What you need to know.
These companies can be used to manage either an entire building or part of a building on behalf of the owners of either the freehold or on behalf of leaseholders. Such companies can be registered using two different, but similar types of company; either a company limited by shares (this being the normal format of most commercial companies) or by using a company limited by guarantee, whereby the members guarantee to contribute a limited amount (usually £1 or £10) upon a winding-up of the company should funds be required.
An important point arises prior to registration, that once one of the 2 available structures are chosen, they cannot be changed (re-registered into the other structure).
If the option is for a company limited by shares, it is common practice to include a clause in the company's Articles of Association stating that upon the sale of a flat or unit within the block, the seller transfers the share to the new owner.
If there is to be any income over and above ground rents, this type of company has the power to distribute funds (this may be appropriate if for instance, the Company wanted to add any development to the block).
The company limited by guarantee would be fine for the management of the block (collecting ground rents, paying for repairs etc.), but would have a clause known as a non-distribution clause preventing it from making distributions to members.
Leaseholders may also prefer to use this structure if they are not also freeholders as this could give them the option to instigate the Right to Manage, giving the leaseholders the statutory right to take over the management of the building from the landlord (Commonhold and Leasehold Reform Act 2002).
Companies limited by guarantee are also commonly used for other 'not-for-profit' groups, such as clubs, charitable organisations, public service companies etc.