Trading Company - Limited by Guarantee

la ultima guagua

Encountered one of these recently.

I've seen charities and the like Limited by Guarantee .

This is the first time I've encountered a trading company set up this way

Is this common ?

antoinolachtnai

Never heard of it. If you look at the constitution for the company, it might give you a clue as to why it is structured like this.

pedroeibar1

It's not common but I recall back in the 1980's a few were set up by exporters under a scheme established by the Irish Export Board (then known as CTT). I don't recall the details now, but there were very specific reasons for it at the time (possibly a vehicle for the joint selling/marketing of produce from diverse suppliers?). As AOL says check theit M&A of Assoc.

Johnmb

It's not common, but there's no reason why a company wouldn't be set up as a CLG instead of a DAC. DACs are more common mainly because people are more familiar with the concept of owning a share rather than making a guarantee in order to denote ownership.

pedroeibar1

Johnmb wrote: »

It's not common, but there's no reason why a company wouldn't be set up as a CLG instead of a DAC. DACs are more common mainly because people are more familiar with the concept of owning a share rather than making a guarantee in order to denote ownership.

DAC is common primarily in financial services/regulated entities and uncommon elsewhere - LTD is the norm.. Share ownership has little to do with it. The CBI has said all regulated entities should be DAC, hence the changes from LTD (which would have been perfectly adequate AFAIK).

mrawkward

It is not only charities that are set up in this way. Most trade organisations, sports clubs and plethora of others are in the not-for-profit non-charitable sector and fit this bill...many have trading entities combined with their operational objectives and activities.

Johnmb

pedroeibar1 wrote: »

DAC is common primarily in financial services/regulated entities and uncommon elsewhere - LTD is the norm.. Share ownership has little to do with it. The CBI has said all regulated entities should be DAC, hence the changes from LTD (which would have been perfectly adequate AFAIK).

LTD is a different company type. DAC and CLG are fairly similar, and generally, any company that needs to be a DAC can be a CLG, and vice versa. DACs and CLGs are what the old Ltds used to be, the new LTD is a completely new setup, and is the norm now because any old Ltd company that didn't actively switch was automatically transferred to a LTD, plus most companies are small/micro which is what the new LTDs are aimed at. Non-financial entities can set up as a DAC (or CLG) for many reasons. The big ticket differences between them and a LTD are that they must specify what the company does and must have a minimum of 2 directors. That appeals to larger companies setting up subsidiaries, and can also be of benefit to a company seeking investment, among many other reasons for selecting DAC (or CLG) over a LTD setup.

pedroeibar1

Johnmb wrote: »

LTD is a different company type. DAC and CLG are fairly similar, and generally, any company that needs to be a DAC can be a CLG, and vice versa. DACs and CLGs are what the old Ltds used to be, the new LTD is a completely new setup, and is the norm now because any old Ltd company that didn't actively switch was automatically transferred to a LTD, plus most companies are small/micro which is what the new LTDs are aimed at. Non-financial entities can set up as a DAC (or CLG) for many reasons. The big ticket differences between them and a LTD are that they must specify what the company does and must have a minimum of 2 directors. That appeals to larger companies setting up subsidiaries, and can also be of benefit to a company seeking investment, among many other reasons for selecting DAC (or CLG) over a LTD setup.

Most of us know all about LTD & DAC already, for example here two years ago.

I still maintain that DACs are uncommon outside the regulated entity sector. Also, the thread is about CLGs which are unusual outside of the ‘not-for-profit’ sector.

Trading and obtaining credit lines from suppliers often is difficult enough without bringing a (usually) unsuited and mis-understood corporate form into the equation. Have you ever tried to explain to a foreign supplie what a S17 guarantee is? Business should be kept simple, which is what the recent Companies Act set out to do, releasing the SME limiteds from the more onerous requirements of a DAC.

Johnmb

pedroeibar1 wrote: »

Most of us know all about LTD & DAC already, for example here two years ago.

I still maintain that DACs are uncommon outside the regulated entity sector. Also, the thread is about CLGs which are unusual outside of the ‘not-for-profit’ sector.

Trading and obtaining credit lines from suppliers often is difficult enough without bringing a (usually) unsuited and mis-understood corporate form into the equation. Have you ever tried to explain to a foreign supplie what a S17 guarantee is? Business should be kept simple, which is what the recent Companies Act set out to do, releasing the SME limiteds from the more onerous requirements of a DAC.

The whole point of my reply to the OP was that a CLG is no different in real terms than a DAC, it is just less common outside of trusts and charities, but there's no reason not to register as one if you want. DACs have no more onerous reporting requirements than a LTD of the same size. As I said, the main differences are in the restrictions as to what the company can do, and that a minimum of 2 directors are needed, and under the old system even that difference didn't exist, so if you used to be a Ltd by guarantee company, the easiest change to make was to become a CLG, nothing for anyone to be worried about.

Any foreign suppliers I've dealt with don't care about the nature of the limited liability, just that it is a limited liability, so they don't care if you are a LTD, DAC, CLG, LLC, GmbH, etc. If they were to care, they'd likely prefer a DAC or CLG because at least they'll know there are some limits as to what the company can do with the credit (although most won't care, that'd be a preference potential investors would be more likely to have).

la ultima guagua

Change was made in the last couple of years.

Have been a supplier to them for many years and always found them to be most satisfactory

They seem to have a +ve ( 7 figure ) NAV - mostly cash

Wonder what the motivation was ....

mrawkward

is it a Ltd company? I would imagine not currently.

pedroeibar1

The only reason I can think of at the moment is that they can benefit as a CLG under the 2014 Act. Filing exemptions / requirements differ according to the company status.

pedroeibar1

Johnmb wrote: »

.......

Any foreign suppliers I've dealt with don't care about the nature of the limited liability, just that it is a limited liability, so they don't care if you are a LTD, DAC, CLG, LLC, GmbH, etc. If they were to care, they'd likely prefer a DAC or CLG because at least they'll know there are some limits as to what the company can do with the credit (although most won't care, that'd be a preference potential investors would be more likely to have).

Very strange assertions. That has not been my experience of credit control anywhere I've worked in Ireland and overseas. The limitations as to what Irish companies can do with trade credit do not differ across the corporate spectrum, all are governed by the 2014 Act. The controls overseas are similar. I have encountered the nonchalence you assert periodically, but only in companies that had failed due to being hit with a bad debt and often discovering they were not dealing with the company they thought they were!

Contrary to what you say, companies do care, and care very much, about the corporate structure of their customers; they do so to fully understand their trade risk. This was why, for e.g., I mentioned S17 earlier. Proper credit control procedures require that you 'know your customer', not just to ensure you have the correct name on the invoice, but also fully understand the company's status (limited or unlimited) to know the risk level.

antoinolachtnai

You can tell essentially nothing about a company's risk level or creditworthiness from whether it is limited or unlimited. An unlimited company in Ireland is typically legally unlimited but financially and in practice limited.

The reasons I can see that someone might have a CLG for a company is to make provision for staff ownership of the business (choosing this type of form as an alternative to an industrial and provident society/coop), or in a multi-generational family business, to provide a means to transfer the company through the generations (a 'family investment company').

pedroeibar1

antoinolachtnai wrote: »

You can tell essentially nothing about a company's risk level or creditworthiness from whether it is limited or unlimited

I disagree. The type of corporate ‘form’ is a field used in the credit scoring of trade credit risk. Admittedly, it's weighting works more effectively only if allied to its length of time in business. Also, the scoring system must have a large amount of sector & market data and the means to analyse it effectively. More than three years ago a similar topic was raised here and I unsuccessfully tried to get a discussion going but obviously the OP was an amateur and got scared off.

antoinolachtnai wrote: »

An unlimited company in Ireland is typically legally unlimited but financially and in practice limited.

I ‘sort of’ agree on the use of ‘unlimited companies’ in Ireland. About fifteen years ago there was a huge swing to ‘unlimited’ status but with a limited liability holding company in place, inevitably located offshore in places such as the IoM for reasons of secrecy. It was particularly prevalent in the food sector, because one particular multiple was obtaining its suppliers’ filed accounts and using the info garnered from their balance sheets to screw them into lower supply prices. (That multiple actually used uses the same corporate structure )

FWIW I recall that the CLG status for trading companies I mentioned earlier related to a taxation/grant advantage in a Finance Act of the 1980’s and was a brainchild of I think Seamus Brennan when a junior minister.