COMPANY LIMITED BY GUARANTEE (LBG)

A company limited by guarantee is a type of company that does not have a share capital or shareholders. Here are some key things to know:

• Members act as guarantors rather than shareholders. Their liability is limited to a nominal amount stated in the company’s articles (e.g. ZWL1.00).
• Commonly used for non-profit organizations like charities, membership associations, trade bodies, etc.
• Governed similarly to private limited companies with a board of directors/trustees managing the organization.
• Used when the organization does not want profits to be distributed to members. Any funds raised go back into the company’s activities.
• Registration process is the same as a private limited company, but the memorandum of association is structured differently.
• Directors still owe fiduciary duties but members have reduced responsibilities compared to shareholder companies.
• Permitted to carry on commercial activities in line with its charitable/non-profit aims to sustain operations.
• Subject to the same ongoing compliance as private limited companies, including statutory accounting/reporting.

So in summary, it provides a formal structure for non-profit groups without share capital or dividend rights for members. Limited liability is balanced by guarantees.

What are the advantages?

Here are some key advantages of a company limited by guarantee:

• Limited liability – Members’ liability is limited to a nominal amount in the event the company winds up or faces debts.
• Separate legal identity – The company is treated separately from its members/directors for legal and tax purposes.
• Continuity – The company continues existing regardless of changes to members/directors, providing continuity for operations.
• Tax exemption potential – Charities registered by guarantee may qualify for certain tax exemptions.
• Credibility – Operating as a formal company structure can enhance credibility with donors, partners, etc.
• Access funding – Easier to apply for grants/donations that require an established legal entity.
• Distribution rules – Clearer rules around no profits/assets being distributed to members.
• Regulation protection – Duties and liabilities for members are lighter than shareholder regulations.
• Flexible purposes – Suitable for charities, associations, trade bodies, other non-profits and social enterprises.

  So in summary, it combines benefits of incorporation with rules suitable for organizations without profit/dividend objectives.

  Requirements for registering a Company Limited by Guarantee

• Minimum of 1 member (director can also be a member).

• Unique company name.

• Company objects.

• Registered office address in Zimbabwe.

• At least two directors.

• Company secretary.

  Once submitted, company registration usually takes between 25 – 30 working days.