
- Have ultimate control over the company.
It is the case of many clubs which have members that elect a committee to manage it on their behalf. If the club is defined as a company, the same law provisions relating to general meetings and resolutions that define the activity of a share company also apply to companies limited by guarantee.
Similarly to a company limited by shares, a company limited by guarantee can have different classes of members such as non-voting members or members who have restricted rights in some other way.
While most companies limited by guarantee have several directors, the rule says they must have at least one, even if the directors may have other titles such as committee, management committee, board of managers, trustees or governors. They typically have wide-powers which depend on the terms of that particular company’s articles and are conferred on the directors collectively (when they are sitting as a board), when they are set up as sub-committees, or given particular to directors as special responsibilities (treasurer, membership secretary, etc.). In some cases directors may be appointed by outside bodies (charities, local authorities, particular interest groups).
Not having the possibility to issue shares, companies limited by guarantee are limited in their fund-raising capacity and this is one of the reasons that some projects are set up as companies limited by shares even if they are not profit motivated. Still, a company limited by guarantee can borrow money and it also may issue debenture stock.
Another characteristic determined by the lack of shares is that even if the control of the company means pretty much the same think in both cases, members of the guarantee company can’t transfer this control by selling their shares as shareholders can.
Although Companies Act does not prohibit a company limited by guarantee to distribute profits, there are usually restrictions regarding the payment of salaries, fees and profit distribution to directors put on the company’s articles, the later applying both to current profits and to the distribution of assets in case the company is wound up.
Non-profit companies limited by guarantee with activities such as commerce, art, science, education, religion, charity or any profession can be exempted from using the word ‘Limited’ (or ‘Ltd’) at the end of its name.