It is a type of business structure, and is most commonly used by non-profit organisations such as sports clubs, societies and charities. The personal assets of its members (guarantors) are protected from being used for company debts, and they are liable only for the amount agreed by their guarantees.
A company limited by guarantee is usually a non-profit organisation with guarantors rather than shareholders. The members guarantee to contribute a sum of money in the event of the company being wound up, and are therefore liable for company debts up to the value of the guarantees rather than the value of the shares. Unlike a company limited by shares, profits are not generally distributed to its members.
Guarantors are individuals or other companies that provide a cash guarantee for a limited company rather than holding shares. Generally, guarantors do not take any profit from the company.
Any individual or company can act as guarantor - there are no statutory restrictions limiting eligibility, however the company's articles may make its own provisions as to who is acceptable.
Company formation requires at least one guarantor and one director. Both roles can be filled by a single person or multiple individuals and companies.
Yes, one person can act as a guarantor and a director, providing they are aged 16 or over and not an ‘undischarged bankrupt’ or disqualified from holding a directorship role.
Non-profit organisations such as clubs and charities, sports clubs and associations, schools, workers’ cooperatives and student unions usually benefit from this structure.
No, in most cases the guarantors are not entitled to receive any profits. Such restrictions will be explicitly stated in the articles of association. Any funds generated will be put back into the business and used for the advancement and promotion of the company’s aim. Any company that does distribute its profits to members will forfeit any right to charitable status.
A company limited by guarantee will only be exempt from using ‘Limited’ or ‘Ltd’ if the company’s aims are not-for-profit and solely focused on the promotion of commerce, art, science, education, religion, charity or any profession.
All limited by guarantee companies must have a registered office, memorandum and articles of association in order to register their new enterprise through Companies House. Details of all guarantors and directors must also be filed with Companies House and held in the public register.
Charities do not have to be registered as a company unless limited liability is sought. If this is the case, the organisation will be required to incorporate through Companies House as a limited by guarantee company, as well as registering as a charity with the Charity Commission (England and Wales) or Office of the Scottish Charity Regulator (OSCR) in Scotland. In order to meet the requirements of the charity regulators, it is commonplace for 3 members (known as trustees) to be appointed. Certain provisions must also be included in the articles of association that state the exclusively charitable aims of the company and the restriction of any profit distribution to its members.