Converting From a Limited By Guarantee Company To a Limited By Shares Company
The majority of UK based companies are set up as limited by shares, however, some are set up as limited by guarantee, for example, charities are limited by guarantee. But what happens if the company has a change in direction and wants to change from one set up to another? Before going too far into this, let’s first look at the main differences between the two set ups.
Companies limited by shares
These are usually set up with the intention of making a profit and are considered as their own separate legal entity.
Companies limited by shares have shareholders and can retain any profits made after tax and paying dividends.
Companies limited by guarantee
These are also considered as being their own legal entity, however, they are normally set up as “not for profit” with the key differences being:
- They have guarantors and a “guaranteed amount” rather than shareholders and shares
- Any profits are put back into the company rather than being used as dividend payments
Why would I need to change from limited by guarantee to limited by shares?
Before registering your company, you need to decide on the structure you are going to be using. As a rule, this is the structure your company will always be operating under. But what happens if you need to change that?
For example, if your charity needs a new source of funding and the investor expects to be paid dividends. A limited by guarantee company cannot do this, so you might need to restructure.
Can I convert a limited by guarantee company to a limited by shares company?
There is no specific legal process which allows this to happen, however, you can set up a new company which is limited by shares and then transfer across any assets before closing the limited by guarantee company.
Step 1 - Incorporate the limited by shares company
As well as registering the new company, you will also have to register for Corporation Tax, PAYE (if applicable), self-assessment and VAT (if applicable).
Normally, a lot of thought goes into choosing a company name. However, if you want to continue to use the old name of your company, you will have to choose a placeholder name and then change it after the company limited by guarantee has been closed.
Step 2 - Transfer of assets
There are various ways that you can transfer assets between companies, but there can be certain forms of taxation you will need to take into account. Therefore it is best practice to speak to a professional before embarking on anything here.
Step 3 - Close the old company
This can be done through voluntary strike off which essentially removes the company from the register of companies. To meet the criteria for voluntary strike off, a company must not:
- Have traded or sold stock in the last 3 months
- Have changed names in the last 3 months
- Be threatened with liquidation
- Have agreements with creditors
If the company meets these criteria, it can proceed with closing down by ensuring that: tax and debt liabilities have been dealt with, employees have been moved over to the new company, final accounts have been submitted, and a final tax return has been submitted to HMRC and Companies House.
Once all of this has been done, the company needs to fill out and submit Form DS01. This must be signed by a majority of the company directors. A copy of the application must be sent to anyone who could be affected within 7 days. This includes:
- Managers or trustees of any employee pension fund
- Any directors who did not sign the application form
If there are no objections after 2 months, the company will be officially struck off the register.
Step 4 - Change the name of the new company
The new company can only use the name associated with the old company once it has been struck off the register.
To change the company name, a special resolution must be passed by the directors before filling in and submitting Form NM01. If the articles of association allow, the name can be changed without needing a special resolution. In this case, Form NM04 needs to be filled in and submitted by post (you cannot submit this online)
And that, as they say, is that
Congratulations, you now have a company that is limited by shares rather than a company limited by guarantee.
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