Company Limited by Shares Vs Company Limited by Guarantee
A company limited by its shares
A company limited by its shares is the most common form one will see when trading and doing business. This form of company’s liability is limited to the value of the shares. What this means is that the capital of the company is broken down into shares that are owned by the investors (also known as “shareholders”). If the company successfully turns a profit, then the shareholders receive a dividend of money from the company. If the company suffers a loss, the shareholders, at most, will lose their investments in the shares of the company.
A company limited by guarantee
A company limited by guarantee are used mainly for non-profit organizations that require some sort of legal personality. Instead of being limited by capital, its limited by guarantee. This means that the parties involved are guarantee members and not shareholders. Instead of investing capital, members agree to invest a predetermined sum to cover its liabilities if the company ends up in trouble. The advantages to this kind of company is a fixed liability, whereas the disadvantages lie in the profits. Profits cannot be distributed and working capital will be very limited.
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