Why a company limited by guarantee? |

Version 2 - view current page

GSSG is a company limited by guarantee. The reasons for adopting this form of organisation are as follows:

A legal entity separate from its members, which is required by some funding bodies, such as local authorities and grant agencies
Control of the organisation is vested in the members as enshrined in the company’s constitution and enforced by the law.
Limits the liability of the members to a nominal £1 each
Simplest legal structure available for a not-for-profit organisation, such as a club, society, community project or group.

Companies limited by guarantee are widely used for charities, community projects, clubs, societies and other similar bodies. Most guarantee companies are not-for-profit companies, that is, they do not distribute their profits to their members, but either retains them within the company or use them for some other community benefit purpose. A company limited by guarantee is governed by the Companies Act. The company is registered at Companies House, and also has to file its articles (i.e. constitution), accounts and provide an annual return. In addition, the organisation’s management committee (i.e. the directors) also have to be registered. This provides a high degree of openness because the information is available to the public. A company limited by guarantee, such as GSSG, is run for the benefit of the members as a not-for-profit organisation. The members have the power to appoint and remove the management committee (i.e. the company’s directors). The directors cannot receive any remuneration from the company. The powers and actions of the directors are further constrained by the Companies Act. Other forms of not-for-profit organisation that were considered, but rejected are as follows:

Charity, including the new Charitable Incorporated Organisation (CIO) – our activities did not meet the stringent restrictions of the Charities Commission, also there is a more onerous administrative burden
Industrial and Provident Society, including co-operatives – complex and costly to establish and administer, best suited to situations where there are shared assets, goods and services or benefits to distribute
Community Interest Company (CIC) - complex to establish and administer, best suited to capital community projects, where share capital needs to be raised.

Further information about the forms of organisation suitable for a not-for-profit organisation is available from ACEVO (the Association of Chief Executives of Voluntary Organisations) and contained in the download document. [link to file]