Companies Limited by Shares or Guarantee
A company limited by shares is the most common type of company. If this is the type of RMC is lthe share capital should be limited to one share for each flat in the building. If a flat is held in joint names, there will be a single share in the company. The company’s articles must provide that shares may be held only by someone who owns a flat in the property and that anyone selling it must transfer their share to the person buying it. No other shares may be issued.
The RMC has its own clear and separate identity so it can own property (such as money, land, intellectual property etc) and undertake contracts such as employment contracts and contracts for buying goods. Under ‘limited liability’ it is also responsible for its own debts so when they are incurred in the course of its business, the responsibility of the Directors (and shareholders) is ‘limited’ in that a) they are not responsible for company debts and b) their liability extends only to the ‘stake’ that they have in it.
LIMITED BY GUARANTEE
Like a company limited by shares, a company limited by guarantee also has its own clear and separate legal identity but it can’t be formed by share capital under s5 of the Companies Act 2006. As it doesn’t trade it is unsuitable for commercial enterprise but it is less likely to become insolvent. It is controlled by membership, and is usually used for establishing right to manage companies. It’s members can be issued a non-transferable certificate of membership (which automatically lapses when the unit is sold) making them guarantors, again with ‘limited’ liability for the company’s debts and usually up to a fixed sum of £1. So, should the company be wound up whilst people are still members (or within one year of their ceasing to be a member) their personal liability is guaranteed to that specific amount.
Details of Membership
- Unit holders apply to become members (membership form needed);
- Directors pass (written) resolution to admit unit holder as member. An entry is made in the register of members of the date of cessation of membership and the name of the new member;
- No share certificates are issued but a certificate of membership could be, which would be surrendered for cancellation on sale of the unit. However, there is no legal requirement for a certificate and as the member’s name would have been removed from the register the certificate has no value;
- Usually one member has one vote. Not all articles are clear on this and problems could arise should one member own two units.
- No requirement to submit details of members with annual return (which has been abolished and replaced with the confirmation statement) to Companies House.
There are however exceptions to personal liabiliaty being guaranteed to a fixed sum:
- If the memorandum states their liabilities to be unlimited;
- If they have been guilty of acting in a wrongful way;
- If directors exceed the powers conferred on them by the company Articles they can be liable to recompense from the company for any loss incurred;
- If a director gives a personal guarantee;
- If any director enters into a contract in their own name and not “for and on behalf of”;
- If a director misleads a supplier as to whom the true customer is to be;
- Issues a cheque, upon which the company name is not clearly stated, and which the bank refuses to honour;
- If found guilty of fraudulent or wrongful trading, the court may instruct a director or shadow director to contribute to the assets;
- A person who has been disqualified from acting as a director under the Directors Disqualification Act 1986, or another person who knowingly acts under instruction from that person.
Whilst the company is not prohibited from profit distribution (should it make any) by the Companies Act (or any other law), or it chooses to keep them for use elsewhere, it is commonplace for restrictions to be put on profit distribution in the company’s Articles. These will not only apply to any profits while the company is running but also to the distribution of assets (after paying creditors) should the company be wound up. Sometimes the restrictions are also reinforced by the prevention of payment of salaries or fees to the directors but not all the time.