Company Limited by guarantee is most often formed by non-profit organizations such as NGOs, charitable trusts, foundations, sports clubs, workers’ co-operatives, and membership organizations, whose owners wish to have the benefit of limited financial liability.
A company limited by guarantee does not have any shares or shareholders (like the more common limited by shares structure) but is owned by guarantors who agree to pay a set amount of money towards company debts.
Furthermore, there will generally be no profits distributed to the guarantors as they will instead be re-invested to help promote the non-profit objectives of the company. If any profits are distributed to the owners, then the company will forfeit its right to apply for charitable status.
The Company Act of 2015 defines a limited by guarantee corporation must not be founded based on capital stock.
According to the articles of incorporation, the members’ obligations must be limited to a particular amount (typically a nominal amount) that they agree to pay to the company’s assets in the case of liquidation.
The certificate of incorporation of the company must specifically reveal that it is a company limited by guarantee. Under the Companies Act of 2015, it’s unclear whether a limited by guarantee company is a public or private entity.
Now the question what is a company limited by guarantee in Kenya? has been answered.
Several various ways can be used to incorporate charity and non-profit organizations, such as a corporation limited by guarantee (for example, clubs and trade associations for trade protection or information).
A company limited by guarantee (CLG) is a type of legal entity employed by non-profit organizations seeking legal status. It is a statutory requirement that before the company can be registered, all of the directors and members must be vetted.
Participants, unlike stockholders in a stock-based company, do not profit from the company. The profits of the corporation are re-invested in the company.
A Limited Warranty that is Guaranteed Guarantors are members of the company. This suggests that the entity may be made up of several people.The organizational framework of a company limited by guarantee and a company limited by shares are very similar..
They have indeed nominated directors to handle the organization’s day-to-day activities. According to the Registrar of Companies, the National Intelligence Service is required to conduct vetting of members and directors (NIS). After the screening is finished, we can begin the registration procedure.
A limited-by-guarantee corporation’s organizational structure is not predetermined. There are no limits on who can be selected as a director, and a director does not need to be a United States resident or citizen.
Companies may serve as directors, but at least one of them must be a sole proprietorship corporation or a natural person.
An individual or a group of people can come together with a common purpose and form a public or private company under the new Companies Act of 2015. According to the Act, with the memorandum of association, its mandatory that for a limited by guarantee company to incorporate a statement of guarantee with full details of the subscribers (Companies Act, Section 15).
A company limited by guarantee is a distinct legal entity from its owners and is responsible for its debts.
The personal finances of the company’s guarantors are protected. They will only be responsible for paying company debts up to the number of their guarantees.
‘Limited’ status builds trust and confidence amongst clients and sponsors – this type of professional credibility is valuable and can help a company achieve its objectives more effectively.
Can own property in its name
The functions of the company are not monitored/regulated by registration bodies.
Takes 30-45 days to be incorporated.
Private Company Limited by Guarantee Incorporation
Companies limited by guarantee are eligible for either voluntary liquidation or High Court judgement under the Insolvency Act. According to the Act (Insolvency Act, Second Schedule), the following debts must be paid before all unsecured debts during liquidation:
The amount that the liquidator got from the sale of such assets up to the extent of that creditor’s unsecured obligation is included in expenses, together with the quantity of expenses made by that creditor in defending, conserving, or reclaiming those assets for the benefit of the creditors of the corporation through the payment of money or the provision of an indemnity;
The debts below shall be paid in order of priority to certain secured debts under the following situations:
Kenya exempts some non-profit organizations’ income from corporate income tax if they carry out certain activities. In some cases, unrelated business income is taxed. Kenya levies VAT on some purchases of goods and services, while many activities are exempt.
Corporate and individual gifts receive relatively modest tax benefits as a result of the tax legislation.
Several non-profit organizations have become corporations, with the members’ guarantees limiting their responsibility.
According to the Companies Act of 2015, a company limited by guarantee must be formed without share capital, the articles must restrict the members’ liability to a certain sum (often a small sum) that they agree to contribute to the company’s assets in the case of a liquidation, and a limited by guarantee company must be listed on the certificate of establishment of the business.
A limited by guarantee company cannot be a private corporation (Section 9 of the Companies Act 2015). A limited by guarantee company does not meet Section 10 of the Companies Act since it is unable to hold share capital.
What is different from other forms of Registration?
If a charitable organization, community project, club, or other organization is not structured as a limited liability company, its leaders (usually the management committee, etc.) can be personally accountable for the group’s unpaid debts. This is a really dangerous situation.
Large firms with difficult-to-discharge debts can be found with charities, community groups, sports clubs, and other organizations.
They may have rented premises, hired personnel, and purchased equipment, among other things. If a charity or other organization’s income falls short of its outgoings, it may become bankrupt, and those in charge (but not the general public) may face personal liability.
On the other hand, a company is a separate legal entity that is liable for its debts, not its subscribers or directors.
A company limited by shares; the shareholders’ liability is restricted to the amount they agreed to pay for their shares. Whereas in a limited by guarantee company the liability of the members is limited to the amount of the guarantee provided for in the articles of incorporation.
In both limited companies: a company limited by guarantee and the other limited by shares, the director(s) will only be personally accountable for the companies’ liabilities if they are found guilty of certain misconduct, such as illegal or fraudulent trading.
Here are the differences;
This is how most clubs’ function. Members elect a committee to run the club on their behalf at the annual general meeting in accordance with the rules set forth in the club’s constitution.
If the club is a corporation, the same restrictions apply, and they are spelled out in the articles of incorporation.
As a private company, a limited by guarantee must have at least one director. They can be found in almost any guarantee company.
A committee, management committee, board of managers, trustees, governors, and other similar words are used to describe the board of directors. Regardless of their titles, they are law directors of that corporation.
They can, of course, create sub-committees and delegate authority to them, as well as assign specific responsibilities to certain directors, such as treasurer or membership secretary. Some, if not all, of the directors of individual enterprises, may be chosen by one or more outside organizations supporting the initiative, such as charities or local governments. Special interest organizations may appoint certain directors.
Members of a guarantee company have the same voting rights as stockholders, but they are not entitled to any shares or other transferable securities in the business.
These limitations often apply to earnings generated while the company is open for operation, as well as asset distribution after creditors have been paid.
A prohibition on transmitting any revenue or fees to the directors may reinforce these limits in some cases, but not always.
The question of who owns a company limited by guarantee is well answered.
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