What is a Company Limited by Guarantee?
Limited by guarantee companies are most often formed by non-profit organisations such as sports clubs, workers' cooperatives, membership organisations and charities whose owners wish to have the benefit of limited financial liability.
A company limited by guarantee does not have any shares or shareholders (like the more common limited by shares structure) but is owned by guarantors who agree to pay a set amount of money towards company debts.
Furthermore, there will generally be no profits distributed to the guarantors as they will usually be re-invested in the business. If there remains any profit after closure of the company or if any profits are distributed to the owners, then the company will forfeit its right to apply for charitable status.
Who is this structure right for?
A company limited by guarantee is an excellent option for organisations focused on non-profit activities and community benefit.
With limited liability and a structure that encourages accountability, it provides a strong legal foundation for those seeking to make a positive impact. For example:
- Charities
- Sports clubs
- Trade associations
- Educational institutions
- Community organisations
Key Benefits
No Share Capital:
CLGs do not issue shares or have shareholders. Instead, members contribute a small, pre-agreed amount if the company faces financial difficulties.
Non-Profit Focus:
These companies typically operate for charitable, educational, or community-focused purposes, with profits reinvested into the organisation's mission.
Limited Liability:
Members are only liable for the amount they guarantee, usually a small nominal figure, limiting their financial risk.
Features
Limited liability
A company limited by guarantee is a distinct legal entity from its owners and is responsible for its own debts. The personal finances of the company’s guarantors are protected. They will only be responsible for paying company debts up to the amount of their guarantee.
Clear mission focus
Profits are reinvested to further the organisation's goals, ensuring long-term impact.
Reputation and trust
‘Limited’ status builds trust and confidence amongst clients and investors. This type of professional credibility is valuable and can help a company achieve its objectives more effectively.
Forming a Limited by Guarantee Company
It is easy to set up a company limited by guarantee through 1st Formations. We can offer a specialist Guarantee Package designed for this purpose for just £69.99. Please see the requirements of forming this company below:
- All companies limited by guarantee must be registered with Companies House.
- These companies need at least one director and one guarantor, which can be the same person or multiple individuals. Information about directors and guarantors is publicly available.
- You need to provide details of People with Significant Control (PSCs), typically the directors and guarantors.
- You will need to provide Companies House with a UK registered office address and up to four Standard Industrial Classification (SIC) codes which describe your business activities.
- Each company must have a memorandum and articles of association. The memorandum lists guarantors and confirms their agreement to form the company, while the articles outline its rules and regulations.
Frequently Asked Questions
Why would I incorporate a company limited by guarantee?
The majority of companies limited by guarantee are set up by non-profit organisations such as sports and social clubs, unions, workers’ co-operatives, etc. If you require a company for the purpose of raising money to promote and further the aims of your business alone, rather than taking profits for yourself, a limited by guarantee company is a good choice.
Who owns a company limited by guarantee?
A company limited by guarantee is owned by individuals and/or corporate bodies known as ‘guarantors’. Guarantors do not have any shares in the company and, generally, they do not take any of the profits. The owners of a company limited by guarantee will agree to pay a sum of money, known as a ‘guarantee’, if the company has any debts or becomes insolvent.
Who can be a guarantor?
A guarantor can be any person or a corporate body. Their details will be registered with Companies House and displayed on public record.
How many people will I require to register a company limited by guarantee?
You will need at least one director and one guarantor - but, one person can assume both positions so you could start a company on your own. Alternatively, you can multiple directors and guarantors. The choice is yours.
Can guarantors take a share of the profits?
Guarantors can certainly take a portion of company profits for themselves, but most of the time this does not happen because limited by guarantee companies are usually set up for non-profit purposes. This means that all of the money generated by this type of company is kept in the business or used to promote its non-profit purpose and activities.
If guarantors do keep any profit for themselves, the company will no longer be considered 'non-profit' and it will be ineligible for charitable status. There is nothing to prevent someone setting up this type of company to run a profit-making business in which the guarantors will keep the profits, but a limited by shares structure simply makes more sense for that purpose.
What are the filing requirements of a company limited by guarantee?
The filing requirements to register a company limited by guarantee are as follows:
- Completed Form IN01
- Articles of association
- Supporting documentation, if the company’s name uses any sensitive words or phrases
Once a limited by guarantee company has been registered, it will have to undertake a number of filings to Companies House throughout its life.
They must submit an annual confirmation statement (which covers key information about the company’s activities and status) as well as annual accounts (which provides a snapshot of the company’s financial activity). If these are not submitted, the company may be closed down and the directors could face prosecution.
Additionally, throughout the year they need to update Companies House regarding any changes to its other details, for example information about its directors, its People with Significant Control, and the company’s registered office address.
These filing requirements are in addition to any other requirements the company needs to submit to HMRC, for example its corporation tax return.
Is the information about guarantors and directors publicly available?
Yes. When you register a company limited by guarantee, the names of all directors and guarantors (the members) are made visible at Companies House and are easily searchable.
If details regarding the directors changes (for example, a new director is appointed), these changes will also need to be reported to Companies House.
Changes regarding the company’s guarantors are not published at Companies House, however if the guarantor is also a Person with Significant Control or officer, then their details remain publicly visible and updated.
What happens if a company limited by guarantee is dissolved?
If a limited by guarantee company is dissolved then the company will cease to exist. As a result, you will no longer be able to trade through the company, regardless of whether you intended for the company to be dissolved or not.
If there were any assets left in the name of the company (for example, money in a bank account) then these will pass to the Crown.
Once a company has been dissolved, the only way to get it back is to carry out a company restoration (the exact method will depend on how the company was dissolved in the first place). This will usually be necessary if there were any assets left in the company at the time it was dissolved.
Are companies limited by guarantee required to pay tax?
Yes. Limited by guarantee companies are subject to have the same taxation requirements as regular private companies limited by shares. For example, any profits the company makes will be subject to Corporation Tax. Further, should any dividends be declared, then the dividends will be taxed for the individual(s) receiving those dividends at the relevant dividend tax rate.
