38. As to constitution of companies limited by guarantee

Question 1

38. As to constitution of companies limited by guarantee

Answer 1

General overview
[38.01] Section 38 has to be read with reg 67 of the model constitution of a company limited by guarantee under the Companies (Model Constitutions) Regulations 2015. Regulation 67(1) provides that the income and property of the company must be applied solely towards the promotion of the objects of the company and no portion of the income and property may be paid or transferred directly or indirectly by way of dividend, bonus or otherwise by way of profit to the members of the company.

[38.02] Regulation 67(2) provides that despite paragraph (1) or any other provision of this Constitution, the company may make payment, in good faith, of—

(a) reasonable and proper remuneration to an officer, member or employee of the company for services rendered to the company;
(b) reimbursement to a director of the company for out-of-pocket expenses; or
(c) payment, in good faith, of a reasonable and proper rent to a director or member of the company for premises demised to or let to the company.

[38.03] In other words, only a member may participate in the profits of a company limited by guarantee: s 38(1). However, this right is subject to reg 67(1) where no profits may be distributed to the members by way of dividends, bonus or otherwise, except for the payments made pursuant to reg 67(2). This is in keeping with the practice of using companies limited by guarantee as a vehicle for carrying out non-profit activities.

Question 2

Share capital

Answer 2

[38.04] Subsection (2) provides that a company limited by guarantee may provide in its constitution that the company’s undertaking be divided into shares or interests. In such a case, the shares or interests shall be treated as a share capital even though the number of shares or interests is not specified.