Company limited by guarantee
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In British or Irish company law, a Limited Company is a 'person' on its own right. This means it can own property (such as a freehold or leasehold) and enter into contracts in its own name. It exists independently and separately from the people involved.
Some limited companies do not have shares and are instead 'limited by guarantee'. In England and Wales, these include commonhold associations and RTM companies (political parties, non-profit organisations). If your company is limited by guarantee, it means that members have agreed to contribute to the assets of the company if it is wound up.
A company limited by guarantee has members, rather than shareholders, the members of the company guarantee/undertake to contribute a predetermined sum to the liabilities of the company which becomes due in the event of the company being wound up, normally £1, in the event of a shortfall upon cessation of business. It cannot distribute its profits to its members, and is therefore eligible to apply for charitable status if necessary.
Information on RTM (right to manage) companies is available from the Office of the Deputy Prime Minister (tel. 020 7944 4400 or visit http://www.odpm.gov.uk). Information on commonhold associations is available from the Department for Constitutional Affairs (tel. 020 7210 8614 or visit http://www.dca.gov.uk).
However, RTM companies and commonhold associations which are incorporated under the Companies Act and the information in this booklet generally applies to them.
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[edit] Reasons for a formation of a company
One reason why residents of a block of flats would have a company is to own the freehold or 'head lease'. Freehold gives outright ownership of the property to the company. A 'head lease' is a lease granted directly to the company, who may in turn grant subleases of the property (or parts of it) to the flat owners. However, the company is also often used for collecting a central pool of cash for carrying out repairs and maintenance to common parts of the property. Often it is a condition of buying a flat that the buyer becomes a member or shareholder of the company. In some cases all flat owners automatically become directors.
Another reason for why a company would be set up, is so that leaseholders of flats can exercise their right to manage the building they live in. The right to manage must be exercised through a limited company set up for that purpose. This type of company is called an ‘RTM Company’.
The prime purpose of limited companies is to limit the liabilities of entrepreneurs who use them for business purposes. In exchange for this limited liability, companies are required to make certain information about themselves available to the public. This information is filed at Companies House. The timing and presentation of the information is governed by law.
Flat management companies, although mostly formed for a different purpose, are governed by the same legislation - primarily, the Companies Act 1985. It does not allow flat management companies to be treated any differently to other companies.
The main requirements of this Act affecting flat management companies are that they file:
- an annual report and accounts;
- an annual return; and
- other event-driven notifications (typically changes in directorships or registered office address).
[edit] How to form a company limited by guarantee
If you incorporate a company yourself, you will need to send the following documents, together with the registration fee to the Registrar of Companies:
- A memorandum of association
- Articles of association
- Form 10
- Form 12
Each of these documents is explained below.
MEMORANDUM OF ASSOCIATION sets out the company name, the registered office address and the company objects. The object of a company may simply be to carry on business as a general commercial company. The company's memorandum delivered to the Registrar must be signed by each subscriber in front of a witness who must attest the signature. As an exemption, a company limited by guarantee can not include the world "limited" if their satisfy certain criteria. The company will also can be exempt from the Companies Act 1985 in relation to the publication of its name and will not have to send lists of members to the Registrar.
ARTICLES OF ASSOCIATION is the document which sets out the rules for the running of the company's internal affairs. The company's articles delivered to the Registrar must be signed by each subscriber in front of a witness who must attest the signature.
FORM 10 gives details of the first director(s), secretary and the intended address of the registered office. As well as their names and addresses, the company's directors must give their date of birth, occupation and details of other directorships they have held within the last five years. Each officer appointed and each subscriber (or their agent) must sign and date the form.
FORM 12 - is a statutory declaration of compliance with all the legal requirements relating to the incorporation of a company. It must be signed by a solicitor who is forming the company, or by one of the people named as a director or company secretary on Form 10. It must be signed in the presence of a commissioner for oaths, a notary public, a justice of the peace or a solicitor.
[edit] Company officers
Every company must have formally appointed company officers at all times. A private company must have at least:
- ONE DIRECTOR (if the company's articles of association do not require more than one).
- ONE SECRETARY. A company's sole director cannot also be the company secretary.
The company director can be anyone with some exceptions. You are restricted from being a Limited Company director if you are unable to consent to your appointment and you must seek legal advice if you are intend to direct the company. You are restricted also if you have been preciously or are declared bankrupt or banned from being a company director by the court.
The company secretary - formal qualifications are not required.
In Scotland the Registrar will not register for any company the appointment of a director under the age of 16 years old. A child below that age does not have the legal capacity to accept a directorship - Age of Legal Capacity (Scotland) Act 1991. If you need more information, contact Companies House, Edinburgh.
Some people not of British nationality are restricted as to what work they may do while in this country.
[edit] Statutory accounts
All limited companies have a duty to keep accounting records and to prepare annual accounts. The Companies Act and other regulations specify the format in which the annual accounts must be prepared, the information that needs to be disclosed, and the rules affecting the valuation and treatment of the transactions and balances appearing in the accounts.
