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What is a Company Limited by Guarantee?

What is a Limited by Guarantee Company?

Limited by guarantee companies are commonly adopted by nonprofit organisations such as charities, sports associations, community projects, societies, and other similar entities. This type of structure does not have shares or shareholders, as opposed to limited by shares companies. This means that all profits earned by the company are reinvested for different purposes.  In the UK, private limited by guarantee companies make up 2.6% or 125, 478 of corporate body types on the total register from 2020 to 2021.

Benefits of Trading as a Company Limited by Guarantee

A company limited by guarantee is a separate legal entity from its owners and is therefore responsible for its own debts. Owners choose to have their nonprofits registered as a limited by guarantee company to benefit from limited financial liability. Since the nature of these companies is not to make a profit, they forfeit their right to apply for charitable status when profits are distributed among owners.

Usually, the main reason nonprofit organisations opt to be a company limited by guarantee is to protect the people from unpaid debts. Some charities, clubs, and groups operate on a large scale and carry many liabilities. If their expenses cannot be covered by their income, the organisation is likely to dissolve. Without the protection offered by the law on guarantee companies, the people in management or the committee would be personally liable for the organisation’s financial losses.

How Does a Limited by Guarantee Company Raise Funds?

Limited by Guarantee companies are categorised as follows:

  1. Having share capital – the company is set up with some initial capital or working funds from members. Once operations begin, normal working funds can be sourced from fees, charges, and subscriptions.
  2. Not having a share capital the company raises initial capital and working funds through various sources, such as endowments, fees, subscriptions, grants, or alternative funding streams like asset-based borrowing. Guarantors are also responsible for contributing an agreed amount in the event of insolvency.

Limited by Guarantee Company Structure

A company limited by guarantee is like a private company limited by shares. However, a Limited by Guarantee company does not have shareholders. The company must have one or more members and assign at least one director. Members are encouraged to attend meetings and vote to appoint or remove directors, form committees, and set different levels or classes of members.

Setting up a Company Limited by Guarantee

You can set up a guarantee company by registering it at Companies Made Simple. Here are the requirements:

Our Limited by Guarantee Company Packages

Companies Made Simple makes the registration process easy and hassle-free. We offer fast online formation in as little as three hours (subject to Companies House workload). Our limited by guarantee packages include:

Get Started Today

Form a company limited by guarantee with the help of a company formation agent like Companies Made Simple. Learn more about our limited by guarantee service packages.

 

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