Limited by Guarantee: 7 Key Questions Answered for Charities and Non-Profits

We're here to answer seven common(ish) questions about the Limited by Guarantee (LBG) company structure – a structure commonly favoured by charities and non-profits. 

Take a look, and remember to get in touch if you’re interested in incorporating your own Limited by Guarantee company.

Key Takeaways

• LBGs have guarantors, not shareholders
• Popular with charities and non-profits
• Must file annual accounts, confirmation statement, and tax returns
• Can pay staff; directors only if allowed in Articles of Association
• VAT registration rules are the same as for LTDs

What are the key differences between a standard Limited by Shares company and a Limited by Guarantee company?

The crucial difference is the measurement of the owner’s liability to the company in the event of the company being wound up.

For a company that’s Limited by Shares – in other words a typical limited company – the owners don’t have to pay any more than the basic value of their shares into the company to cover any other outstanding debts that the company may have when it’s closed down.

For a company that’s Limited by Guarantee, the owners guarantee a certain amount that they will put up to cover debts that the company may have when it closes. As an LBG has no shares, it cannot distribute profits in the form of dividends, and therefore LBGs are a popular business structure among charities and not-for-profit organisations. For example, Network Rail is an LBG.

Otherwise, LTD and LBG companies work in a very similar way.

Does a Limited by Guarantee company name have to end in Ltd?

Typically an LBG’s name must end in ‘Ltd’ or ‘Limited’. However, the names of LBGs that are set up for the promotion of commerce, art, science, education, religion, charity or any profession do not have to end in ‘Ltd’ or ‘Limited’. The charity Oxfam is one example of this.

Does a Limited by Guarantee company have to file annual accounts? What else do they need to annually file?

Just like any other company, a LBG has to file annual accounts and an annual confirmation statement at Companies House. It also has to file a Corporation Tax return with HMRC.

Can a Limited by Guarantee company pay people a salary?

An LBG can pay any hired staff, as this is considered part of the running expenses. 

If an LBG company wishes to pay its directors and members (the LBG equivalent of shareholders), then it must have a clause within its Articles of Association which allows this. Otherwise, an LBG company cannot issue shares or a director's salary like a private limited company- which is the most common way of running an LBG company. 

How does it work if a guarantor wishes to leave the company?

The company should have a process laid down in its articles of association for what would happen if a guarantor (also known as a member) wished to leave the company, and/or when new members joined. This would typically involve a departing guarantor giving notice and a joining member being appointed at a meeting such as an AGM.

Can a Limited by Guarantee company register for VAT?

Yes, an LBG may have to register for VAT – the same as any other business would – if its VATable sales go over the threshold, which is currently £90,000 a year. An LBG can also register for VAT voluntarily before then.

If you’re looking to form your own Limited By Guarantee company take a look at the below link, and as per usual, please do let us know if you have any questions.

Limited By Guarantee company incorporations.

This article is intended to provide general information only. It shouldn’t be taken as legal, tax, or professional advice. While we do our best to ensure the information is correct and up to date, it should not be relied upon as a substitute for expert advice specific to your situation. We always recommend speaking to a qualified professional before making any decisions based on the information here. Companies MadeSimple accepts no responsibility for any loss or damage that may arise from relying on the information provided. You use this content at your own risk.