{"id":41547,"date":"2022-03-29T12:14:27","date_gmt":"2022-03-29T06:44:27","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=41547"},"modified":"2022-03-29T12:21:42","modified_gmt":"2022-03-29T06:51:42","slug":"company-limited-by-guarantee-meaning-benefits-and-provisions","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/company-limited-by-guarantee-meaning-benefits-and-provisions\/","title":{"rendered":"Company Limited by Guarantee: Meaning, Benefits, and Provisions"},"content":{"rendered":"\n<p class=\"has-drop-cap\">According\nto Section 2(21) of the Companies Act 2013, the company limited by guarantee\nrefers to a type of company in which members are bound to contribute a nominal\namount as cited in the MOA in case of the company\u2019s wind up. It is a kind of\ncompany structure widely preferred by companies with charitable objectives. In\nthis write-up, we will talk about this specific company type in detail and talk\nabout its benefits and underlying provisions.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/company-limited-by-guarantee-meaning-benefits-and-provisions\/#Meaning_of_company_limited_by_guarantee\" >Meaning of company limited by guarantee<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/company-limited-by-guarantee-meaning-benefits-and-provisions\/#Noteworthy_facts_pertaining_to_a_company_limited_by_guarantee\" >Noteworthy facts pertaining to a company limited by guarantee<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/company-limited-by-guarantee-meaning-benefits-and-provisions\/#An_overview_on_the_types_of_Guarantee_Company\" >An overview on the types of Guarantee Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/company-limited-by-guarantee-meaning-benefits-and-provisions\/#Underlying_Benefits_and_Key_Features_of_Company_Limited_by_Guarantee\" >Underlying Benefits and Key Features of Company Limited by Guarantee<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/company-limited-by-guarantee-meaning-benefits-and-provisions\/#Underlying_Provisions_for_Company_Limited_by_Guarantee_in_India\" >Underlying Provisions for Company Limited by Guarantee in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/company-limited-by-guarantee-meaning-benefits-and-provisions\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Meaning_of_company_limited_by_guarantee\"><\/span>Meaning of company limited by guarantee<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Company\nlimited by guarantee is also known as Guarantee Company. In a layman&#8217;s term, it\nrefers to a company lacking shareholder but owned by a member known as\nguarantors who assures to pay a nominal amount in the case of wound up. It is a\nspecific form utilized for NPOs, i.e. non-profit organizations. Under this\nform, profit reaped by an entity is reinvested to serve different companies&#8217;\npurposes. <\/li><\/ul>\n\n\n\n<ul><li>Henceforth,\nit is a legally productive structure for NPOs, charitable trusts, clubs and\nother identical establishments. An entity limited by guarantee acts as an\nindependent legal establishment and carries a distinct legal identity. <\/li><\/ul>\n\n\n\n<ul><li>It\ncan perform undertakings in the company&#8217;s name, such as borrowing credit,\nemploying human resources, buying and selling property, leveraging legal\nproceedings in case of dispute, etc. MOA (Memorandum of association) is a\nmandate for such companies. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Noteworthy_facts_pertaining_to_a_company_limited_by_guarantee\"><\/span>Noteworthy facts pertaining to a company limited by guarantee<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ol><li>Member will have security for being held accountable in their personal capacity for the sum borrowed for business in the company&#8217;s name. <\/li><li>The company&#8217;s members are only entitled to pay the assured amount as cited in the company&#8217;s MOA. <\/li><li>Members are accountable to pay only in the event of the <a href=\"https:\/\/corpbiz.io\/winding-private-limited-company\"><strong>winding-up of the company<\/strong><\/a>. <\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"An_overview_on_the_types_of_Guarantee_Company\"><\/span>An overview on the types of Guarantee Company<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Companies\nlimited by guarantee or Guarantee companies are categorized into two types.<\/p>\n\n\n\n<p>1. <strong>Company limited by guarantee with share capital<\/strong><\/p>\n\n\n\n<ul><li>The\ncompany will become operational with some working funds or initial capital from\nits member as initial working capital is not accessible via subscriptions,\ngrants, endowments, fees or any other sources. <\/li><li>But\nlater, upon commencement of operation, normal working funds can be secured via\nthe services provided in the form of charges, fees, and subscriptions.<\/li><li>The\nshareholding figures out voting power in the guarantee company possessing share\ncapital. <\/li><\/ul>\n\n\n\n<p><strong>2. Company limited by guarantee (no share capital)<\/strong><\/p>\n\n\n\n<ul><li>Such\na guarantee entity does not secure working funds or initial capital from its\nmembers. <\/li><li>Instead,\nthese companies procure the capital via multiple sources such as subscriptions,\ngrants, endowments, fees etc. Forex: NPOs or charitable institutes started by government\ngrants or public donations. <\/li><li>Voting\npower in Guarantee Company lacking share capital is figured out by the\nguarantee.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Underlying_Benefits_and_Key_Features_of_Company_Limited_by_Guarantee\"><\/span>Underlying Benefits and Key Features of Company Limited by Guarantee<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ol><li>An\nentity limited by guarantees has a distinct legal identity from its\nowner\/guarantor. The company, per se, is accountable for its debts. <\/li><li>Guarantors\nare not liable for repayment against any of the company&#8217;s debts. Henceforth,\ntheir personal assets remain untouched. They are only accountable to pay out\nthe agreed sum as per their guarantee in the case of the company&#8217;s insolvency.<\/li><li>Any\nindividual or corporate body can serve the role of a guarantor. It requires an\nindividual director and an individual guarantor to get established. The same\nindividual can serve both positions, making it convenient for any to commence a\ncompany. But, multiple guarantors and directors can also fit into this context.\n<\/li><li>A\ncompany limited by guarantee is typically established for charitable causes or\nnon-profit purposes. Any profit earned is reinvested and leveraged for\nadvocating its non-profit activities.<\/li><li>Entity limited by guarantee may affix the\nterm&#8217; limited&#8221; in its name. This word garners a sense of trust among\ninvestors and clients. <\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Underlying_Provisions_for_Company_Limited_by_Guarantee_in_India\"><\/span>Underlying Provisions for Company Limited by Guarantee in India <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ol><li>According to Section 37 of Companies Act,\n2013, a company limited by guarantee (lacking share capital) registered on or\npost the 1st Apr 1914, every provision in the articles or Memorandum or in any\ncompany&#8217;s resolution purporting to vest any individual a right to claim a fair\npart of the sum in the company&#8217;s divisible profits otherwise than as a member\nshall be void. <\/li><li>For\nthe provisions of the said Act regarding the Memorandum of a company limited by\nguarantee &amp; of this section, every provision cited in articles or\nMemorandum, or in any resolution, of any entity limited by guarantee and\nregistered on or post 1st Apr 1914, purporting to bifurcate the company&#8217;s\nundertaking into shares or interest, shall be treated as provision relating to\nsharing capital, despite that the nominal amount or no. of the shares or\ninterest is not mentioned thereby. <\/li><\/ol>\n\n\n\n<p><strong>MOA\ni.e. Memorandum of Association<\/strong><\/p>\n\n\n\n<p>According\nto the Section 4 (6) of the Companies Act, 2013, Memorandum of Association\nshould be in the form provided in Table B for entities limited by guarantee (lacking\nshare capital) and in Table C for entities limited by guarantee (with a share\ncapital) <\/p>\n\n\n\n<p><strong>AOA\ni.e. Articles of Association<\/strong><\/p>\n\n\n\n<p>As per the Section 2 (5) of the <strong>Companies Act, 2013<\/strong><sup><a href=\"https:\/\/www.mca.gov.in\/content\/mca\/global\/en\/acts-rules\/ebooks.html\"><strong>[1]<\/strong><\/a><\/sup>, AOA must be in the form provided in Table H for companies limited by guarantee lacking share capital and Table G for entities limited by guarantee possessing share capital.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>To conclude, guarantee companies are widely used for clubs, charities, sports associations, NGOs, membership organizations, and other social enterprises. They are generally established to facilitate services to the public with no profit generating motive. \u00a0Also, these companies provide apt protection to the guarantor\u2019s personal assets.\u00a0 <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our Article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/types-of-companies-under-companies-act-2013\/\">Types of companies under Companies Act, 2013\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>According to Section 2(21) of the Companies Act 2013, the company limited by guarantee refers to a type of company in which members are bound to contribute a nominal amount as cited in the MOA in case of the company\u2019s wind up. It is a kind of company structure widely preferred by companies with charitable [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":41557,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[2209],"acf":{"service_id":"1"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":30659,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/41547"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=41547"}],"version-history":[{"count":9,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/41547\/revisions"}],"predecessor-version":[{"id":41559,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/41547\/revisions\/41559"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/41557"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=41547"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=41547"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=41547"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}