Company Limited by guarantee

Company Limited by guarantee

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Does anyone know whether a company limited by guarantee qualifies for BPR for IHT purposes?

The scenario is that the company was a sports club but is going to be used for trading purposes going forward. It has one member who is entitled to profits and is therefore akin to a limited company. As it doesn't have share capital presumably no ltd company BPR so does it qualify as a business? It would seem logical that if it trades commercially and is profitable it should qualify but I am having difficulty finding anything in the legislation/case law to support this.
Rachel Horner

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By martinfoley07
02nd Sep 2008 14:14

Rachel, .......
Fascinated to know what the good reasons are - presumably relate to the tax consequences of transferring out assets from the company.

The individual clearly has rights as a member of the incorporated entity - whether the definitions in IHT legislation that you quote cover that as being sufficient for securities I am not clear !! Sounds a somewhat bizarre state of affairs if not, but tax law is littered with bizarre states of affairs. Interesting conundrum, sorry I can't answer it.

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By User deleted
02nd Sep 2008 13:56

BPR and company limited by guarantee
BPR applies to shares or securities in a trading company or unincorporated businesses - here we are incorporated but don't have shares which is why we are uncertain on this point. The meaning of securities is as follows:

shares in any body corporate (wherever incorporated) or in any unincorporated body constituted under the law of a country or territory outside the United Kingdom,

∙ debentures, debenture stock, loan stock, bonds, certificates of deposit and other instruments creating or acknowledging indebtedness,

∙ warrants and other instruments entitling their holders to subscribe for securities (whether or not in existence or identifiable),

∙ certificates and other instruments conferring rights in respect of securities held by persons on whom the rights are conferred and the transfer of which may be effected without the consent of those persons,

so I am wondering if this covers us?

There are good reasons for continuing to use this vehicle and for using it in this way although a lack of BPR may change our view on this.

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By martinfoley07
02nd Sep 2008 13:44

that said ......
....I have not had to deal with situation where BPR is being claimed on company limited by guarantee, so cannot answer OP. Does IHT legislation differentiate between company limited by share cap vs company limited by guarantee at all? Does it specify somewhere that BPR applies solely to company limited by share capital?

But it begs the question as to how / why this situation is coming about. As ever, devil could be in detail not revealed in OP.
Why is the legal entity formed for a sports club being "hi-jacked" by its sole remaining member who wishes to convert it to a trading business?

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By martinfoley07
02nd Sep 2008 13:29

great urban myths continued.....
....and this one is especially hard to eliminate!!
There is NO statutory limitation on a company limited by guarantee as regards distributing profits to its members. None whatsoever.

The only difference between a company limited by share capital and a company limited by guarantee is what it says on the tin.

(it is true that many companies limited by guarantee voluntarily limit their ability to distribute profits to members, through restrictive Mem and Arts or other means, but it is a purely voluntary matter, not one imposed by law).

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By jamesbailey
02nd Sep 2008 13:11

Problems with Guarantee Company
Before you start to worry about BPR, I think you need to consider whether a company limited by guarantee is the best vehicle for the job.

Such a company cannot distribute its profits to its members, so I am confused by your remark that "it has one member who is entitled to profits".

James Bailey

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