What is a Company Limited by Guarantee?

The Gibraltar Companies Ordinance does not permit a company to be created in which the members are free from any liability, but, as an alternative to limiting their contribution to the amount payable for their shares, it enables them to agree that in the event of liquidation they will, if required, subscribe an agreed amount. The Ordinance recognises two forms of company limited by guarantee, namely, the guarantee company without a share capital and the guarantee company with a share capital. The former is the guarantee company in its pure form, whereas the latter is something of a hybrid.

In the case of a pure guarantee company, a member is under no obligation to subscribe up to the amount of his guarantee while the company is a going concern; it is only when the company is being wound up, if a contribution is needed to enable the debts to be met, that any liability on the guarantee arises. But in the case of a guarantee company having a share capital a member is under a twofold liability; while the company is a going concern he is liable to pay up to the nominal amount of his shares, and once the company goes into liquidation he is liable on the guarantee as in the case of a pure guarantee company.

What is a Foundation?

A Foundation consists of a fund dedicated to a given purpose with its own legal personality. Foundations are often devoted to the maintenance, advancement and education of particular families or persons. The important words to note are " its own legal personality".

Foundations are mainly used for the following purposes:

1. The tying-up of family property.

2. Protection of family property against liabilities vis-a-vis third parties.

3. Protection of family members against themselves and against personal creditors.

4. Succession into family property outside probate.

5. Flexible succession planning.

6. Tax planning.

7. General asset protection against economic impairment by political events and state intervention.


Gibraltar has its own type of "Foundations". The answer lies in the Company Limited by guarantee not having a share capital or a Company Limited by Guarantee and having a share capital. These are the equivalent of a Foundation. A body no less well known than the European Union in article 3 of Entities Jurisdique in the Official Journal of the 31st August 1993, No. C236/13 recognised the British Company Limited by Guarantee as the equivalent of the Foundation.

Material Differences between a Common Law Trust and a Foundation

A Trust in common law countries does not have "legal personality" to the same extent as a Foundation. For example, property must be in the name of all the trustees and legal action must be brought in the name of all the trustees. For clients based in Civil Law jurisdiction the concept of Trust is sometimes difficult to understand. It can also lead to difficulties with authorities who do not accept the concept of Trust. The trustee is subject to specific duties and is the legal owner of the property. In some aspects the Trust property is considered as a separate patrimony, namely in connection with creditors of the trustees and the mala fides purchaser or the volunteer to whom Trust property has been transferred.

The essential element of the Foundation, on the other hand, is the dedication of property for a specific purpose. The Foundation also separates the management and ownership of the property from the beneficial interests. The Gibraltar Foundation has legal personality and is subject to the general provisions concerning legal persons. It has a corporate structure with a management board.

Similarities between a Common Law Trust and a Foundation

Operationally speaking, there is not a great difference between a family Foundation and a family Trust. Foundations were used in the past and are used today for functions which totally overlap with Trust functions.

The similarity in function also exists with respect to a beneficiary under a Trust and a beneficiary under a Foundation. The beneficiaries of both entities will have the following rights:

a) a claim for proper (specific) performance against the trustee in the case of a Trust and against the management board of Foundation where a Foundation is concerned. Such a claim is possible when the trust deed is not adhered to or where there is a breach of the Foundations articles.

b) a claim for benefit from revenue and/or capital within the specific conditions detailed in the Trust or Foundation.

Structure and Control

Hybrid companies can provide for the shareholders to be a different group of people to the non- shareholder members. Thus, the shareholders could be professional trust administrators, in whom could be vested all the voting and administrative powers, while the beneficial owners could be the non-shareholder members in whom would be vested all the rights to income and capital. By this meanswe have completely divorced control from beneficial interests.

It will often be desirable to build into the Articles of Association provisions for the appointment of some form of Protector whose approval must be obtained for the election of members and disposal of assets. The Protector should be an independent third party, known to the beneficial owners, so that he can both protect their interests and also advise the directors when so requested. Where it is inappropriate to appoint a Protector as such, it is possible to have a special class of "shares" whose holders exercise the same function as a Protector.


Companies limited by guarantee (Foundations) allow for confidentiality without the need for bearer shares. Bearer shares are not allowed in all jurisdictions and can cause administrative difficulties. In a Foundation the non-shareholder member still gets his membership certificate if he wants it, but if it is lost or stolen, his membership is unaffected. His identity is known to the company secretary, but it does not appear on any public record and is entirely confidential.

Incorporation of a Foundation in Gibraltar

To be incorporated in Gibraltar as a company limited by guarantee and to exercise the role of a Foundation a company has to comply with the following conditions:

1. It must be a company limited by guarantee.

2. That the name of the company finishes with the word "Foundation".

3. That the Memorandum of the company states that "the company is devoted to the maintenance, advancement and education of particular families, persons, causes or objects".

4. That the name of the company does not include the word "Charity" or "Charitable".

5. Minimum share capital of £2000 sterling.

6. That the company appoints a person in Gibraltar to be known as the Foundation Officer who may also be a director or shareholder of the company.

Taxation of a Gibraltar Foundation

As long as no Gibraltarian or resident of Gibraltar has a beneficial interest in the Foundation it can apply for qualifying status or tax exemption.

Analysis of Pros and Cons in the use of Trusts and Foundations

From an operational point of view there are neither pros nor cons in either the use of Trusts or Foundations. They can be administered in a similar way and the duties and powers of the trustee or the board of Foundation contain the same fiduciary elements. It is only in borderline situations where the one or the other has a specific advantage or disadvantage. This may be highlighted here.

a) The Foundation is well understood by professionals and clients alike in civil law countries. It is easier to run a family Foundation in this context.

b) Where assets are held in civil law countries it may be safer to use a Foundation since the legal personality of a Foundation is clearly recognised and there is no doubt about Foundation property being separate property as far as creditors are concerned. If Trust property is located in such jurisdictions there is a slight danger that under specific circumstances a segregation of such property is not possible.


Foundations and Trusts are almost identical and serve the same purposes.

Careful attention must be given to the drafting of both Foundations and Trusts.

Consideration must be given when choosing a Trust or a Foundation to the legal environment in which the client will operate.