Difference between company limited by guarantee and incorporated trustee
Difference between company limited by guarantee and incorporated trustee
In this post we explain the difference between company limited by guarantee and incorporated trustee. If you want to register an NGO, foundation, charity, or social enterprise in Nigeria, then you’ve got two options:
- Company Limited by Guarantee
- Incorporated Trustees
What is a Company Limited by Guarantee?
A company limited by guarantee has no share capital, hence there are no shareholders (unlike a private company limited by shares). Instead, the “owners” of the company are called guarantors.
Are guarantors financially liable to the company?
Yes, but a guarantor’s financial liability is only limited to the amount that they guarantee to the company.
Is a company limited by guarantee a for-profit company or a non-profit company?
Although this entity tends to be utilised more for non-profits, a company limited by guarantee can be either a for-profit company or a not-for-profit.
For example, a social enterprise is a company which reinvests its surpluses in its social objectives instead of profit maximisation. Such companies are usually registered as companies limited by guarantee.
What is a guarantee?
A guarantee is a fixed sum of money that a guarantor must pay when setting up the company. It serves as a form of assurance that certain conditions will be met. For example, if the company becomes insolvent or breaks a certain law, then the guarantors must pay the guarantee.
What kinds of companies are set up as a company limited by guarantee?
This is a popular choice for nonprofits such as charities, community projects, clubs, and societies. The following companies are set up as companies limited by guarantee:
- Professional Golfers’ Association (PGA) European Tour
- Oxfam
- UKIP (UK Independence Party)
- Social enterprises ie Toms Shoes
Why should I setup a company limited by guarantee?
Establishing a company as a company limited by guarantee protects the people running the company (guarantors) from personal liability for the company’s debts. It also allows the founders (guarantors) to operate a social enterprise or a not-for-profit.
Keep in mind that a company limited by guarantee is probably the least popular entity in terms of total registrations in Nigeria.
Why shouldn’t I setup a company limited by guarantee?
Companies limited by Guarantee require the consent of the Attorney General. Hence, the rules governing companies limited by guarantee are more strict.
What is an Incorporated Trustee?
An incorporated trustee is another type of NGO formed under the protection of a set of people known as trustees. If you just want to setup a non-profit, this is your best option!
The NGO’s assets are placed under the trust and confidence of these trustees for carrying out the aims and objects of the company.
What is a trustee?
Unlike a shareholder, a trustee does not earn a profit from the NGO. The trustee’s main objective is to promote the welfare, objectives, and aims of the NGO.
Are trustee financially liable?
Registration of I.T. confers the incorporation status on the trustees, so they can be sued, instead of the incorporated entity. (Company limited by guarantee is only liable up to the amount put up by the guarantors).
What is an example of an Incorporated Trustee?
All religious institutions in Nigeria are registered as an Incorporated Trustees: Churches, mosques, synagogues, temples, and other places of worship. While the priests, imams, rabbis, and pastors serve as the trustees of their respective NGOs.
This is also a popular choice for clubs, organisations, foundations, and associations of all kinds.
Conclusion
If you want to register an non-profit, we recommend setting up as an Incorporated Trustee. It’s easier and the governing rules are less stringent.
If you want to register as a for-profit, we recommend setting up as a private company limited by shares.
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Originally published at www.legalforms.ng on July 18, 2016.
