ExpertACCA · Question 52 · Syllabus D: The formation and constitution of business organisations
Scenario: EcoHabitat, a group of environmentalists, wants to form a corporate entity to buy land for conservation. They want limited liability but do not intend to distribute profits. They are considering a company limited by guarantee. During the pre-incorporation phase, one of the founders, Leo, signed a contract for office space in the name of 'EcoHabitat Ltd'.
Why is a company limited by guarantee suitable for EcoHabitat?
Scenario: EcoHabitat, a group of environmentalists, wants to form a corporate entity to buy land for conservation. They want limited liability but do not intend to distribute profits. They are considering a company limited by guarantee. During the pre-incorporation phase, one of the founders, Leo, signed a contract for office space in the name of 'EcoHabitat Ltd'.
Why is a company limited by guarantee suitable for EcoHabitat?
Answer options:
It allows members to limit their liability to a nominal guaranteed amount (e.g., £1) without needing to issue shares, ideal for non-profits.
It completely exempts the company from paying any taxes.
It prevents the company from being sued for negligence.
It allows the founders to distribute unlimited profits secretly.
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