Introduction
A company limited by guarantee is a popular legal structure for non-profit organisations seeking liability protection and a clear, mission-driven framework. Unlike companies limited by shares, these have no shareholders – instead, guarantors agree to contribute a fixed amount if the company winds up. This guide outlines who this structure suits, highlights its key advantages such as limited liability and non-profit focus, and explains the simple formation process, including required documentation.
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.
Nicholas Campion
Nicholas is Director, Company Secretarial at 1st Formations, responsible for completing the company’s statutory filings and ensuring all the company secretarial department is fully trained on company law and company secretarial procedures. Nick is also Company Secretary for the BSQ Group and all subsidiary brands, an accredited industry leader and a Companies Act 2006 specialist.
