A company limited by guarantee is a company without shareholders or shares. Typically used by non-profits and charities, this type of company is controlled by guarantors (members), who guarantee a nominal sum of money to the company in the event of its becoming insolvent or winding up. Profit is used to achieve the company’s objectives, rather than being paid to members.
Limited by guarantee companies are usually non-profits or charities; limited by shares companies are normally profit-making businesses. A limited by guarantee company does not have shares. Its members are called ‘guarantors’, their financial liability is limited to the guarantee amount (usually £1) set out in the articles of association, and they’re generally not entitled to profits.
In a limited by shares company, the members are called ‘shareholders’. They each take at least one share, their financial liability is limited to the nominal value (usually £1) of their shareholdings, and they’re generally entitled to profits.
Company guarantors are individuals (or corporate bodies) who agree to become members of a limited by guarantee company, promising to pay a fixed sum of money (a ‘guarantee’) in the event that the company cannot pay its debts, and making important decision about how the company is run.
Generally, guarantors do not take any profit, because surplus income is instead used for the good of the company and its non-profit or charitable aims.
Almost anyone can be a company guarantor (member), including individuals, groups of people, and other companies and organisations. There are no restrictions based on age or qualifications, unless you include such provisions in the articles of association. However, anyone who becomes a member must, of course, be able to fulfil the financial and decision-making obligations of a company guarantor.
Unless the company’s articles of association states to the contrary, you must have a minimum of one member (guarantor) and one director to set up a limited by guarantee company, and there is no upper limit. The same person can hold both positions, or you can appoint different people to each role.
A company guarantor can also be a director of the same company, on condition that the individual is at least 16 years old and is not subject to the restrictions of director disqualification, bankruptcy, or a Debt Relief Order.
The main reason to set up a company limited by guarantee is to provide financial protection to people who run a charity, community project, or some other form of non-profit venture. By operating through a company, members have limited personal liability for the debts of the enterprise. Additionally, some funding bodies and charity regulators require charities and non-profits to be registered as a company.
Typically, the profits of a company limited by guarantee are ploughed back into the company and used to achieve its charitable or non-profit goals. Such restrictions on profit and asset distribution will be clearly stated in the articles of association. However, it is possible to alter the articles to provide for the distribution of profits to guarantors, but the company would forfeit any right to charitable status.
You must include ‘Limited’ or ‘Ltd’ at the end of your limited by guarantee company name, unless the articles of association state that the company’s purposes (‘objects’) are the promotion or regulation of commerce, science, education, art, religion, charity, or any profession that is conducive or incidental to these purposes.
Additionally, the articles must state that the company’s income should be used to promote its purposes and that no company profits or assets shall be distributed to members.
The legal requirements for setting up a limited by guarantee company are:
If the company is also going to be a charity, additional legal requirements will be imposed by the charity regulator.
When setting up a charity, you will subject to the rules and regulations of either the Charity Commission for England & Wales, the Scottish Charity Regulator, or the Charity Commission for Northern Ireland. These rules relate to the number of trustees required, proposed charitable purposes, profit distribution, the charity name, and minimum annual income requirements.
To set up a limited by guarantee company, you need to file an application to incorporate at Companies House. You can do this online through Cheap Formation, using our tailor-made Limited by Guarantee package, which costs £24.99 (+VAT).
As an authorised Companies House e-filing partner, our experienced team is on hand to provide help and advice throughout the registration process and beyond. Your application will be reviewed by us before electronic submission to Companies House, reducing the risk of rejection. Once approved, you will receive digital copies of your new company documents and you can begin trading at any point thereafter.
For more information on setting up a company, please see our support pages to discover the 4 Steps to Forming a Company and Required Information to Form a Company, or contact our customer support team on 020 7871 xya.
A limited by guarantee company structure is commonly used for running charities and other non-profit bodies (e.g., community projects, social enterprises, clubs, societies, and co-operatives) who need corporate status or whose organisers require limited liability protection. However, whilst a company limited by guarantee is a legal requirement for charitable companies, it is just one of many options for other types of non-profit enterprises.
Limited by guarantee companies are not prohibited from distributing their profits to members, so it is possible to set up a limited by guarantee company for a commercial (‘for-profit’) business. However, if you want to keep company profits as personal income, it would be best to set up a limited by shares company, which is specifically designed for profit-making businesses.
Limited by guarantee companies cannot issues shares and they do not have shareholders. This limits their ability to fundraise, because they cannot issue shares in exchange for investment capital, which is why companies limited by guarantee are more suited to non-profits and charities.