Concept of Company Limited by Shares and Guarantee 

by  Adv. Rupa K.N  

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Company limited by shares & guarantee

Introduction

  • The characteristics of a company are not specified under the Companies Act. Any company that is incorporated under this Act or under earlier company law is considered to be a company, according to Section 2(20) of the Companies Act, 2013.  
  • However, the Act’s definition of “business” does not provide it a precise definition. The concept of a company limited by shares & guarantees is provided under the Companies Act 2013(which is discussed in detail further). A private limited company can be incorporated as a company limited by shares & guarantees. 

What is a Company?

A group of people can form a legal entity called a corporation to run and manage a commercial or industrial business. A corporation may be set up in a variety of ways for tax and financial liability reasons depending on the corporate law of its jurisdiction. It could be as a company limited by shares & guarantees.

For this purpose, we might refer to Lord Justice Lindley’s definition, which states that “a company is an association of several persons engaged in some trade or activity and contributing money or money’s worth to a common stock who share the profit and loss deriving therefrom.

There are basically two major types of companies usually incorporated by the business houses, that is, a company limited by shares & guarantees. The capital of the Company is represented by the Common Stock provided.

Members are those who contribute to it or to whom it is relevant. Each member’s share is the amount of capital to which they are each entitled. Even if the right to transfer is frequently somewhat restricted, shares can always be transferred. Always seek online legal advice to incorporate a company. 

Businesses may be incorporated as companies limited by shares & guarantees. They may also be incorporated as private or public companies. A limited liability business can be further broken down into the category as-.

  • Company limited by shares & guarantee.
  • Company with share capital that is restricted by guarantee.
  • Unlimited Company

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What are the Companies limited by shares & guarantees?

A company that does not have a share capital is known as a company limited by guarantee. Profits are reinvested after being earned. This firm has a distinct status or legal identity, so operations like purchasing and selling property, hiring employees, borrowing money, and defending legal actions can be done in its name. It also means that the members are shielded from being held personally accountable for debts incurred over the course of the Company’s operations.

The most common legal structure for nonprofit organizations, charitable societies, clubs, and other groups of a like nature is a company limited by shares & guarantees.

The Companies Act of 2013 defines companies limited by shares in Section 2(22). According to corporations limited by shares, the members’ liability is capped by the memorandum at the amount that is, if any, still owed on the shares that they each own. 

In a business limited by shares, no member may be asked to contribute more than the nominal value of the shares he now owns. The shareholder has no further obligations once his shares have been paid in full. 

However, in the event of partially paid shares, the unpaid half is payable whenever the business is still in existence on a call being made, regardless of whether the firm is still operating or is being wound up.

Therefore, these are the two most prominent types of companies, i.e., companies limited by shares & guarantees that are generally used in India to kick-start any type of business. 

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What are the reasons for opting for a company limited by shares & guarantees?

There are numerous reasons to go for a company limited by shares & guarantees. Some of the reasons are- 

  • Limited liability– The basic reason for incorporating a company limited by shares & guarantee is limited liability. If a community project, charity, or nonprofit endeavor is not registered as a limited corporation, its administrators—for instance, the managing committee—may be held personally accountable for any outstanding obligations. Because certain community groups may be institutions whose responsibilities can’t be readily eliminated, there could be a significant risk. 
  • No taxes on profit– In the case of a company limited by shares & guarantees, a stakeholder in such a corporation is in a better position because any income that arises from the shares in the form of dividends is not subject to tax. Additionally, because limited firms only pay taxes on their profits, they are not subject to the higher tax rates that are often imposed on sole proprietors or partnerships.
  • Separate entity– Another important aspect of incorporating a company limited by shares & guarantees is a separate entity. The restricted firm is seen as existing independently of its owners. As a result, the Company benefits from lasting past the lives of its members.

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Conclusion 

As a result, several business types and their operations. Each is unique and important. Every business is essential to global development. Therefore the conclusion that The Companies Act, 2013, is very significant since it sets boundaries for corporations so that their legal purview is preserved. 

This limited scope eventually benefits the end users because the enterprises must operate inside a legal framework. As a result, these companies continue to run within a set boundary and do not overstep their bounds. Take advice from a Business Lawyer for choosing the right type of company. 

A corporation, a legal entity used to conduct and administer commercial or industrial business operations, can be formed by a group of persons. The business lines of an organization rely on its structure, which can be a corporation in the form of a company limited by shares & guarantees.

Either public or private companies in the form of companies limited by shares & guarantees can exist; the former distributes equity to shareholders on a stock exchange, whereas the latter is privately held and unregulated. A firm is typically set up to make money by running its operations.

Doing business is a very easy process in India. An entrepreneur may register the company as a company limited by shares & guarantee. To know more about the process of incorporating a company take advice from a Legal Expert.

Adv. Rupa K.N

Adv. Rupa K.N

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Advocate Rupa K.N, with over 24 years of independent practice, specialises in providing legal expertise, advice and guidance to a broad range of customers. Having been practising law independently for several years after doing her B.A. LLB from Bangalore University and PGDM from the National Institute of Personnel Management.

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