Definition of a Company Limited by Guarantee
A Company Limited by Guarantee, or guarantee company, lacks share capital and possesses liability limited to the individual involvement of each member participating in its operation.
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Definition of Company Limited by Guarantee
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As an "unincorporated business organization that provides limited liability for everyone involved," while permitting them to participate in the company's overall management, companies limited by guarantee provide unprecedented opportunity for its members (Mann, Richard A., Roberts, Barry S., Smith & Roberson's Business Law,13th Edition, 629). It constitutes a "private limited companies" whereby liability remains limited by promises rendered by its participants; hence the term "company limited by guarantee" (SFS, 1). Thus, guarantee companies comprise the category of non-for-profit companies, or charities. Guarantee companies generally serve a profound, philanthropic purpose, serving the community at large through its altruistic endeavor.
Function
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Since a guarantee company lacks share capital, guarantors, instead of shareholders, represent its constituents. Hence the individual, as opposed to the collaborative contributions of a collective group, assumes active participation and promises compensation for its operation. Individuals volunteer to pay when consolidating a guarantee company. This means that in a company limited by each member, each member alone agrees to maintain responsibility for its sustainability.
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Limitation of Liabilities
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Rather than contributing to company profits, as a whole, these individual guarantors automatically ensure the sustainability of guarantee companies. They assume responsibility through their limitation of liabilities. They remain limited to their promise of an agreement. For example, members guarantee to compensate the company, appropriating some marginal sum for its assets, only if by some event, it ceases operation. Consequently, if and/or when the company terminates, these members must reimburse operational expenses, compensating a value which they agreed to pay beforehand as stipulated by contract. A company limited by guarantee prohibits distribution of profits among its members. Therefore, as a non-corporate business, the guarantee company automatically qualifies for charitable status.
The Usefulness of Consolidating a Guarantee Company
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Guarantee Companies represent resourceful not-for-profit organizations. While profits solely serve the company and its purpose of functioning, this limitation in no manner precludes guarantors from aggrandizing enormous affluence.
A Profitable Enterprise
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Despite their reputation as primarily a charitable institution, guarantee companies, to the contrary, frequently return significant dividends. Indeed, a guarantee company typically depends upon the considerable revenue it generates, which likely entails vast profits. The company necessitates profits to survive. Therefore, maximizing profits for the company represents an indispensable condition to facilitate its sustainability.
Contractual Immunity
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Additionally, organizations deciding to a contract sometimes rely on the overwhelming advantage of protection that limited liability often offers for its Board of Trustees and members, whom likely assert voluntary involvement. Such contracts include: Employment Contracts, Real Estate Contracts, Service/Product Transactions and Fundraiser Agreements. For this reason, guarantee companies remain very popular.
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