Decision making in a company limited by guarantee

Decision making

In a company limited by shares (regular private limited company), the shareholders have as much say in the company as they hold shares. For example:

  • If there are two shareholders and each person has five shares, each person has equal say when it comes to making decisions.
  • If there are two shareholders and one person has seven shares and the other has three, the first person will have more say in the running of the company.

A company limited by guarantee must have at least two directors (also called trustees). Each trustee has one vote, so all decision making is shared equally.

Company ownership

In a company limited by shares, the company is owned by the shareholders. The shareholders own as much of the company as they hold shares. For example:

  • If there are two shareholders and each person has five shares, they have equal ownership of the company.
  • If there are two shareholders and one person has seven shares and the other has three, the first person owns more of the company.

At the end of the financial year, dividends can be paid to shareholders. This is the profit they make.

In a company limited by guarantee, the trustees run the company. They provide a cash guarantee rather than holding shares. This means that if the company gets into financial trouble, the trustees are only liable for the amount they have guaranteed. We usually set this at £10 per trustee.

Why register as a company limited by guarantee?

Guarantee companies are suitable for sports clubs and other non-profit organisations. They are better recognised by funding bodies because there is an assurance that the money made is being reinvested in the company rather than being paid to shareholders as a profit. In many cases, a community interest company (CIC) is a suitable set-up. However, a company limited by guarantee is still the best option for some ventures, especially if there is a political element (which is not allowed for a CIC).

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