Company ltd by guarantee by mistake - will I lose my money?

[RoseWrites]

I have my own business doing small consultancy projects. I meant to set it up as a company ltd by shares but stupidly set it up as ltd by guarantee with no share capital. You can tell I'm not a financial person...

My accountant has told me that he's unsure if and how I can take any money from it. Ive been trading for a year and have built up about £50k pre tax. I'm relying on it to pay bills I've built up on mat leave without a salary and just to tide us over as a household.

Will I lose this money?

I'm basically hyperventilating right now with a tiny baby.

I know it was my mistake but surely something can be done?

I feel sick

Surely you can pay yourself a salary or take profits out of the company - unless your articles of association include clauses prohibiting this??

I don’t think you can change a company limited to a guarantee to one limited by shares. But you can change its name, then set up a new company limited by shares in the original name. You’ll end up with a different company number and VAT registration number. Then you need to transfer the assets (and liabilities?) and any contracts to newco. This is where you will need proper advice though.

And you probably need a better accountant as well - this isn’t regular bookkeeper stuff. This is definitely not my area of expertise, but if you need money now it might be possible to take a directors loan from the existing company (tax implications). And then for oldco to transfer this asset (in its books) to newco

Having said that, don’t panic. It will be possible, it might just cost a bit of money.

edited to add, as the poster above says just pay yourself. I missed the obvious 😂

I'd hope so. My accountant just sent a message saying he isn't sure how we can and that we'd need to speak tomorrow. I'm absolutely freaking out :(

I just feel such an idiot for ticking the wrong bloody options when I set it up... :(

@Tryingtokeepgoing omg this is what I need to hear. My pulse might slow down now! I'm happy to take a hit to take some money out. And next time I'll pay someone to set up the company for me... Thank you for your advice, I really appreciate it :)

@ValueAddedTaxonomy I hope it's that easy.. I guess I might need to pay NIC1? I have no idea but I'll pay any and all tax to be able to pay bills and my mortgage! :)

Everything depends on what your articles of association say.

Many companies limited by guarantee are not-for-profit enterprises and their articles prohibit the distribution of profits to members, prohibit directors receiving salaries or fees and require any surplus on winding up to be paid to charity. If that is what your articles say, I'm afraid you are likely to lose that money.

However, it is also possible for a company limited by guarantee to have articles that allow directors to receive salaries and fees, and allow distribution of profits to members. If your articles say this, you won't have any problems.

If whoever set up your company used the model articles, they do allow payment to directors so, unless they have included clauses modifying the model articles, you will be fine.

What do your articles say about distribution of the profits?

you will likely need to pay it all out via salary and then set up a new company

Presumably you’ve been taking a reasonable salary anyway though to take advantage of the 90% maternity pay for the first 6 weeks

Did you also tick the box for defaulting to the model articles of association? You can get a copy if you Google. Fret not you can amend these if they prevent you taking the cash just have a shareholder meeting even if that’s technically just you and send info through to companies house. I’d probably look to dissolve the company and form a new ltd one.

I'm sure you accountant must be thinking about tax possibilities. Of course you can get the money. Either invoice the company for your services or pay yourself a salary. Taking it as dividend may have been more tax efficient, but of course you can get the money out.

Otherwise you need a better accountant.

@prh47bridge I have checked my certificate of incorporation and memorandum of association and it doesn't say anything about profits, only that it's a ltd company with no share capital.

You can still pay yourself, but the company loses the ability to apply for charitable status which doesn't sound applicable to you anyway.

If you don't have shares, you won't be able to pay yourself in dividends, so you'll have to pay tax and NI.

Those documents won't tell you what you need. What matters is your articles of association. These set out the rules for running the company.

This is not necessarily true. Even if a company limited by guarantee is not a charity, it may have a restriction in its articles of association preventing the members or directors being paid.

True, but the articles can be changed relatively easily.

I'm assuming that the OP set up the company and so would know, and be able to change.

Thank you for your comments and suggestions @Tryingtokeepgoing @prh47bridge @Confortableorwhat @ValueAddedTaxonomy @PickledPurplePickle @Abitorangelooking @HappiestSleeping :)

As an update, I can take the money! TG! But as a salary rather than a dividend. Now closing down the company and starting a new one. Or to be accurate, I have paid my accountant to set it up so I don't cock it up again!

Be careful about taking a dividend. Whilst that is usually the way to minimise tax, there are also implications for borrowing and other things. Lots of people over covid who were self employed were bitching about not getting the furlough payments from the government without mentioning that they had been taking their money as dividends, and hence not actually earning anything to be paid furlough on.

Hopefully we won't be having another pandemic any time soon, but one never knows.

Glad you are sorted though. 👍