Essential tips for establishing a company limited by guarantee in Africa
In Africa, a company limited by guarantee is a type of corporation used primarily (but not exclusively) for non-profit organizations that require legal personality. It does not usually have a share capital or shareholders, but instead has members who act as guarantors of the company’s liabilities. Each member undertakes to contribute an amount specified in the articles (typically very small) in the event of insolvency or of the winding up of the company.
Registering a company limited by guarantee in Africa is beneficial. Most jurisdictions in Africa allow for multiple members (owners) for the company. Besides that, the company is separate from its members (owners) because they are protected by limited liability. Meaning the company becomes responsible for all financial outcomes and not its members.
Therefore, members are omitted from being legally responsible for any company debts irrespective of the nominal value of their shares. However, it is essential to note that being limited by guarantee does not shield the management committee or its members from carelessness, inappropriate or dishonest behaviour, or failure to comply with legal obligations (such as service legislation).
What exactly is the meaning of a business limited by guarantee?
The definition of a business limited by guarantee
An incorporated establishment is a firm restricted by guarantee. This indicates that it has gone through the registration procedure that changes a new or existing business into a corporate body; transforming it into a legal entity.
Non-profit organizations, frequently incorporate companies limited by guarantee to benefit from restricted financial liability. Besides that, A business limited by guarantee does not have any shares or shareholders (unlike a company limited by shares). Instead it is owned by guarantors who promise to pay a specified sum toward the firm’s obligations.
Furthermore, revenues will typically not be transferred to the guarantors since they will be re-invested in the firm to promote the company’s non-profit aims. If any payments are paid to the owners, the company’s ability to qualify for charity status is forfeited.
Now that you have the basics of a business limited by guarantee, here are the different types of companies limited by guarantee.
Types of company Limited by guarantee
There are two types of guarantee corporations or firms limited by guarantee.
- A corporation founded with a share capital that is restricted by guarantee
such organizations are founded by acts with some initial capital or working funds from its members. It is due to the lack of early working resources from grants, subscriptions, fees, endowments, or other sources,
Standard operational revenues can be earned when the firm is up and running through fees, charges, and subscriptions charged for services provided. In a guarantee firm with share capital, the voting power is determined by the ownership.
2. A corporation founded without a share capital that is restricted by guarantee
Members of such guarantee firms do not provide start-up capital or working capital. Instead, the organization raises working capital through various sources such as endowments, grants, subscriptions, and fees, among others.
Non-profit organizations or philanthropic institutions, for example, are often funded by public donations or government subsidies. The guarantee determines the voting power of a guaranteed firm that does not have a share capital.
With this understanding of the different types of a company limited by guarantee, it is time to look into forming such an entity.
Forming a company limited by guarantee in Africa
Because we assign an expert to manage such processes, it is simple to set up a business limited by guarantee with abc expat. Before seeking to form a limited corporation, you should familiarize yourself with the following rules and regulations:
- All limited-by-guarantee corporations must be registered with the appropriate company house, such as Kenya’s Registrar of Companies, Uganda’s registrar of companies, and others, each with its requirements.
- At least one director and one guarantor are required for a corporation limited by guarantee. A single individual can serve as both director and guarantor, or there might be numerous directors and guarantors.
- All limited companies must provide a physical address. It should be as the registered office address in the country (jurisdiction) where your company is registered.
- In the nation (jurisdiction) where your company is incorporated, all limited companies must furnish a physical location. It will be used as the registered office address.
- SIC (Standard Industrial Classification) codes must be provided. These codes explain the nature of your company’s trade activity
- The business should supply information on the business’s People with Significant Control (PSCs). PSCs are usually the directors and guarantors.
- A memorandum of association and articles of association are required for all registered businesses. Each owner (guarantor) is included in the directive and agreement to form the firm and become a member. The articles lay forth the norms and restrictions that the business must adhere to. Companies House provides the memorandum, while 1st Formations provides the papers (or your company formation agent).
There are many different types of companies you can establish in Africa, and each have their various benefits. Here are the benefits of a company limited by liability.
Features and Benefits
A corporation limited by guarantee is a legal entity apart from its owner/guarantor. Hence, the corporation is individually liable for its obligations; guarantors are not personally responsible for any of its debts.
As a result, their assets are safeguarded. They are solely obligated to pay the agreed-upon sum as per their guarantee in the case of the company’s insolvency.
A guarantor can be any individual or corporate organization. The good thing is, to get started, you only need one director and one guarantor. A single individual may have many positions, making it simple for anybody to start a business. Multiple directors and guarantors, on the other hand, are permitted!
Besides that, a company limited by guarantee is typically formed for non-profit purposes. The suffix “limited” must be in the name of a limited liability corporation. Clients and investors are given a sense of trust when they hear this word.
Likewise, a company limited by guarantee can possess property in the name of the corporation. It also has the authority to enter contracts (e.g., service delivery agreements, grant terms, and conditions) in the company’s name.
Most importantly, such a business should follow additional legal obligations (e.g., corporate law); and Limited liability as stipulated in its respective jurisdiction.
To summarize, guarantee companies are frequently utilized for social businesses. Some include charities, clubs, sports groups, membership organizations, non-governmental organizations (NGOs), and others.
They are primarily founded to provide public services with no goal of profit.
Should you have any question on the above article, please do not hesitate to contact me via email at email@example.com