Company Limited by Guarantee (CLG) in the UK

A company limited by guarantee (CLG) is a type of business structure in the UK that is commonly used by non-profit organizations, charities, and social enterprises. Unlike a company limited by shares, which has shareholders who own the company, a CLG has members who act as guarantors, agreeing to pay a predetermined sum of money towards the company’s debts if it is wound up.

A company limited by guarantee in the UK must have a constitution to establish the rules and guidelines that govern its operations and relationships. The constitution, also known as the “memorandum and articles of association,” outlines the internal structure, decision-making processes, and rights and responsibilities of the company and its members

Some of the key features of a CLG includes:

Limited liability for members: As mentioned, members act as guarantors, which means their liability is limited to the amount they agree to contribute in the event of the company’s winding up.

No share capital: A CLG entity doesn’t require any share capital, as there are no shareholders in the CLG

Non-distribution of profits: Profits cannot be distributed; instead, they must be put back into the business’ operations or donated to charity.

Members have voting rights: Members of a CLG have the right to vote on company matters, such as the appointment of directors.

Due to the legal framework that CLGs provide, non-profit organizations, charities, and social businesses frequently use them to conduct their operations without having to make a profit for shareholders. This implies that any earnings produced can be donated to charity or reinvested in the organization’s operations.

There are many CLGs in the UK few of them are The National Trust, The Royal Society of Arts (RSA), and The Royal Society for the Prevention of Cruelty to Animals.

Advantages of a CLG are:
– Limited liability for members
– CLG is a legal framework that is appropriate for charities and non-profits
– CLG Members have voting rights, allowing for business decision-making

Disadvantages of a CLG are:
– CLG requires constitution, which can be time-consuming and costly to draft
– The legal requirements and responsibilities that come with CLG being a separate legal entity
– As there are no shareholders in CLG who can invest in CLG business, raising funds is limited.

A company limited by guarantee (CLG) is a type of legal entity under UK law that is commonly used by non-profit organizations, charities, and social enterprises. Unlike a company limited by shares, a CLG does not have shareholders who own the company. Instead, it has members who act as guarantors, agreeing to pay a predetermined sum of money towards the company’s debts if it is wound up.

The main difference between a company limited by guarantee and a company limited by shares is the way in which ownership is structured. In a company limited by shares, shareholders own the company and can receive dividends based on their shareholding. On the other hand, a CLG has no shareholders and any profits made are reinvested into the company’s activities or used for charitable purposes.

A company limited by guarantee without share capital is a form of CLG that lacks share capital and hence cannot issue shares to shareholders. Non-profit organisations, charities, and social businesses that do not seek to earn money for shareholders frequently employ this sort of CLG.

A CLG must have members in the UK, as they act as guarantors and are responsible for paying a predetermined sum of money towards the company’s debts if it is wound up. Members of a CLG have voting rights and can be individuals or organizations.

A CLG is prohibited from paying dividends to its members since all revenues must be put back into operations or donated to charity. This is so because a CLG is a nonprofit company without shareholders who are eligible to collect dividends depending on their ownership.

As a rule, CLG firm operates as a non-profit organisation in the UK and is exempt from paying corporation tax to HMRC on earnings from charitable endeavors. However, if CLG engages in any activity that is not non-profit in that circumstance, they may be required to pay corporation tax to HMRC on the profit made.

There are no shareholders in the CLG business, so CLG cannot allot or issue any shares to shareholders. However, they have members who act as a guarantor for CLG business and agrees to pay a sum of money towards the company’s debt if it is dissolved.

A CLG can pay its directors for services rendered, as long as the payments are reasonable and in line with the company’s articles of association.

A CLG can make profits, but these profits cannot be distributed to members as dividends. Instead, any profits made must be reinvested into the company’s activities or used for charitable purposes.

A CLG can borrow money, but this is subject to certain restrictions, as outlined in the company’s articles of association.

PCLG also called as private company limited guarantee is a CLG company in UK with a limit of maximum 50 members. PCLG is usually incorporated for non-profit organisations and other social activities or charity purposes only.

A CLG does not have owners in the traditional sense, as it is a non-profit organization. Instead, it has members who act as guarantors and have voting rights on company matters.

Depending on how it is set up and operated, a company limited by guarantee (CLG) in the UK can be either public or private (PCLG). However, the vast majority of CLGs are private companies in the UK.

A CLG can be incorporated or unincorporated. An incorporated CLG is a legal entity in its own right, with separate legal personality from its members, while an unincorporated CLG is not a separate legal entity and does not have a separate legal personality.

Company limited by guarantee is a non-profit organisation that can have up to 50 members in CLG  and CLG can perform any non-profit activities in UK, whereas Community Interest Company (CIC) is similar to CLG that non-profit organisation but it can only perform activities for the community.

There is one major difference in NGO vs CLG, there is no control of government in NGO but in CLG  government has control.

A trust is a legal agreement in which one person retains property on behalf of another. While both trusts and CLGs are used for charitable purposes, they have different legal forms and are controlled by separate laws.

A CLG will normally need to present different papers, such as its certificate of incorporation, articles of association, and proof of residence, in order to open a bank account. Specific criteria may differ based on the bank and the nature of the CLG’s operations.

CLS business must maintain the accounts books and create a balance sheet, which will have all the financial statements of that CLG like any assets, liabilities, etc.

Whether or not a company limited by guarantee (CLG) in the UK is required to have an audit depends on the company’s size and whether it meets certain criteria. Generally, a CLG that meets the small company criteria is not required to have an audit, but a CLG that is considered to be medium or large will need to have an audit. However, there are some exceptions and special rules that apply to certain types of CLGs, so it is important to consult with a qualified accountant or advisor to determine whether an audit is required.

According to companies house CLG directors must perform activities for variety of tasks, and ensure that business operations works as per the application laws in UK and to maintain accounts books in the interest of the CLG company and its members. The exact responsibilities of the directors will be outlined in the articles of incorporation and the Companies Act of 2006.

A CLG is required to file an annual tax return with HM Revenue & Customs (HMRC) if it has any taxable income or profits. The company may also be required to register for Value Added Tax (VAT) if its taxable turnover exceeds the VAT registration threshold. Additionally, if the CLG has employees, it will need to operate a payroll and file regular payroll returns with HMRC.

The registration cost for a CLG is presently £40 if submitted online, or £100 if submitted by mail. This charge is subject to change, so check the Companies House website for the most up-to-date fee schedule.

The legal structure of a CLG is same as a UK company, and it is governed by the UK Companies Act 2006. However, unlike a traditional company, a CLG is not owned by shareholders and does not issue shares to its members. Instead, CLG company has members who act as guarantors and agree to contribute an approved amount of money towards the company’s debts if it goes bankrupt.

A company limited by guarantee (CLG) in the UK can transfer membership, subject to the provisions set out in the company’s articles of association. The articles will typically specify the procedure for transferring membership, such as the requirement for approval by the board of directors or members.

A CLG’s tax will be calculated by its individual circumstances, such as its sources of revenue and whether it is registered for tax reasons under CLG or not. A CLG is generally free from company tax on any profits or gains derived from its non-profit operations. However, they may still be required to pay other taxes, such as VAT or PAYE if it employs people under than CLG.

A CLG can be sold, but the procedure of transferring is more complicated than selling a standard company. Because a CLG does not have shares, ownership must be transferred through transferring membership interests. A CLG’s sale may also be subject to limits or requirements outlined in the company’s articles of incorporation.

You can acquire a CLG by registering a new CLG under the companies house act or by acquiring the existing running CLG. Acquiring a CLG is a more complicated process as compared to a standard company acquisition and it is the best interest to hire a professional to perform and check all the legal requirements of transferring the CLG

It is possible to wind up a CLG in the UK, although the process can be more complex than winding up a traditional company. The procedure for winding up a CLG will depend on its specific circumstances and may be subject to restrictions or conditions set out in the company’s articles of association. Generally, the company will need to pass a resolution to wind up, appoint a liquidator, and distribute any remaining assets to its members or a nominated charity.