Meaning: Where it is proposed to register a company with limited liability, it can be limited Guarantee Company by shares or by Guarantee. Section 12(2) (b) of the companies Act, 1956 defines as a company having the liability of its members limited by the memorandum to contribute to the assets of the company in the event of its being wound up. Thus, the liability of the members of a Guarantee company is limited by a stipulated amount mentioned in the memorandum. The members cannot be called upon to contribute more than the stipulated amount for which articles of association of such company shall state the number of members with which the company is to be registered.
Similarities between the Guarantee Company and the Company having share capital: The common features between a “Guarantee company” and the “company having share capital” are legal personality and limited liability. In case of the later company, the members’ liability is limited by the amount remaining unpaid on the shares, which each member holds, both of them have to state this fact in their memorandum that the members’ liability is limited.
Dissimilarities between the Guarantee Company and the Company having share capital: Dissimilarities between the Guarantee company and the company having share capital is that in the former case the members may be called upon to discharge their liability only after commencement of the winding up and only subject to certain conditions; but in later case, they may be called upon to do so at any time, either during the company’s life or during its winding up.