Companies limited by guaranteeis one aspect of financial revealing that causes more confusion than it should when, in reality, it is fairly straightforward.

A company limited by guarantee is just a limited company, yet with the obvious difference to the usual company substance of there being no share capital. The company's members are guarantors rather than shareholders.

This type of company element is often used by charities, however not all companies limited by guarantee are charitable in nature.

Other normal uses for this sort of company are membership organizations and clubs, including sports associations.

It is doubtful to be used by a normal trading business, as profits cannot be distributed to members by way of a profit.

The same rules and regulations apply to companies limited by guarantee as to companies with a share capital. This means that the company should document accounts at Companies House inside the usual deadline, record annual returns, keep legitimate accounting records, appoint directors and document returns with HMRC.

Assuming the company is a charity, registered with the Charity Commission, almost certainly, HMRC won't need a CT600 and there will be no corporation tax to pay.

Be that as it may, this is not a blanket exception, and the status of being limited by guarantee does not, of itself, allow a company to escape the liability to corporation tax. The company is expected to have at least one director.

What's the difference?

The main difference between a company limited by guarantee and one limited by shares is that the liability of shareholders is limited to the amount unpaid on shares, whereas the liability of guarantors (the members of a company limited by guarantee) is limited to the amount that they guaranteed.

Generally speaking, the amount guaranteed will be £1 per part (similar to the ordinary £1 share in a company limited by shares).

Members cannot get dividends, and will usually be involved because of their obligation to the company's objectives, rather than to benefit financially.

The memorandum and articles will usually contrast from those of the standard share capital company and will generally incorporate a characterized list of specific objectives, and also a clause that prohibits the distribution of surplus profits.

The balance sheet of a company limited by guarantee will be the same as that of a company limited by shares, apart from the fact that it will have no share capital.

The bottom section of the balance sheet should be headed 'Reserves' rather than the usual 'Shareholders' funds'.

There is no prerequisite, however it is normal practice, to also incorporate a note disclosing the guarantees; something simple such as: 'The company is limited by guarantee of members and does not have a share capital. The liability of members is limited to £1.'

The usual rules about related parties will apply, and the director(s) will be related parties in the usual way. Whether or not a part falls into the meaning of related party will rely upon the circumstances.

Payments to members can be by way of remuneration, as no dividends are possible.

In the event that the company is a charity, the members may also be trustees, and there are of course rules about payments to trustees.

In the event that the company limited by guarantee is a charity, the disclosure requirements, rules and requirements laid somewhere near the Charity Commission, the Charity SORP and the Charities Acts will also should be adhered to.

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