Stewartry CVS

Voluntary Association or Company Limited by Guarantee?

The decision on whether your group/organisation should become a company limited by guarantee will depend on the nature and scale of your operations. If your organisation is about to enter into a large building contract, the question of possible personal liability should be considered, and you would be wise to consider the options of limited company structures. Your organisation may have to take on longer-term commitments (e.g. a 10 year lease from a commercial landlord) or now has a substantial number of employees. In these circumstances where the responsibilties are rising and it is less easy to protect against unforeseen problems, it would be advisable for the management committee to consider a move towards a company limited by guarantee as their organisational structure.

Advantages of being a company limited by guarantee

limited liability - as part of the memorandum of association (part of the company's constitution) each of the members guarantees to pay up to a nominal sum (normally £1) towards the company's debts if it goes into liquidation. The members' liability is therefore limited to the sum which they guarantee to pay, hence the name "company limited by guarantee"
the company is a clear legal entity, separate from the people involved in it and can therefore hold property, enter into leases and other contracts, employ people, etc in its own name.
a company is generally regarded by funding bodies and public agencies as a more stable and professional structure than a voluntary association

Disadvantages of being a company limited by guarantee

there are formal registration procedures to be follow to create a company
(in addition to applying to be recognised as a charity, if charitable status is needed)
there is an ongoing requirement to notify a change in directors, a change in the company secretary, or a change in the registered office, to a public register . Also, annual accounts and annual returns have to be filed with Companies House
there are various statutory requirements which have to be followed in relation to members' meetings etc and the principles of company law which could in certain circumstances have an impact on the company
a company structure is more intimidating for those considering whether to join as members or put themselves forward for election to the board of directors
set up costs can be higher than for a voluntary association or trust and annual costs tend to be higher because of the need to comply with company secretarial requirements and the additional matters to be covered in the formal audit (if applicable)

At Stewartry CVS we have years of collective experience to help guide you through the decisions, discussions and processes that are an essential part of company formation. For an overview on becoming a company limited by guarantee please download this guide.

Links to sources of additional information can be found on our advice links page

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Stewartry Council of Voluntary Service