what is a company limited by guarantee?
Company Limited by guarantee in Kenya is most often formed by non-profit organizations such as NGO, charitable trust, foundations, sports clubs, workers’ co-operatives and membership organizations, whose owners wish to have the benefit of limited financial liability.
A company limited by guarantee does not have any shares or shareholders (like the more common limited by shares structure) but is owned by guarantors who agree to pay a set amount of money towards company debts.
Furthermore, there will generally be no profits distributed to the guarantors as they will instead be re-invested to help promote the non-profit objectives of the company. If any profits are distributed to the owners, then the company will forfeit its right to apply for a charitable status.
What are the Benefits of Company Limited by Guarantee over other forms of charitable organizations.
A company limited by guarantee is a distinct legal entity from its owners, and is responsible for its own debts.
The personal finances of the company’s guarantors are protected. They will only be responsible for paying company debts up to the amount of their guarantees.
‘Limited’ status builds trust and confidence amongst clients and sponsors – this type of professional credibility is valuable and can help a company achieve its objectives more effectively.
Can own property in its name
The functions of the company are not monitored/regulated by registration bodies.
Takes 30-45 days to be incorporated.
What are the Requirements for Registration
- Proposed names for name search and reservation
- Objectives of the Company
- Address of the proposed company physical location including LR Number
- Photocopy of ID card/passports for the directors/members
- Recent colored passport sized photographs of directors
- Particulars of directors, personal information, occupation. Postal and physical address and contacts
- Pin certificate of directors
Dissolution of Company Limited by Guarantee Kenya
Under the Insolvency Act, companies limited by guarantee can be liquidated voluntarily or by a High Court judgment. According to the Act (Insolvency Act, Second Schedule), the following debts must be paid before all unsecured debts during liquidation:
The liquidator’s fee and any reasonable costs incurred by the person who petitioned the court to liquidate the firm. Expenses include the amount received by the liquidator from the realization of those assets up to the value of that creditor’s unsecured debt, as well as the number of costs incurred by that creditor in protecting, preserving, or recovering those assets for the benefit of the company’s creditors through the payment of money or the provision of an indemnity;
• Any wages or salaries paid to employees (excluding directors and their nominees, relatives, or trustees) in the four months leading up to the start of the liquidation; any holiday pay; any redundancy pay that accrues before or because of the start of the liquidation; any amounts deducted from wages or salaries by the company to satisfy obligations to other persons (including tax), and any reimbursement or payment provided for or ordered by the
Employment in company limited by guarantee in Kenya.
• Unpaid tax deductions under the pay-as-you-earn rules of the Income Tax Act; unpaid non-resident and resident withholding tax deducted under the Income Tax Act; and unpaid Customs and Excise Act duty
In the following circumstances, the following debts must be paid out in priority to certain secured debts:
Liquidation costs (including the liquidator’s fee) take precedence over any claim to assets included in or subject to a floating charge if the company’s assets available for general creditor payment are insufficient (Insolvency Act, Section 473).
. If a company is in liquidation or administration, or a provisional liquidator is appointed, the liquidator, administrator, or provisional liquidator must set aside 20% of the company’s net assets to satisfy any floating charge holders’ (unsecured debts) claims unless the net assets are less than KES 500,000 and the liquidator, administrator, or provisional liquidator is also a trustee (Insolvency Act Section 474).
Do companies limited by guarantee pay tax?
Kenya exempts some non-profit organizations’ income from corporate income tax if they carry out certain activities. In some cases, unrelated business income is taxed. Kenya levies VAT on some purchases of goods and services, while many activities are exempt. Corporate and individual gifts receive relatively modest tax benefits as a result of the tax legislation.
Several non-profit organizations have become corporations, with the members’ guarantees limiting their responsibility. According to the Kenyan Companies Act , a company limited by guarantee must be formed without share capital, the members’ liability must be limited by the articles to a specific amount (usually a nominal amount) that the members agree to contribute to the company’s assets in the event of a liquidation, and the company’s certificate of incorporation must state that it is a company limited by guarantee.
A limited-by-guarantee company cannot be a private corporation (Kenyan Companies Act Section 9). A company limited by guarantee does not meet Section 10 of the Companies Act since it is unable to hold share capital.
What is different about a company limited by guarantee?
If a charity, community project, club, or other organization is not structured as a limited liability company, its leaders (usually the management committee, etc.) may be held personally accountable for the group’s unpaid debts. This is a really dangerous situation. Large firms with difficult-to-discharge debts can be found with charities, community groups, sports clubs, and other organizations.
They may have rented premises, hired personnel, and purchased equipment, among other things. If a charity or other organization’s income falls short of its outgoings, it may become bankrupt, and those in charge (but not the general public) may face personal liability.
A company, on the other hand, is a separate legal entity that is liable for its debts, not its owners or operators. In a company limited by shares, the shareholders’ liability is restricted to the amount they agreed to pay for their shares.
Liability in limited by guarantee company in Kenya.
Liability is limited in a limited-by-guarantee company to the amount of the guarantee provided in the articles of incorporation, which is usually just £1.
In both a company limited by shares and a company limited by guarantee, the people running the company (the directors) will only be personally accountable for the firm’s liabilities if they have been guilty of some misconduct, such as illegal or fraudulent trading. Here are the differences;
• There are no shareholders in a company limited by guarantee, but it must have one or more members. Members will be able to vote and attend general meetings, subject to any specific provisions in the company’s articles, and will, in most cases, have complete authority over the company, including the ability to appoint and remove directors. This is how many clubs function. At the Annual General Meeting, members elect a committee to govern the club on their behalf, according to the club’s constitution’s regulations. If the club is a corporation, the same restrictions apply, and they are spelled out in the articles of incorporation.
private company in limited by guarantee Kenya
• As a private company, a limited by guarantee must have at least one director. They can be found in almost any guarantee company. A committee, management committee, board of managers, trustees, governors, and other similar words are used to describe the board of directors. Regardless of their titles, they are law directors of that corporation.
They are in law directors of the company if they are in charge of the company on daily basis. Their authority is determined by the articles of incorporation; however, they are typically granted broad managerial responsibilities. When the board of directors meets and passes resolutions for the management of the company, they are given these powers jointly, just like in a corporation limited by shares. They can, of course, create sub-committees and delegate authority to them, as well as assign specific responsibilities to certain directors, such as treasurer or membership secretary.
Some, if not all, of the directors of individual enterprises, may be chosen by one or more outside organizations supporting the initiative, such as charities or local governments. Special interest organizations may appoint certain directors.
company limited by guarantee business
To fund its activities, a guaranteed business can borrow money and issue debentures or debenture (loan) shares. Because there are no shareholders, it is not feasible to own a firm limited by guarantee in the same way that a corporation with share capital is owned by its shareholders.
Members of a guarantee company have the same control as stockholders, but they do not own any shares or other securities in the company that they can sell.
Although profit distribution limits are frequently incorporated in the articles of formation, the Companies Act or any other legislation does not prevent a limited-by-guarantee company from sharing its profits.
These limitations often apply to earnings generated while the company is open for operation, as well as asset distribution after creditors have been paid. A prohibition on transmitting any revenue or fees to the directors may reinforce these limits in some cases, but not always.
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