What is the Difference Between Companies Limited by Shares and Companies Limited by Guarantee?

The main difference between companies limited by shares and companies limited by guarantee lies in their purpose, ownership structure, and profit distribution. Here are the key differences:

Companies Limited by Shares:

• Aimed at profit-making and distribution to shareholders.
• Ownership can be easily transferred through the buying and selling of shares.
• Shareholders may have a say in the company's management, depending on their level of shareholding.
• Suitable for businesses aiming to make a profit and potentially expand or go public.
• Can raise capital through the sale of shares.

Companies Limited by Guarantee:

• Generally not-for-profit, with any surplus funds reinvested.
• Do not have shareholders or shares; instead, they have members who act as guarantors.
• Liability is limited to the amount members agree to contribute upon dissolution.
• Suitable for charities, clubs, community projects, and other not-for-profit entities.
• Does not raise capital through share sales; funding typically comes from grants, donations, or membership fees.

In summary, companies limited by shares are typically used for profit-making businesses, while companies limited by guarantee are designed for not-for-profit organizations.

Comparative Table: Companies Limited by Shares vs Companies Limited by Guarantee

Here is a table comparing the differences between companies limited by shares and companies limited by guarantee:

In summary, companies limited by shares are usually used by for-profit businesses, where shareholders hold shares and have the right to share in the profits of the company. On the other hand, companies limited by guarantee are typically used by non-profit organizations and charitable enterprises, where members' liability is limited to the fixed amount guarantee they give, and profits are reinvested into the company or used for non-profit objectives.