Many companies limited by guarantee, particularly clubs and similar associations, will regularly receive applications and accept new members. In other companies, like property management companies for small blocks of flats, turnover of members will be less common. However, the company will still need a process to admit a new member of the company when someone purchases an interest in the property.
It’s important that the new member admission process is consistent with both the Companies Act 2006 and the company’s articles of association.
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In this article, we define a process by which someone can apply and be accepted as the new member of a company limited by guarantee. We also provide a number of templates that the guarantee company and applicant can adapt and use to make the membership application process easier.
1 Before someone applies to be a new member
Before the member makes an application, it’s prudent to check any special rules or requirements in the company’s articles of association. For example:
- The articles may define a particular process that must be followed.
- There may be requirements that a new member must meet – for example, they might need to be a member of a particular professional body, hold a certain qualification or be resident in a defined location.
- The articles may provide for applicants to first be nominated by one or more existing members or, less commonly, another body. In this case, the define procedure for nomination should be followed before the prospective member submits their application for membership.
In some companies, an invitation to become a member will be sent to an individual. We’ve created a template invitation to apply for membership, which sets out the nature of membership and invites the prospective member to complete a membership application.
2 Making an application for membership
Section 112(2) of the Companies Act 2006 states that a person must agree to become a member of a company limited by guarantee. Typically, therefore, the company will ask the new member to complete a membership application before their membership can be approved.
The exact form of the application may be defined in the company’s articles of association. Failing that, we’ve drafted a template membership application that you can adapt and use.
Part of the application, and a good reason for it to be recorded in writing, will be formal promise of money. This guarantee, only payable if the company cannot meet its financial obligations, is typically a nominal sum of £1 per member, but may in some guarantee companies be a different amount.
If the company’s articles of association set out any special criteria that must be met by new members, then the member will also need to demonstrate satisfaction of these alongside their application.
3 The new member pays any joining fee
Many companies limited by guarantee, particularly clubs and associations, charge either a one-off or (more commonly) regular membership fee. This can be a useful way for the company to generate income and cover running costs.
Typically, the applicant will pay any joining fee as part of the application they make to become a member of the company. If a fee is due regularly, the basis on which renewals fees will be due – and how they will be collected – needs to be made clear. Ideally, the application signed by the new member should confirm their acceptance of these fees.
4 The board approves the new member
In many guarantee companies, particularly residents’ management companies where the membership is restricted, the board of directors will meet to approve each new membership application. If the company uses the model articles, Article 21 provides that applications for membership can be approved by the directors in this way (while in some other companies, a meeting of members may be required).
Assuming the directors have authority to accept new members, at a meeting of the board they will check that:
- The proposed new member meets any specific requirements for membership detailed in the articles of association
- A valid, signed application for membership has been received
- Any other legal requirements have been completed satisfactorily (particularly the case for property management companies where transfers of property are concerned)
- Any membership fee due has been received
As with any board meeting, the discussion and decisions taken will need to be recorded. We’ve produced a template board meeting minute for acceptance of a new member, which you can download and adapt to meet your own company’s requirements.
If the application is acceptable, the board will also need to approve appropriate updates to the company’s statutory registers and, if it is their practice to do so, the production and issue of a membership certificate to the new member.
If the application is unsuccessful, the applicant will need to be informed. Unless the company’s articles say otherwise, there’s no duty on the board to give any reasons for the refusal to accept a new member. It may be prudent, however, to record the reasons in the minutes of the board meeting.
5 Update the company's register of members
The register of members is the primary evidence of who, at any one point in time, is a member of the company. Therefore, it’s important to update it promptly once a new member has been confirmed. Software like Inform Direct can greatly simplify the process of managing changes to a company’s register of members as members leave and new members join.
Unlike for a company limited by shares, there’s no requirement to inform Companies House that a new member has joined the company, either at the time their membership is accepted or as part of the company’s next confirmation statement.
6 Produce a membership certificate
Unless there’s a requirement to do so in the company’s articles of association, it’s not mandatory to produce a membership certificate for each new member. However, many companies choose to do so, especially as it provides a tangible token of membership.
Elsewhere, we look at the requirements for membership certificates, but you can also use Inform Direct to create professional membership certificates. It also enables the company easily to maintain a list of both active and cancelled membership certificates.
7 Confirm acceptance of the new member
The company should confirm acceptance of the new member’s application for membership. Unless the company has an alternative form, this can be done by letter, and we’ve created a template letter to a new member of a company limited by guarantee.
As well as welcoming the new member to the company, a letter of acceptance may provide a good opportunity to:
- Enclose the membership certificate; and
- Supply copies of the company’s constitutional documents, principally the articles of association but perhaps also any club rules
- Confirm arrangements for any regular membership fees due
- Confirm the date of any meetings to which the member is invited
- Advertise any perks or benefits that membership of the company provides
That’s it. However, if the member is also to become a director (as will take place in many management companies), there will be additional requirements relating to the appointment as a director.
Subject to any provisions in the company’s articles of association and any requirements they must meet to maintain membership, the new member will be entitled to attend and vote at general meetings. Alongside other members, they therefore ultimately control the company, with the ability to appoint and remove its directors and make other important decisions affecting it. Elsewhere, we look in detail at the structure and parties involved in a company limited by guarantee.
Inform Direct helps you keep up to date records for members and directors, maintain statutory books and make filings to Companies House.