Guarantee Company

AAA

DEFINITION of 'Guarantee Company'

A form of corporation designed to protect members from liability, but which typically does not distribute profits to its members and does not divide assets into shares.  Members of a guarantee company are obligated to pay a specific sum of money – a guarantee – if the company is wound up. This amount of money can vary by member, but is typically very small for private guarantee companies and larger for public guarantee companies.

INVESTOPEDIA EXPLAINS 'Guarantee Company'

Guarantee companies are most commonly found in the United Kingdom, and are formed to protect the assets of non-profit organizations, unions and membership organizations. This type of corporation is recognizable by the use of the word “limited” in its name.

In addition to being limited by guarantee, a guarantee company may also be limited by share capital. If the company has any funds remaining from contributions from members, they have to be used according to the purpose the guarantee company was formed to undertake, such as funding a museum, and cannot be distributed to members.

The allure of guarantee companies is their limited liability. Members have legal protection to shield them from instances in which a transaction the guarantee company is involved in fails, but they will be responsible for a nominal sum of money if the guarantee dissolves.

RELATED TERMS
  1. Dynasty Trust

    Long-term trusts created to pass wealth from generation to generation ...
  2. Asset Protection Trust

    A vehicle for holding an individual's assets to shield them from ...
  3. Trust Fund

    A trust fund is a fund comprised of a variety of assets intended ...
  4. Beneficiary Of Trust

    A beneficiary of trust is a person for whom a trust was created, ...
  5. Irrevocable Trust

    A trust that can't be modified or terminated without the permission ...
  6. Nonprofit Organization

    A business entity that is granted tax-exempt status by the Internal ...
Related Articles
  1. Navigating Government And Nonprofit ...
    Retirement

    Navigating Government And Nonprofit ...

  2. How To Start Your Own Private Foundation
    Personal Finance

    How To Start Your Own Private Foundation

  3. Estate Planning Must-Haves For Unmarried ...
    Retirement

    Estate Planning Must-Haves For Unmarried ...

  4. Pick The Perfect Trust
    Retirement

    Pick The Perfect Trust

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center