Companies Act Section 2(21) Company Limited By Guarantee

Company Limited by Guarantee Section 2(21)

A "company limited by guarantee" is a type of company where members' liability is limited to the amount they agree to contribute if the company is wound up. Unlike companies limited by shares, members do not have shares but instead promise to pay a specified amount towards the company's debts.

Key Features:

1. Liability of Members: 

The liability of members in a company limited by guarantee is limited to the amount that each member undertakes to contribute in case of winding up. 

This amount is typically nominal, such as ?1 or ?10, and is stated in the company’s memorandum of association.

2. No Share Capital: 

Companies limited by guarantee do not have a share capital. Instead of shareholders, they have members who act as guarantors. 

These members may include individuals, corporations, or other entities.

3. Non-profit Objective: 

Many companies limited by guarantee are formed for non-profit purposes, such as promoting education, charity, sports, or social welfare. 

They operate under Section 8 of the Companies Act, 2013, and are known as Section 8 companies.

4. Perpetual Succession: 

Like other types of companies, a company limited by guarantee enjoys perpetual succession. 

It continues to exist irrespective of changes in its membership.

5. Governance and Compliance: 

Companies limited by guarantee are governed by the provisions of the Companies Act, 2013, and must comply with regulatory requirements regarding financial reporting, governance, and transparency.

Uses and Applications:

1. Non-profit Organizations: 

Many non-profit organizations, such as societies, clubs, associations, and charitable trusts, choose to register as companies limited by guarantee. 

This structure provides limited liability to members while enabling them to pursue their charitable or social objectives.

2. Professional Bodies: 

Some professional bodies and trade associations operate as companies limited by guarantee. 

They use this structure to manage membership, organize events, and advocate for industry interests while protecting members from personal liability.

3. Educational Institutions: 

Certain educational institutions and research organizations may adopt a company limited by guarantee structure to manage funding, governance, and liability concerns while focusing on educational or research goals.

Legal Framework and Compliance:

Memorandum of Association: 

The memorandum of association of a company limited by guarantee must specify the amount that each member undertakes to contribute in case the company is wound up.

Regulatory Oversight: 

Companies limited by guarantee must adhere to regulatory requirements related to financial reporting, annual filings, and compliance with laws governing non-profit organizations.

Auditing and Governance: 

Depending on the size and scale of operations, companies limited by guarantee may be required to conduct audits of their financial statements and maintain good governance practices.