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Law for Business

Knowhow - guidance - precedents

06 SEP 2012

What company structure? Shares or guarantee - Getting it right from the start

Jordans Ltd

Kathleen O'Reilly, our Head of Internal Legal Services highlights the importance of getting the right corporate structure from the outset. 

Clients often ask if it's possible to change from a guarantee company to a company limited by shares and vice versa.  Unfortunately it is not and this highlights the importance of getting the right company structure for your needs from the start.

Whether your company structure is shares or guarantee is an irreversible decision once the company is incorporated.

"I think people sometimes get confused about this issue because it is possible to play around with share companies to a considerable extent - private companies can become public and vice versa.  Also, private limited companies can become unlimited, " commented Kathleen  "so it's easy to see how this might be seen as a straightforward change too.  Unfortunately, company law does not see it that way!" 

If you realise your company should have been limited by guarantee eg: 

  • it is not being set up to make a profit
  • it is being set up to regularise arrangements e.g. it is a rugby club or golf club and as such the company needs to have the ability to remove members if necessary
  • membership is intended to be personal and not easily transferable

but the company was set up as limited by shares then there is sometimes little you can do but start again.

If that is the case, the organisation would have to set up another company (this time limited by guarantee), transfer the business from the company limited by shares across to the guarantee company and then set up the register of members etc. 

"Sometimes, it may simply be a question of speaking to our experts to see if anything can be done in terms of changing the share rights in the limited company.   If the company is one set up to make a profit then it really should be set up limited by shares.  It might be that solutions to a problem could be achieved by providing enhanced voting rights for some members compared to others."


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