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When to Use a Company Limited by Guarantee

Posted by M. Margaret Gonsalves-Sabola | Jul 09, 2018 | 0 Comments

When to use a company limited by guarantee 460x260 c

Companies limited by guarantee formed under either the Companies Act of the International Business Companies Act have a variety of uses and goals. In these companies, members' liability is limited by an amount that is specified in the memorandum of association, only to be contributed should the company wind up. The member is obligated to contribute to the company's payment of debts and liabilities, as well as the costs of winding up, but only up to an amount of money specified.

Ex-members of the company are required to contribute to winding up for one year after they leave the company. Of course, current members must contribute as well. Members of a company limited by guarantee do not make initial contributions to the company's capital. Usually the company obtains capital from outside donations, fee payments, charges, or similar sources.

Because of this capital structure, many companies limited by guarantee are charities or non-profit organizations. The company does not owe members any profit distributions, and it can use income and donations for the benefit of its cause or goal. Some people use companies limited by guarantee as foundations or quasi-trusts. The capital structure supports this use because, again, members make no capital contributions. Members can act like a quasi-trustee, while a quasi-settlor contributes assets to the company for management by the members.

Another popular use for companies limited by guarantee is as protectors or enforcers for a Bahamian trust or foundation. Trusts and foundations benefit if a company acts in this role, because if one member dies management of the organization need not grind to a halt due to probate. During the probate process, any decisions a deceased protector or enforcer must make are slowed down or halted altogether. Instead, having a company to make decisions could save the trust or foundation a substantial amount of time and money.

Finally, people often use companies limited by guarantee for reinvestment, in situations when company founders plan to reinvest profits back into the company without distributing profits to members.

To learn more about companies limited by guarantee, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.

About the Author

M. Margaret Gonsalves-Sabola

M. Margaret Gonsalves-Sabola is a civil and commercial litigation attorney and an accredited civil and commercial mediator. Margaret has over 21 years' experience in legal practice in the United Kingdom, Jamaica and The Bahamas.

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