What is a Limited by Guarantee Company?

Limited by guarantee companies are commonly adopted by nonprofit organisations such as charities, sports associations, community projects, societies, and other similar entities. This type of structure does not have shares or shareholders, as opposed to limited by shares companies. This means that all profits earned by the company are reinvested for different purposes.  In the UK, private limited by guarantee companies make up 2.6% or 125, 478 of corporate body types on the total register from 2020 to 2021.

Key Takeaways

• A company limited by guarantee is usually used for nonprofits and membership organisations, it has no shares or shareholders and any profit is typically reinvested to support the organisation’s aims.
• In a company limited by guarantee, members act as guarantors and their personal liability is limited to a set amount, this protects individuals from being personally responsible for most unpaid debts if the company cannot meet its obligations.
• A limited by guarantee company can raise funds either with or without share capital, using sources such as membership fees, subscriptions, grants, endowments and other funding streams, with guarantors agreeing to contribute their guarantee if the company becomes insolvent.
• The structure of a company limited by guarantee is similar to a private company limited by shares, it must have at least one member and one director, and members can attend meetings, vote, and help decide how the organisation is run.
• To set up a company limited by guarantee you need key details such as director and guarantor information, People with Significant Control, a company name, a registered office address, a statement of guarantee and suitable memorandum and articles of association.
• Companies Made Simple offers dedicated limited by guarantee formation packages, including Companies House registration, incorporation documents and startup tools, so you can register this type of company quickly and manage compliance with confidence.

Benefits of Trading as a Company Limited by Guarantee

A company limited by guarantee is a separate legal entity from its owners and is therefore responsible for its own debts. Owners choose to have their nonprofits registered as a limited by guarantee company to benefit from limited financial liability. Since the nature of these companies is not to make a profit, they forfeit their right to apply for charitable status when profits are distributed among owners.

Usually, the main reason nonprofit organisations opt to be a company limited by guarantee is to protect the people from unpaid debts. Some charities, clubs, and groups operate on a large scale and carry many liabilities. If their expenses cannot be covered by their income, the organisation is likely to dissolve. Without the protection offered by the law on guarantee companies, the people in management or the committee would be personally liable for the organisation’s financial losses.

How Does a Limited by Guarantee Company Raise Funds?

Limited by Guarantee companies are categorised as follows:

1. Having share capital – the company is set up with some initial capital or working funds from members. Once operations begin, normal working funds can be sourced from fees, charges, and subscriptions.
2. Not having a share capital – the company raises initial capital and working funds through various sources, such as endowments, fees, subscriptions, grants, or alternative funding streams like asset-based borrowing. Guarantors are also responsible for contributing an agreed amount in the event of insolvency.

Limited by Guarantee Company Structure

A company limited by guarantee is like a private company limited by shares. However, a Limited by Guarantee company does not have shareholders. The company must have one or more members and assign at least one director. Members are encouraged to attend meetings and vote to appoint or remove directors, form committees, and set different levels or classes of members.

Setting up a Company Limited by Guarantee

You can set up a guarantee company by registering it at Companies Made Simple. Here are the requirements:

• The names and addresses of director/s and guarantor/s
• Details about People with Significant Control (PSCs) or beneficial owners who own or control your company
• The company’s name
• A registered office address
• A statement of guarantee which indicates the amount of guarantee by each member
• The company type and nature of activities
• The memorandum and Articles of Association (agreements, rules, and regulations agreed upon by the members)

Our Limited by Guarantee Company Packages

Companies Made Simple makes the registration process easy and hassle-free. We offer fast online formation in as little as three hours (subject to Companies House workload). Our limited by guarantee packages include:

• Companies House registration fee
• Printed Certificate of Incorporation
• Digital Memorandum and Articles of Association (M&A)
• Business Startup Toolkit (with free domain name)

Get Started Today

Form a company limited by guarantee with the help of a company formation agent like Companies Made Simple. Learn more about our limited by guarantee service packages.

FAQs

What is a company limited by guarantee in simple terms?

A company limited by guarantee is a business structure used mainly by nonprofits, clubs, charities and membership organisations. Instead of shareholders, it has guarantors who agree to pay a small fixed amount if the company closes. Any profits are usually reinvested to support the organisation’s goals rather than paid out to members.

Who can be a guarantor in a company limited by guarantee?

A guarantor is usually a member of the organisation, and anyone over 16 can act as one. Guarantors agree to pay a set amount if the company becomes insolvent, often as little as £1. They do not own shares but they can vote on key decisions and help shape how the organisation is run.

Why would you choose a company limited by guarantee instead of a limited company with shares?

You would choose a guarantee company when the organisation does not exist to make profit for its members. This structure works well for charities, clubs and community groups because it offers limited liability, a stable legal framework and a clear nonprofit focus. It also reassures funders that money will be reinvested into the organisation.

How do companies limited by guarantee raise money if they do not issue shares?

These companies raise funds through membership fees, grants, donations, sponsorships, endowments and subscriptions. Because they do not issue shares, funding often comes from supporters rather than investors. Some organisations also generate income through events or services, which is then reinvested into their activities.

Do companies limited by guarantee have directors and PSCs?

Yes, they must have at least one director to run the company and must declare People with Significant Control (PSCs). A PSC is someone who has influence over how the company is managed or who has voting rights. Even nonprofit organisations must meet these legal reporting requirements.

What documents do I need to set up a company limited by guarantee?

You need director details, guarantor details, a registered office address, a company name, a statement of guarantee and suitable memorandum and articles of association. These documents outline how the company operates and how members support the organisation. Companies Made Simple provides formation packages to help you complete these requirements quickly.

Can a company limited by guarantee make a profit?

Yes, it can make a profit, but the profit cannot be paid out to members. Instead, surplus funds must be reinvested to support the organisation’s activities or long term aims. This is why the structure is popular with charities, community groups and membership-based organisations.