What Is a Company Limited by Guarantee?

A company limited by guarantee is a legal structure most commonly used by nonprofit and membership-based organisations such as charities, sports clubs, community groups, societies, and associations. Unlike companies limited by shares, this structure does not have shareholders or share capital. Instead, any surplus income is reinvested to support the organisation’s objectives rather than being distributed as profit.

In the UK, private companies limited by guarantee represent a small but important segment of registered entities. Between 2020 and 2021, they accounted for approximately 2.6% of all corporate bodies on the Companies House register, equating to over 125,000 organisations.

Key Takeaways

• A company limited by guarantee is typically used by nonprofits and membership organisations and does not issue shares or pay profits to members.

• Members act as guarantors, with personal liability limited to a fixed, pre-agreed amount if the company cannot meet its debts.

• Funding can be raised through membership fees, grants, donations, subscriptions, and other income streams rather than investors.

• The structure closely mirrors a private limited company, requiring at least one director and one member, with members having voting rights.

• To form a company limited by guarantee, you need key company details, a statement of guarantee, and appropriate constitutional documents.

• Companies Made Simple offers tailored formation packages to help register and manage a company limited by guarantee efficiently.

Benefits of Trading as a Company Limited by Guarantee

A company limited by guarantee is a separate legal entity, meaning it is responsible for its own debts and obligations. One of the main reasons nonprofits choose this structure is the protection it offers to members and directors through limited liability.

Many charities, clubs, and associations operate on a significant scale and may take on financial commitments such as leases, contracts, or loans. If the organisation cannot meet its financial obligations, the limited by guarantee structure ensures that individuals involved are not personally liable beyond their agreed guarantee amount. Without this protection, committee members or managers could otherwise be exposed to substantial personal financial risk.

How Do Companies Limited by Guarantee Raise Funds?

Companies limited by guarantee can operate in two main ways:

With Initial Capital

Some organisations start with a modest level of initial capital provided by members. Ongoing income is then generated through subscriptions, service charges, event fees, or membership payments.

Without Share Capital

Many guarantee companies raise funds through grants, donations, endowments, sponsorships, and subscriptions. In this structure, members agree to contribute a small fixed amount if the company becomes insolvent, providing creditors with reassurance.

Structure of a Company Limited by Guarantee

While similar in structure to a private limited company, a company limited by guarantee does not have shareholders. Instead, it must have:

• At least one member (guarantor)

• At least one director

Members are entitled to attend meetings, vote on key decisions, appoint or remove directors, and help shape how the organisation is governed. Some organisations also create different classes of membership depending on their needs.

Setting Up a Company Limited by Guarantee

You can register a company limited by guarantee through a company formation agent such as Companies Made Simple. To complete the registration, you will need:

• Names and addresses of directors and guarantors

• Details of People with Significant Control (PSCs)

• A compliant company name

• A registered office address

• A statement of guarantee outlining each member’s liability

• The nature of the company’s activities

• A Memorandum and Articles of Association

These documents define how the organisation operates and how members support it.

Our Limited by Guarantee Company Packages

Companies Made Simple offers a simple and efficient way to register a company limited by guarantee. Formation can be completed online in as little as three hours, subject to Companies House processing times.

Our packages include:

• Companies House registration fee

• Printed Certificate of Incorporation

• Digital Memorandum and Articles of Association

• Business startup toolkit, including a free domain name

Get Started Today

Form your company limited by guarantee with confidence by working with an experienced company formation agent. Companies Made Simple provides tailored packages designed to make setup and compliance straightforward.

FAQs

What is a company limited by guarantee in simple terms?

It is a business structure mainly used by nonprofits and membership organisations. Instead of shareholders, it has guarantors who agree to pay a small fixed amount if the company closes. Profits are reinvested rather than paid out.

Who can act as a guarantor?

Anyone aged 16 or over can be a guarantor. Guarantors agree to contribute a set amount, often £1, if the company becomes insolvent and usually have voting rights within the organisation.

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

This structure is ideal for organisations that do not aim to generate profit for members. It provides limited liability, legal stability, and reassurance to funders that income will be reinvested.

How do guarantee companies raise money without shares?

They raise funds through memberships, grants, donations, sponsorships, subscriptions, and income-generating activities such as events or services.

Do companies limited by guarantee need directors and PSCs?

Yes, they must have at least one director and must declare any People with Significant Control, even if they operate on a nonprofit basis.

Can a company limited by guarantee make a profit?

Yes, but any surplus must be reinvested into the organisation rather than distributed to members.