Company Limited by Guarantee
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Corporate status
IncorporatedTerminology: governing document
"Memorandum and articles of association", usually abbreviated to "mem and arts".Terminology: governing body
"The directors" or "the board of directors", although the mem and arts may use some other term to describe the directors. For example, if the company is also a registered charity, the directors may well be described as "trustees", the generic term in charity law for members of the governing body.Management/governance structure
Essentially two-tier, with a board of directors accountable to a wider membership (sometimes referred to as a "participating membership"). Members will typically hold voting rights at general meetings and will elect all or some of the directors.Further embellishments may be added to this basic structure, e.g. an executive committee (smaller than the governing body, perhaps made up of honorary officers and senior staff), or a members' council, which may meet more frequently than the full membership and supervise the work of the directors.
However, it is possible (and quite common) to create a single-tier structure by simply stating that only directors may be members and vice-versa. Thus although these two roles will still exist within the company, the same people will perform both.
There is no longer a legal requirement for companies to appoint a company secretary. However, many companies choose to appoint an individual to this role as they carry out important administrative functions (and the company's governing document may state that a secretary must be appointed). The secretary may also be a member or director, but need not be. In funded community and voluntary organisations, the post of secretary will often form part of the job description of a member of staff.
Membership
Eligibility for membership will be detailed in the company's articles. Members may comprise individuals or other organisations or a combination of the two. Eligibility for membership may be subject to specified criteria (e.g. living or working in the area of benefit, or sharing a common ethnic origin, or sharing an interest in a particular sport); or the articles may simply say that "anyone who supports the objectives" may apply for membership. A lower age limit will commonly apply to individual members (16 or 18).Admission to membership is usually at the discretion of the directors, but an "open membership" system may apply where strict criteria are laid down, e.g. anyone who lives on such-and-such an estate is eligible to become a member. A co-operative company will automatically offer membership to everyone who shares a particular economic relationship with the company (e.g. employees in a worker co-operative, tenants in a housing co-operative, customers in a consumer co-operative, etc).The articles should always allow for the expulsion of members who act against the interests of the company.
Where there are members who have rather different interests in the company's work, the membership may be divided into two or more classes (e.g. representatives of statutory bodies, representatives of local business, community members, user-members and so on). Voting in a company limited by guarantee is most commonly on a one member, one vote basis, the but the articles may specify some other pattern of voting.
A company must have a minimum of one member. As the single member may be another organisation, a one-member company is useful legal form for subsidiaries.
Members are not required by law to subscribe any money in order to become a member. However, they agree to pay a sum toward the company's debts should it go into liquidation while they are members. In the voluntary sector this is commonly a nominal £1, but the guarantee may be more or less than that.
Governing legislation
Governed primarily by the Companies Acts 1985, 1989 and 2006, plus a number of other statutes applying to companies (e.g. the Insolvency Act, the Company Directors Disqualification Act).Charitable status available?
A company limited by guarantee may qualify as a registered charity if it meets the necessary criteria.Expected changes to the law
Plans are also developing for a new legal form for charities, the "Charitable Incorporated Organisation" or CIO. This will remove some of the technical anomalies that exist between company and charity law. The CIO will be an alternative to the company limited by guarantee.Profit distribution permitted?
The articles will specify whether or not profit distribution is permitted. Distribution will not be possible in a company also seeking registration as a charity and is very uncommon in any type of voluntary or community organisation. Distribution of surpluses to members is often permitted in co-operative enterprises.Examples of Use
The company limited by guarantee is a very common, extremely flexible structure for voluntary, community and social enterprise organisations of all types where a corporate body is required. Companies have few inherent characteristics and so it is possible to design almost any sort of structure within a company vehicle.Because the company form features a participating membership, it is suitable for representative organisations such as tenants' associations, pressure groups and federations, where it is necessary for the governing body to be accountable to the people the organisation claims to represent. In such a company the directors will normally be elected by and from the membership.
However, it is possible to design a company where the only members are also the directors, who are thus only constitutionally accountable to one another. Such a structure may be preferred where greater stability is required without the potential for power blocs to develop within a larger membership. In this case, how the directors get to be appointed will be laid down in the articles. In some cases, directors are effectively self-perpetuating, with future directors appointed by the present ones. In other cases, the articles will specify organisations or agencies which are entitled to nominate one or more directors, or detail some other procedure by which directors are identified ands appointed.
Participation Issues
Companies have the potential to be membership-based, so encouraging an active membership is an appropriate method of promoting participation - especially where the members share a common interest or condition.
Otherwise companies are free to utilise most of the other common methods of encouraging participation, including profit distribution in appropriate circumstances.
