Limited by Shares and Limited by Guarantee companies
What is a limited by shares company? This is the most common type of company. The company has a share capital – which is the ownership of the company. The share capital is divided into shares which are owned by shareholders. Shares equate to ownership of the company, but they can also come with additional rights – such as the right to vote on matters affecting the running of the company and the right to receive a share of the profits (as a dividend).
As the name suggest, if you are a shareholder of a company limited by shares your liability to the company is limited to the amount paid or due to be paid for those shares.
A limited by shares company must have a minimum of one share and one shareholder, which means you can set up and own this type of company by yourself, or divide the shares among multiple shareholders (e.g. by issuing new shares).
What is a limited by guarantee company? Limited by guarantee (“LBG”) companies are set up without share capital. So there are no shares or shareholders. Instead, the company has members who guarantee to to pay a fixed sum of money (a ‘guarantee’) toward debts if the business becomes insolvent. Membership does not equate to ownership of the company, but members can have the right to vote on matters affecting the running of the company. There is no right to receive e a share of the profits. Instead the money is usually re-invested.
As the name suggest, if you are a member of an LBG company your liability to the company is limited to your personal liability as a guarantor of the company.
An LBG company must have a minimum of one guarantor/ member.
What are the main differences between limited by shares and limited by guarantee companies? The main difference is the right of ownership for limited by shares companies, but not LBG. With that comes (usually) a much higher cost of being a member (or shareholder) of a limited by share company, rather than a member (or guarantor) of an LBG.
Limited by share companies are better suited for commercial enterprises. Not least because the company can use it shares as a way to raise money, and the value of the company is of real importance. LBG companies are more suitable for non-profit business – such as clubs, associations, and property management companies (RTMs and RMCs). You can use an LBG company for commercial business, but limited by shares is often more beneficial for that purpose.
What is more common? Limited by share companies – because they are far more common for commercial businesses, and there are a lot of them!
Can I use Kudocs to create or run these types of company? Yes. Kudocs supports limited by share and LBG companies. You can add existing companies with these structures or incorporate new one using the system.