I have a client who registered a company limited by guarantee and not shares. She is now regretting that decision! I know its not possible to change the type of company however what about paying dividends?
I understand that dividends are paid to shareholders and profits are distributed to members in a guarantee company however what is the procedure for distributing profits? Does it have to be the total net profit? and is it treated the same as dividends in the hand of the members with the 10% tax credit attached?
Can anyone shed some light on this?
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See my article on this very subject....
I wrote an article on Companies Limited by Guarantee - see link below...
https://www.accountingweb.co.uk/article/companies-limited-guarantee-get-it-right/517844
... it details the differences between companies limited by shares and those limited by guarantee and under the section headed 'Distributing profits/commercial status' it states:
' As there are no shares any company profits cannot be distributed to the members as dividends'
and...
'Payments to board members can only be as remuneration (unless repayment of expenses only) and not dividend'
Read the article - you will find the answers to your questions there
Much appreciated!
I wrote an article on Companies Limited by Guarantee - see link below...
https://www.accountingweb.co.uk/article/companies-limited-guarantee-get-it-right/517844
Thanks very much for this. I'm glad that I'm not the only one struggling to get to grips with this type of limited company!
To echo the second contributor, you're articles should be more easily available on AW.
@Jennifer
Jennifer. Any chance you might speak to those nice people at AWeb and get them to post another link to all your articles, or better get it put on your profile.
I often come across issues where I know you've written an article, but I never seem to be able to find the bally thing.
Ta muchly.
JAADAMS' articles
I find it rather patronising to be constantly referred to an article she has written, particularly when she gives a misleading extract from that article. Under her heading 'Distributing profits/commercial status', there is also a paragraph:
"The articles usually include a clause prohibiting distribution of surplus profits but rather to reinvest them such that all profits are applied to the purpose for which the company was established."
I am not sure what 'surplus' profits are, but in the absence of such a clause in the Articles, there is nothing to prevent a guarantee company distributing some or all of its profitsafter tax to its members. Such distributions of profits are treated for tax purposes in the same way as (share) dividends under s.19(2)(a) ITA 2007 and s.383 ITTOIA 2005.
Agreed
JAADAMS' first reply to this question is surely entirely misleading when it says: As there are no shares any company profits cannot be distributed to the members as dividends' .
As EM points out, profits can still be distributed to members and the effect will be the same as if thy had received dividends on shares.
They have given me my own Tag - fame at last eh!
If you go on to the front page of the site on the RHS under the section headed 'Tags' click on the word 'More' and you will find all the Tags in one place - see link below...
https://www.accountingweb.co.uk/tagadelic/chunk/1
In the middle 3rd line down you will see my name 'Jennifer Adams' - click on that and there you will find all my articles in one place but only the articles - my other pearls of wisdom such as replies to Any Answers are not included.
See here...https://www.accountingweb.co.uk/category/tags/jennifer-adams
I do try and show links to any articles that I feel might be of relevance to an Any Answers question but I will ask John to do as you suggest and place a link/Tag under my profile.
With respect chaps...
... the articles are provided to us freely, and it is inevitable that one might spot faults, that one can comment on under the article, and which generally then gets updated in the text. I also don't see any harm in a little name only self promotion (but please lay off the 101 Property Tips Jennifer).
Neither is this particular article all that misleading:
It is the case (Euan) that the articles of a company limited by guarantee will usually provide that surpluses/profits can't be distributed, because companies limited by guarantee are usually used for non-profit making purposes.It is also the case (Henry) that companies limited by guarantee cannot distribute its profits as dividends. It's dividends that are taxed as distributions, rather than the other way round.
It's fairly well known, I think, that I am averse to using any answers to completely fail to provide a response of any use, purely for the purposes of self-promotion for profit, which isn't what has happened here (although I'm sure that Sift do pay Jennifer for her articles, although I imagine not on a pay per view basis).
Oh and by the way, it's me that's supposed to be the miserable git!
With all due respect, George
I did not say that the article was misleading, but that her extract from it:
' As there are no shares any company profits cannot be distributed to the members as dividends'
and...
'Payments to board members can only be as remuneration (unless repayment of expenses only) and not dividend'
was misleading, because it gave the impression that profits cannot be distributed to the members of a guarantee company.
Having followed her instructions to read the article itself, I quoted the paragraph which she omitted because not only do I agree with it (other than I do not know what surplus profits may be and judging by your attempt to restate it as 'surpluses/profits', neither do you), but I used it to explain to the OP that in the absence of a ban in the Articles (which I agree is unusual, but why would someone set up a trading company with such a ban), profits can indeed be distributed to the members. Indeed, I believe that I am the only person to have answered the OP's questions and that Henry reinforced my answer. Your criticisms of us are misplaced.
Apologies
I had missed the point of your objection.
Very good use of "with all due respect" by the way! :)
I'm a bit hurt that you think I'm being 'self promoting'...
... but I read questions under 'Any Answers' the answers to which can sometimes be found under one of my articles. Rather than giving a short answer I direct the questioner to the article in case the text can answer any additional queries and it also places the subject in context. Plus it is dangerous to give just a short comment as an answer (as you can see!)
If you do a review of the questions asked under 'Any Answers' (as I invariably do to try to find the subject for a potential article) you will see that the same subject headings keep appearing. I have therefore made a schedule of the more popular subject headings and then I try to write an article under those headings but even so the same questions keep appearing. This means that my articles are not being read (possibly because they cannot easily be found?). Hence the reason for the redirection and TAG.
Choosing the subject matter of an article takes a long time as does the writing of an article - they are not written in five minutes and I do spend time checking that the sections quoted of any relevant Act are correct.
AWeb found that queries on corporate governance were increasingly being asked so being an FCIS (sorry Euan - I'm 'self promoting' here!) I was asked to write the articles.
I am not employed by AWeb - I write on a freelance basis (Butterworths, Tolleys, ICSA, Sage and yes... all of the Tax Insider publications for example).
'Self promoting' over!
Thank you, George
You evidently inferred what I may have been implying, but I could not possibly comment further! :¬)
JAADAMS - It wasn't me who said you were self-promoting, but I don't mind taking some flak for George!