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

This guide answers seven common questions about the Limited by Guarantee (LBG) company structure — a type often chosen by charities and non-profit organisations.

If you’re considering forming your own LBG, this overview will help you understand how it works and what’s required.

Key Takeaways

• LBGs have guarantors, not shareholders.

• Commonly used by charities and non-profits.

• Must file annual accounts, a confirmation statement, and Corporation Tax returns.

• Can pay staff, and directors only if allowed in the Articles of Association.

• VAT registration rules are the same as for private limited companies (LTDs).

1. How is a Limited by Guarantee company different from a Limited by Shares company?

The main difference lies in liability.

• Limited by Shares (LTD): Owners (shareholders) are only liable for the value of their shares if the company is wound up.

• Limited by Guarantee (LBG): Members (guarantors) promise to contribute a fixed amount to cover the company’s debts if it is wound up.

Since LBGs have no shares, they cannot distribute profits as dividends, making them ideal for charities and non-profits. Despite this, LBGs operate similarly to LTDs in other respects.

Example: Network Rail is an LBG.

2. Does an LBG name have to end in “Ltd”?

Typically, an LBG must end its name with “Ltd” or “Limited”.

However, organisations established to promote commerce, art, science, education, religion, charity, or a profession may not need to include “Ltd” or “Limited.”
Example: Oxfam does not include “Ltd” in its name.

3. Does a Limited by Guarantee company have to file annual accounts?

Yes. An LBG is required to submit:

• Annual accounts

• Confirmation statement to Companies House

• Corporation Tax return to HMRC

These filings are the same as for a standard LTD company.

4. Can an LBG pay salaries?

• Staff salaries: Yes, these are considered normal running expenses.

• Directors and members: Payment is only allowed if the company’s Articles of Association explicitly permit it. LBGs cannot issue shares or pay directors a salary in the same way a standard LTD company can.

5. What happens if a guarantor wants to leave?

The company’s Articles of Association should outline the process for members leaving or joining. Typically:

• A departing guarantor provides notice.

• A new member is appointed at a meeting, such as an AGM.

6. Can an LBG register for VAT?

Yes. An LBG must register for VAT if taxable sales exceed the current threshold of £90,000 per year. It can also voluntarily register before reaching the threshold.

7. What should I do if I want to form an LBG?

If you’re ready to incorporate your own Limited by Guarantee company, make sure to check all legal requirements and consider professional services for guidance.

[Limited by Guarantee Company Incorporations]

Disclaimer

This article provides general information only and should not be considered legal, tax, or professional advice. While we aim to provide accurate and up-to-date information, it is not a substitute for personalised expert guidance. Always consult a qualified professional before making decisions regarding your company. We accept no liability for any loss or damage arising from reliance on this content.