Can a limited by guarantee company be run for profit?

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Good afternoon, I’ve got a query about limited by guarantee companies. Everything I’ve seen suggests that a limited by guarantee company is the correct (or at least most suitable) company structure for my new venture, which is a table tennis school. Sports societies and academies both seem to fall under the limited by guarantee category. That being said, I’m not trying to start a charity. This business will be my livelihood, and I’d like to make some money through running it. But so many charities are limited by guarantee companies that it has got me wondering: am I allowed to run a limited by guarantee company for profit?

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Answers

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A limited by guarantee company is not exclusively used by non-profit enterprises and charities - it is perfectly acceptable to set up this type of company for a profit-making venture and keep some, or all, of the surplus income for personal use by paying yourself a director’s salary.

The only thing to be aware of is the fact that this type of company does not have any shares or shareholders. This means:

  1. You will be a guarantor, not a shareholder.
  2. You will have to guarantee a certain amount of money to the company in the event of insolvency.
  3. You will not be able to sell shares in the company because a limited by guarantee company does not have a share structure. As a result, it will not be as easy to bring in equity investors because there won’t be any ‘shares’ to sell.
  4. You will not be able to pay yourself shareholder dividends, so you will have to pay Income Tax and National Insurance on all profits removed as personal income.

Before making any decisions, you may wish to consider setting up a company limited by shares. It could be more tax-efficient for removing money for personal use, and you would also have the option of selling shares in exchange for capital investment if you ever wanted to expand the business.

a year ago
 

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