What is a Company Limited by Guarantee?

A company limited by guarantee is a type of UK limited company that has members rather than shareholders. Instead of issuing shares, the company is backed by guarantors who agree to contribute a fixed amount if the company becomes insolvent. Profits are reinvested into the organisation rather than distributed to members.

It is the structure most commonly used by nonprofits, charities, community groups, sports clubs, and membership organisations.

Key Takeaways

• A company limited by guarantee has no shares or shareholders. Members act as guarantors and agree to contribute a set amount if the company cannot meet its debts.
• Any profits must be reinvested into the organisation. They cannot be distributed to members, which is why this structure suits nonprofits and community groups.
• The company is a separate legal entity from its members. This means members are protected from personal liability beyond the amount of their guarantee.
• Guarantors can also be directors of the company. In small organisations, the same person often holds both roles.
• The company must be registered with Companies House and has the same ongoing compliance obligations as other limited companies, including annual accounts and a confirmation statement.
• Companies MadeSimple offers a dedicated limited by guarantee formation package to register this type of company online.

What Is the Difference Between Limited by Guarantee and Limited by Shares?

The main difference is ownership structure. A limited by shares company has shareholders who own a portion of the company and can receive dividends from profits. A limited by guarantee company has no shares. Instead, it has guarantors who agree to pay a nominal sum if the company is wound up.

Limited by guarantee companies do not distribute profits to members. Any income generated is reinvested to support the organisation's activities, which makes this structure the right fit for organisations whose purpose is not to generate personal profit.

Who Uses a Company Limited by Guarantee?

This structure is most commonly used by:

• Charities and voluntary organisations
• Community interest groups
• Sports clubs and associations
• Professional membership bodies
• Trade associations
• Management companies for housing or business developments
• Educational institutions and academies

The structure provides legal protection and a formal organisational framework without the profit-distribution model that comes with a limited by shares company.

How Does Limited Liability Work for Guarantors?

Because a limited by guarantee company is a separate legal entity, the company itself is responsible for its own debts. Members are not personally liable for those debts beyond the amount of their guarantee.

The guarantee amount is typically very small, often £1. This means that if the company cannot meet its financial obligations and is wound up, each guarantor pays their agreed amount and nothing more. This protection is one of the main reasons larger nonprofits and community organisations choose this structure over operating as an unincorporated association, where members can face unlimited personal liability.

How Does a Company Limited by Guarantee Raise Funds?

Without shares to sell, limited by guarantee companies raise money through other means. The most common funding sources include:

• Membership fees and subscriptions
• Grants from government bodies, trusts, or foundations
• Donations and fundraising
• Endowments
• Income from services or events provided by the organisation

Some limited by guarantee companies are set up with initial working capital from members. Others rely entirely on ongoing income streams from the sources listed above. Either way, any surplus is reinvested into the organisation rather than paid out.

Structure of a Company Limited by Guarantee

The structure of a limited by guarantee company is similar to other limited companies in several respects. It must have at least one director and at least one member, though in practice most organisations have several of each.

Members have the right to attend meetings and vote on key decisions, including appointing or removing directors and making changes to the organisation's rules. The articles of association set out how the organisation is governed, including voting procedures and membership classes.

Directors are legally responsible for running the company and ensuring it meets its filing obligations with Companies House and HMRC.

What Do You Need to Set Up a Company Limited by Guarantee?

To register a company limited by guarantee with Companies House, you will need:

• Full names and addresses of all directors and guarantors
• Details of any Persons with Significant Control (PSCs)
• A company name that complies with Companies House naming rules
• A registered office address in the UK
• A statement of guarantee specifying the amount each member agrees to contribute
• A description of the company's activities and a relevant SIC code
• Memorandum and articles of association setting out how the company will operate

Directors and PSCs must also complete identity verification with Companies House before the company can be registered, in line with requirements introduced in November 2025.

How to Register a Company Limited by Guarantee With Companies MadeSimple

Companies MadeSimple offers a dedicated limited by guarantee formation package that handles the registration process online. Most applications are submitted to Companies House the same day, with many processed within a few working hours, subject to Companies House workload.

The package includes registration with Companies House, incorporation documents, and access to an online admin portal to manage your company's ongoing compliance.

Ongoing Compliance Obligations

A company limited by guarantee has the same annual filing obligations as any other limited company registered in the UK.

Annual accounts must be prepared and filed with Companies House each year. The type of accounts required depends on the size of the company.

A confirmation statement must be submitted annually to confirm that the information Companies House holds about the company is accurate and up to date.

Corporation Tax obligations apply to limited by guarantee companies, though charitable organisations registered with the Charity Commission may be eligible for tax exemptions. This depends on the organisation's specific circumstances and is worth confirming with an accountant.

FAQs

What is a company limited by guarantee in simple terms?

It is a UK company structure with members rather than shareholders. Members agree to contribute a small, fixed amount if the company cannot pay its debts. Profits cannot be paid out to members and must be reinvested into the organisation. It is most commonly used by nonprofits, charities, clubs, and membership organisations.

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

Anyone over 16 can act as a guarantor. Guarantors agree to pay a set amount if the company becomes insolvent, often as little as £1. They do not own shares but can vote on key decisions, attend meetings, and help govern how the organisation is run. A guarantor can also be a director of the same company.

Why choose a company limited by guarantee instead of a limited by shares company?

This structure suits organisations that do not exist to generate profit for their members. It provides limited liability protection, a formal legal framework, and a clear nonprofit structure. It also reassures funders and grant providers that money will be reinvested into the organisation's activities rather than distributed to individuals.

Can a company limited by guarantee make a profit?

Yes. It can generate income and make a surplus, but that surplus cannot be distributed to members. It must be reinvested to support the organisation's aims. This is a key condition of the structure and what distinguishes it from a limited by shares company.

Does a company limited by guarantee have directors and PSCs?

Yes. It must have at least one director and must declare any Persons with Significant Control to Companies House. A PSC is someone with significant influence over the organisation, such as a person with certain voting rights or the ability to appoint directors.

What documents are needed to register a company limited by guarantee?

You will need director and guarantor details, a registered office address, a company name, a statement of guarantee, a SIC code, and memorandum and articles of association. Companies MadeSimple's formation package provides the standard documents as part of the registration process.

Is a company limited by guarantee the same as a charity?

No. A limited by guarantee company and a charity are different things. You can register a limited by guarantee company as a charity with the Charity Commission separately, but not all limited by guarantee companies are charities. The company structure and charitable status are two separate registrations with different requirements.

This article is for general information only and does not constitute legal or tax advice. Rules around company formation, tax obligations, and charity registration can change. Always check current guidance on GOV.UK and speak to a qualified professional if you are unsure which structure is right for your organisation.