A Company Limited by Guarantee is a public company which is formed to benefit the community. Such companies can be used to promote areas of, commerce, art, science, religion, charity, sport or anything useful.
Non-profit organizations opt to form Limited by guarantee companies.
Main characteristic of this type of company is not having a share capital or shareholders. Instead, it has members who act like guarantors. Guarantors agree to pay a set amount of money towards the companies’ debts. However, they do not have shares in the company.
Following are some of the organizations that are registered under this title:
- Sports Clubs
- Membership Organizations
- Non-Government Organizations (NGO)
- Charities
The companies would not generate much profit. Because its main purpose is serving the community. Shareholders will have no say in the generated profits. Instead, the money is re-invested to support the company’s non-profit objectives. The company would lose its “charity” status if the shareholders shared the profits.
There are many benefits in registering a company under this title. The company is a distinct legal entity. Which means, it functions as a separate unit from its’ owners and starts an export business in Sri Lanka as a foreigner. How this benefits the owner is by protecting their personal finances. The guarantors are responsible for company debts only within the limits guaranteed. The status of “Limited” gets added at the end of the company name. This often earns the trust and confidence amongst clients.
Are there disadvantages of a company limited by guarantee? Yes, it may be more costly than forming a Incorporated association.
Why would a company register as a “Limited liability Company”. Often if a company owner wants to raise and use the money for the sole purpose of promoting the company, he/she could so. The owner would not be using any part of the profits.
Guarantors are the owners of a Limited Liability Company. They will not use the profits for their own personal gain. But will use it to promote the company’s’ objectives.
A Guarantor could be a person or an organization. They should register with registration of companies and displayed in public.
Ideally, a Limited liability company requires there to be two shareholders. You will need at least one Director & one Guarantor. One person could assume both positions. Therefore, you can start a company by yourself. Or you can have many directors and guarantors.
It is ultimately your choice!
Limited Liability Companies fall under two main categories:
Company limited by guarantee having share capital:
Company will start on initial capital or working funds from its’ members. It is only when the operations are under way that the company will use alternate funds. These are capital earned by grants, subscription fees, endowments or any other sources.
Company Limited by guarantee not having share capital:
Such companies do not get the initial capital or working funds from its members. Instead the company raises the necessary funds through other means. They use sources like endowments, subscription fees & grants to collect funds. There are some non-profit organizations that use government grants or public donations.
There is an ugly side to this story as well. We do come across certain unscrupulous people who try to cheat their way in. There is nothing to prevent someone actually sets a charity to make profits.
If that may be the case, it is best to open a company under limited by shares structure.
It is an easy process to open a Company Limited by guarantee in Sri Lanka. The department of the Registrar of Companies in Sri Lanka is the government organization which is responsible in registration of companies.
First you must choose a suitable name for your company and LLC in Bhutan. When doing so, you must remember to choose a company name that is not already registered on the list.
There needs to be two or more shareholders. An application along with the following documents has to be submitted to the Registrar of Companies.
- An article of Associations of the company.
- A consent letter by the initial Director, to act as the Director of the Company.
- A consent letter from the secretary to act as the secretary of the company.
The company requires the following articles:
- the objects of the company.
- the amount of each member’s contribution towards the company in a case of liquidation.
A company Limited by guarantee should comply with the laws in the Corporation Act for public companies. All these companies would generally bear the word “Limited” or Ltd.
Here is a breakdown of official charges that may incur.
A total of 15,000 Sri Lankan Rupees plus Rs.500 for each Director and Secretary.
With facilities such as eRoc in the country, company registration is no more a hassle. You may get lots of information on their official website, drc.gov.lk and check the Sri Lankan economy.
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