Introduction
The term ‘hybrid company’ is used to describe a company that is limited both by shares and by guarantee and therefore has two classes of member – shareholders and guarantee members.
The directors elect a guarantee member into membership of the company on condition that the member undertakes to contribute to the debts of the company up to a specified maximum amount, typically USD100 or less.
The guarantee member therefore holds a contingent liability, while the shareholder holds an asset – the shares.
The rights and obligations that attach to each class of membership can be laid down in the Articles of Association of the company or by the directors in board meetings, thereby keeping the terms and conditions of membership confidential.
The arrangements that can be made are highly flexible. Skillful drafting can be used to attach different rights and obligations to each class of membership and create structures that are precisely tailored to the different needs of the client.
Hybrid companies are often used as ‘quasi trusts’, particularly by persons resident in civil law countries where trusts are not recognised.
Typically, the company will be structured so that the shares are issued on terms that each carries one vote but no rights to dividends or to participate in the capital or income of the company. The guarantee memberships would be issued on terms that they carry no rights to vote but all the rights to participate in the income and capital of the company.
As a result, control rests with the shareholders but all benefits flow to the guarantee members. The shares can be issued to professional managers, who therefore act as quasi trustees, while the guarantee members are in a position similar to trust beneficiaries.
A guarantee member’s interest can also be extinguished on death, thereby avoiding any succession issues and the need to obtain probate.
Please contact us if you have any questions or queries and your local representative will be in touch with you as soon as possible.
