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Ltd by guarantee - what happens to profit?

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Client has mistakenly set up Ltd Company by guarantee, rather than shares.  First years accounts to do but how is profit extracted? Presumably dividends are out of the question, and no paye scheme is in place. Going by the bank statements I've been sent client has just drawn money willy nilly so this one will be fun. 

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By David Ex
04th Aug 2021 13:07

You couldn't make it up, could you?!

https://www.1stformations.co.uk/about-companies/company-limited-by-guara...

https://www.gov.uk/limited-company-formation

Limited by guarantee

Limited by guarantee companies are usually ‘not for profit’. This means the company:

is legally separate from the people who run it

has separate finances from your personal ones

has guarantors and a ‘guaranteed amount’

invests profits it makes back into the company

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By thevaliant
04th Aug 2021 13:31

The 'usual' three methods:
Dividend, salary, drawing on loan.

Dividend is out (limited by guarantee); salary seems a non-starter now (though may be possible going forward). So DLA it is, with associated S455 and BIK problem.

Client may have to scrap company and start again.

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Replying to thevaliant:
RLI
By lionofludesch
04th Aug 2021 14:11

thevaliant wrote:

The 'usual' three methods:
Dividend, salary, drawing on loan.

Dividend is out (limited by guarantee); salary seems a non-starter now (though may be possible going forward). So DLA it is, with associated S455 and BIK problem.

Client may have to scrap company and start again.

Alternatively, change the articles. Not sure which would be cheaper.

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Replying to lionofludesch:
By ireallyshouldknowthisbut
04th Aug 2021 18:10

interesting, I didn't know you could do that with this type of company.

Every day is a learning day.

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By ireallyshouldknowthisbut
04th Aug 2021 13:43

I do love a client trying to save £20 and setting up their own company without any advice.

I would think about extending the year end to end of August and make that a single set of accounts whilst giving time to swap into a new co so you only have to pay out for one stat set. Pay out a bonus to cover the profit and drawings etc so no CT. The PAYE scheme should be set up in 3 weeks ish.

Subtly explain the significant extra amount of tax this has cost your client by sating "and with the new co, we will save you £x k per annum compared to your current set up" whilst guffawing behind your hand.

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Replying to ireallyshouldknowthisbut:
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By legerman
04th Aug 2021 15:52

ireallyshouldknowthisbut wrote:

I do love a client trying to save £20 and setting up their own company without any advice.

I would think about extending the year end to end of August and make that a single set of accounts whilst giving time to swap into a new co so you only have to pay out for one stat set. Pay out a bonus to cover the profit and drawings etc so no CT. The PAYE scheme should be set up in 3 weeks ish.

Subtly explain the significant extra amount of tax this has cost your client by sating "and with the new co, we will save you £x k per annum compared to your current set up" whilst guffawing behind your hand.

That's great advice, thank you. Love that last bit.

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By CJS88
04th Aug 2021 16:26

"A company limited by guarantee is not prohibited from distributing its profits by the Companies Act or any other law, but it is commonplace for restrictions to be put on profit distribution in the company's articles."

What do the Articles Say?

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By CJS88
04th Aug 2021 16:26

"A company limited by guarantee is not prohibited from distributing its profits by the Companies Act or any other law, but it is commonplace for restrictions to be put on profit distribution in the company's articles."

What do the Articles Say?

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