In short: A company limited by guarantee has members instead of shareholders. Each member promises to pay a small fixed amount, often £1, if the company is wound up with debts. It is the usual structure for charities, clubs, community groups and property management companies that do not want to share profits with owners.
Most UK companies are limited by shares. For organisations that exist for a purpose rather than to make money for owners, the company limited by guarantee is often a better fit.
How it works
A company limited by guarantee has no share capital and no shareholders. Instead it has members, who each give a guarantee: a promise to contribute a fixed amount towards the company's debts if it is wound up while they are a member (or within a year after they leave). The amount is set in the articles and is usually small, often £1.
Like any limited company, it is a separate legal person. It can own property, sign contracts and employ staff in its own name. Members' liability is limited to the amount of their guarantee.
Who uses it
- Charities that want the protection of a company. In Scotland they also register with OSCR; in England and Wales with the Charity Commission if their income is over £5,000.
- Clubs and associations, such as sports clubs and membership bodies.
- Community and social enterprises.
- Property management companies, which manage the shared parts of a building or estate on behalf of the owners.
- Trade associations and professional bodies.
Can it make a profit?
Yes. A guarantee company can trade and make a surplus. The difference is what happens to it. Usually the articles say profits must be used for the company's purposes and cannot be paid out to members. This is one reason funders and grant bodies are often comfortable with the structure.
Limited by guarantee and limited by shares compared
- Owners: members (guarantee) or shareholders (shares).
- Profits: usually reinvested (guarantee) or can be paid as dividends (shares).
- Raising money: a guarantee company cannot issue shares to investors, so it relies on income, grants, donations or loans.
- Name: a guarantee company may in some cases be exempt from using "Limited" in its name if it meets the legal conditions, for example certain charities.
Running a guarantee company
The rules are largely the same as for any private company:
- at least one director, who must be a natural person aged 16 or over;
- a registered office that is an "appropriate address" in the same UK nation as the company, and a registered email address;
- a Confirmation Statement at least once every 12 months;
- annual accounts (first accounts due 21 months after incorporation, then 9 months after the year end);
- identity verification with Companies House for every director and person with significant control.
A guarantee company that trades must register with HMRC for Corporation Tax within 3 months of starting to trade. Charities may be eligible for tax reliefs, but this depends on their status, so check with an accountant.
Setting one up
- Choose a name and check it is available.
- Decide who the first members and directors will be.
- Prepare articles of association. Model articles for guarantee companies exist, but charities, clubs and property management companies often need tailored articles.
- Make sure every director and PSC has verified their identity.
- Register with Companies House. The incorporation fee is £100 online.
How Form My Company can help
Our Company Limited by Guarantee formation costs £290, including the Companies House fee and VAT, and as a Companies House ACSP we verify your directors' identity for you. For charities see Charity Formation at £450, and for tailored rules, Bespoke Articles at £800. We also form Property Management Companies for £750.
Frequently asked questions
What is a company limited by guarantee?
It is a company with members instead of shareholders. Each member guarantees a small fixed amount towards the company's debts if it is wound up.
Can a company limited by guarantee pay its directors?
It can pay directors for work they do if the articles allow it. Charities have stricter rules on paying trustees, so check the rules for your situation.
Can a guarantee company make a profit?
Yes, but profits are usually reinvested in the company's purposes rather than paid out to members.
Is a charity always a company limited by guarantee?
No. A charity can use other structures, such as a trust or a charitable incorporated organisation. Many choose a guarantee company for its limited liability.