What is a guarantee company?
A
guarantee company is an incorporation wherein the members all agree to pay a
certain nominal sum on the winding up of the company. The sum is specified in
the MoA of the company and is considered to be the guarantee undertaken by each
member. As a result, the signatories to the same are held to be the guarantors
of the company. such guarantors cannot be called upon to pay more than they
have guaranteed.
The
companies Act 2013, defines it in section 2(21) as[1]:-
“company limited by guarantee means
a company having the liability of its members limited by the memorandum to such
amount as the members may respectively undertake to contribute to the assets of
the company in the event of its being wound up;”
Such
a company may or may not have share capital. In a company limited by guarantee
not having share capital, the working funds are obtained through sources such
as grants, endowments, funds, fees, subscriptions and the like.
Rights of members of a company
limited by guarantee not having share capital, as per the Companies Act, 2013,
are as under:
1.
To have
contribution, guarantee or any other undertaking mentioned in the MoA of the
company;
2.
Right to
participate in divisible profits of company;
3.
Right of members
of a holding company, against transfer or allotment of their interest to a
subsidiary company;
4.
Right of member
to ensure contracts recorded or maintained in the Memorandum;
5.
Rights acquired
by a member in any property will not be affected till registration of any
charge on such property;
6.
Right to request
for an EGM to the Board;
7.
Right of member
(entitled to attend and vote at a meeting), to appoint a proxy to attend
meeting on his behalf(ONLY IF PROVIDED IN Articles of Company);
8.
Right to copy of
financial statements;
9.
Right to inspect
register of company;
10. Right of member to ensure contracts recorded or
maintained in the Memorandum;
11. Right of member to retain same interest in the
transferee company as in the original company; Right of member to be compensated
for reduction of interest on transfer of company;
12. Right to apply
to Tribunal for relief in cases of oppression, etc. u/s 241;
13. Right of member against contributing an amount, more
than undertaken at the time of winding up;
14. Right to file a petition of winding up of company to
the Tribunal;
15. Right to be appointed to the audit committee as per
the direction of the Tribunal;
16. Directions of contributories, given at a general
meeting, to override that of advisory committee;
17. To have rights adjusted by the Tribunal;
18. Right of members to division of company property
according to their interest in the company (ONLY IF PROVIDED IN ARTICLES);
19. Right to meetings if in interest of contributory, as
directed by the Tribunal on winding up of company;
20. Right of member to give assent of registration along
with a special resolution declaring undertakings/ contributions made or taken
up;
S.No
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Section
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Provision
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Comments
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1.
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4(1)(d)(ii): Memorandum
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in the case of a company limited by guarantee, the
amount up to which each member
undertakes to contribute—
(A)
to the assets of the company in the
event of its being wound-up while he is a member or within one year after he
ceases to be a member, for payment of the debts and liabilities of the
company or of such debts and liabilities as may have been contracted before
he ceases to be a member, as the case may be; and
(B) to the costs, charges and expenses of
winding-up and for adjustment of the rights of the contributories among
themselves;
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In the MoA of the company, the name,
guarantee undertaken and contributions by members must be mentioned
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2.
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4(7): Memorandum
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Any provision in the memorandum
or articles, in the case of a company limited by guarantee and not having a
share capital, purporting to give any person
a right to participate in the divisible profits of the company otherwise than
as a member, shall be void.
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Right to participate in
divisible profits of company
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3.
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13(11): Alteration of Articles
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Any alteration of the
memorandum, in the case of a company limited by guarantee and not having a
share capital, purporting to give any
person a right to participate in the divisible profits of the company otherwise than as a member, shall be
void.
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Right to participate in
divisible profits of company
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4.
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19(1): Subsidiary
company not to hold shares in
its holding company.
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No company shall, either by
itself or through its nominees, hold any interest (of its members) in its
holding company and no holding company
shall allot or transfer its members interest to any of its subsidiary
companies and any such allotment or transfer of interest of a company to its
subsidiary company shall be void
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Right of members against
transfer of their interest to a subsidiary company by a holding company
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5.
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87(2):Rectification
by
Central Government in register of charges.
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Where the Central Government
extends the time for the registration of a charge, the order shall not prejudice any rights acquired in respect of the
property concerned before the charge is actually registered.
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Rights acquired by a member in
any property will not be affected till registration of any charge on such
property
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6.
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100(2)(b): Calling of
Extraordinary
general meeting.
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in the case of a company not having a share capital, such
number of members who have, on the date of receipt of the requisition, not
less than one-tenth of the total voting power of all the members having on
the said date a right to vote, call an extraordinary general meeting of
the company within the period specified in subsection (4).
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Right to request for an EGM to
the Board
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7.
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105(1):
Proxies
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Any member of a company entitled to attend and vote at a meeting of the
company shall be entitled to appoint another person as a proxy to attend
and vote at the
meeting on his behalf:
Provided that a proxy shall not
have the right to speak at such meeting and shall not be entitled to vote
except on a poll:
Provided
further that, unless the articles of a company otherwise provide, this
subsection shall not apply in the case of a company not having a share
capital
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Right of member (entitled to
attend and vote at a meeting), to appoint a proxy to attend meeting on his
behalf (ONLY IF PROVIDED IN Articles of Company)
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8.
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136(1): Right of member
to copies of audited financial statement
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Without prejudice to the
provisions of section 101, a copy of
the financial statements, including consolidated financial statements, if
any, auditor’s report and every other document required by law to be annexed
or attached to the financial statements, which are to be laid before a
company in its general meeting, shall be sent to every member of the company,
to every trustee for the debenture-holder of any debentures issued by the company,
and to all persons other than such member or trustee, being the person so entitled,
not less than twenty-one days before the date of the meeting
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Right to copy of financial
statements
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9.
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171(1): Members’
Right
to inspect.
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Register shall be open for
inspection during business hours and the members
shall have a right to take extracts there from and copies thereof, on a
request by the members, be provided to them free of cost within thirty days;
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Right to inspect register of
company
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10.
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193(1): Contracts by 1 person
company
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Where One Person Company limited by shares or by guarantee enters into a
contract with the sole member of the company who is also the director of
the company, the company shall,
unless the contract is in writing, ensure
that the terms of the contract or offer are contained in a memorandum or are
recorded in the minutes of the first meeting of the Board of Directors of
the company held next after entering into contract
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Right of member to ensure
contracts recorded or maintained in the Memorandum
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11.
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237(3): Power of
Central Government to provide for
amalgamation of companies in public interest.
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Every
member or creditor, including a debenture holder,
of each of the transferor companies before
the amalgamation shall have, as
nearly as may be, the same interest in or rights against the transferee
company as he had in the company of which he was originally a member or
creditor, and in case the interest or
rights of such member or creditor in or against the transferee company
are less than his interest in or rights against the original company, he shall be entitled to compensation
to that extent, which shall be assessed by such authority as may be
prescribed and every such assessment shall be published in the Official
Gazette, and the compensation so assessed shall be paid to the member or
creditor concerned by the transferee company
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Right of member to retain same
interest in the transferee company as in the original company
Right of member to be
compensated for reduction of interest on transfer of company
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12.
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244: Right to apply under section 241.
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The following members of a
company shall have the right to apply under section 241:-
In the case of a company not
having a share capital, not less than one-fifth of the total number of its
members:
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Right to apply to Tribunal
for relief in cases of oppression,
etc. u/s 241
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13.
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272(1)(c): Petition for winding up
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Subject to the provisions of
this section, a petition to the
Tribunal for the winding up of a company shall be presented by—
(c) any
contributory or contributories;
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Right to file a petition of
winding up of company to the Tribunal
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14.
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285(3)(e): Settlement of list of contributories
And application of assets.
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in the case of a company
limited by guarantee, no contribution
shall be required from any person, who is or has been a member exceeding the
amount undertaken to be contributed by him to the assets of the company in the event of its being wound
up
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Right of member against
contributing an amount, more than undertaken at the time of winding up
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15.
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287(2):
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The advisory committee appointed by the Tribunal shall consist of not
more than twelve members, being creditors and contributories of the company or such other persons in such
proportion as the Tribunal may, keeping in view the circumstances of the
company under liquidation, direct.
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Right to be appointed to the
audit committee as per the direction of the Tribunal
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16.
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292: Exercise and
control of Company Liquidator's
powers
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(1) Subject to the provisions of this Act, the Company Liquidator shall, in the
administration of the assets of the company and the distribution thereof
among its creditors, have regard to
any directions which may be given by the resolution of the creditors or
contributories at any general meeting or by the advisory committee;
(2) Any directions given by the creditors or contributories at any
general meeting shall, in case of
conflict, be deemed to override any directions given by the advisory
committee
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Directions of contributories,
given at a general meeting, to override that of advisory committee
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17.
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297: Adjustment
of rights of contributories
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The Tribunal shall adjust the rights of the contributories among
themselves and distribute any surplus among
the persons entitled thereto.
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To have rights adjusted by the
Tribunal
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18.
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320: Distribution
of property of company
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Subject to the provisions of
this Act as to overriding preferential payments under section 326, the assets of a company shall, on its winding
up, be applied in satisfaction of its liabilities pari passu and, subject
to such application, shall, unless the
articles otherwise provide, be distributed among the members according to
their rights and interests in the company
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Right of members to division of
company property according to their interest in the company (ONLY IF PROVIDED
IN ARTICLES)
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19.
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357: Meetings
to ascertain wishes of
creditors or contributories
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(1)In all matters relating to
the winding up of a company, the Tribunal may—
(a) have regard to the wishes of creditors or contributories of the
company, as proved to it by any sufficient evidence;
(b) if it thinks fit for the
purpose of ascertaining those wishes, direct
meetings of the creditors or contributories to be called, held and
conducted in such manner as the Tribunal may direct;
(3)
While ascertaining the wishes of contributories under sub-section (1), regard
shall be had to the number of votes which may be cast by each contributory.
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Right to meetings if in
interest of contributory, as directed by the Tribunal on winding up of
company
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20.
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366(2) Proviso (vi): Companies
capable of being
registered
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where a company is about to
register as a company limited by guarantee, the assent to its being so registered shall be accompanied by a
resolution declaring that each member
undertakes to contribute to the assets of the company, in the event of
its being wound up while he is a member, or within one year after he ceases
to be a member, for payment of the debts and liabilities of the company or of
such debts and liabilities as may have been contracted before he ceases to be
a member, and of the costs, charges and expenses of winding up, and for the
adjustment of the rights of the contributories among themselves, such amount as may be
required, not exceeding a specified amount.
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Right of member to give assent
of registration along with a special resolution declaring undertakings/ contributions
made or taken up
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Rights of members of a company
limited by guarantee, not having share capital as per Table H, Companies Act,
2013, are as under:
1. Right to 1 vote each;
2. Right to be elected chairperson of meeting by the
director or member, in case chairperson director absent or;
3. Members can appoint and vote through a proxy;
4. Right to vote via electronic means as per section
108;
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