If you're setting up a charity, club, community project, or membership organisation in the UK, you've almost certainly come across the term "company limited by guarantee." But what does it actually mean, and is it the right structure for your organisation? This guide breaks down everything you need to know - from the core definition to governance, finances, charitable status, and how to get one registered.
Key Takeaways
A company limited by guarantee is a private non-profit business structure with no share capital and no shareholders. Instead, it has guarantor members who each promise a small fixed amount (typically £1) if the company is wound up.
These companies are usually set up for non-profit, charitable, or community-focused purposes and normally do not distribute profits to members. Any surplus is reinvested into the organisation's stated objects.
A company limited by guarantee is incorporated at Companies House under the Companies Act 2006, making it a separate legal entity that can own property, enter contracts, employ staff, and be responsible for its own debts.
It provides the same limited liability protection as a company limited by shares, but is better suited where profit distribution is not the main aim.
What Is a Company Limited by Guarantee?
A company limited by guarantee is a type of limited company registered in the UK that has no share capital and no shareholders. Instead, it has members - often called "guarantors" - who agree to contribute a small, fixed amount toward the company's debts if it is ever wound up.
Most companies limited by guarantee in the UK are set up for non-profit or charitable purposes. Common uses of CLGs include charities, clubs, and community projects. Professional associations, sports associations, educational trusts, and membership organisations also frequently adopt this form.
The company is incorporated at Companies House under the Companies Act 2006. Once registered, it becomes a separate legal entity with its own legal personality, allowing it to enter contracts and own property independently of its members. A company limited by guarantee must have at least one member, though most have several.
The guarantee amount is usually nominal - commonly £1 to £10 per member. This amount is only ever called upon if the company cannot pay its debts when it is wound up. Members' liability in guarantee companies is usually limited to £1, meaning their personal assets are protected far beyond that point. A company limited by guarantee has no share capital, so guarantee companies cannot issue shares to raise capital.
How Does a Company Limited by Guarantee Work in Practice?
Day to day, a guarantee company operates much like any other UK limited company. Here's how the basic structure works:
Members (guarantors) set the organisation's overall direction. They vote at the annual general meeting and approve major decisions, but they do not own shares and cannot sell or transfer an ownership stake. Members control the company but do not own shares.
Directors manage day-to-day operations of the company. Members appoint directors to handle operational decisions, finances, and compliance. Directors collectively steer the organisation within the framework set by the company's articles.
An optional company secretary may support governance, handle Companies House filings, and maintain statutory registers. Some organisations also appoint a membership secretary to manage member records.
The company can enter contracts, employ staff, hold a lease, own property, and sue or be sued in its own name - in the same way as any other corporate body.
Profits (often called "surpluses") are usually reinvested to further the company's stated objects rather than distributed to members. Members do not own the company or receive profits. Voting rights are typically set as "one member, one vote" unless the company's articles create different membership classes.
Key Features of Companies Limited by Guarantee
Several features make guarantee companies distinct from typical share companies. Here's what matters most:
The defining characteristic is limited liability. Each guarantor's personal liability is limited to the agreed amount they guarantee - often just £1. This protects their personal assets from the company's debts. Members are only liable if the company is insolvent, and even then, only for that nominal sum.
Because the company cannot issue shares, there is no share capital. This makes it fundamentally different from a typical limited company limited by shares, where a shareholder's liability is tied to the value of shares held. Guarantee companies cannot raise funds by issuing shares to investors.
The membership structure is documented in a register of members and governed by the company's articles of association. The articles set out who can join, how members vote, and how they leave. Membership can include individuals or any other corporate body.
Management requires at least one director by law. In practice, many guarantee companies - especially those seeking charitable status - appoint two or more directors (sometimes called "trustees"). Directors have a legal responsibility to promote the company's success and act in accordance with company law.
A company secretary is not legally required for private companies under the Companies Act 2006, but many larger charities and membership bodies still appoint one. The secretary typically helps manage Companies House filings, minute-taking, and statutory registers.
What Is Different About a Guarantee Company vs a Share Company?
Understanding the difference between a guarantee company and a share company is essential if you're choosing a structure for your organisation.
Companies limited by shares have shareholders who invest capital, own the company, and may receive dividends. Shareholders control the company through share ownership. In contrast, companies limited by guarantee have guarantor members who usually do not receive profits and cannot receive dividends in the same way.
A company limited by guarantee is commonly used when the main goal is a social, educational, or charitable purpose rather than distributing profits. For the same reason, it appeals to particular interest groups, clubs, and associations that want formal governance but no profit motive.
Both types must register with Companies House, keep statutory records, and file annual accounts and a confirmation statement. The same rules around director duties and compliance apply.
Feature | Limited by Shares | Limited by Guarantee |
|---|---|---|
Ownership | Shareholders own shares | Guarantor members, no shares |
Liability | Shareholder's liability limited to share value | Members' liability limited to guarantee (e.g. £1) |
Share capital | Yes | No |
Profit distribution | Dividends to shareholders | Surpluses usually reinvested |
Typical use | Trading businesses, startups | Charities, clubs, associations |
Fundraising | Can issue shares | Grants, donations, membership fees |
Governance | Shareholders control via shares | Members vote at general meetings |
Structure and Governance of a Company Limited by Guarantee
The constitution of a guarantee company is set out in two key documents: the memorandum of association and the articles of association. Under the Companies Act 2006, the memorandum is a brief founding document, while the articles contain the detailed governance rules.
Members (guarantors) can be individuals or corporate bodies. You need at least one guarantor, but in practice most organisations have more. Members exercise ultimate control via general meetings and voting. They approve changes to the company name, objects, or articles - typically by special resolution (75% majority). Members control changes to the company's constitution.
Directors are appointed by members (or sometimes by external organisations, depending on what the articles allow). Directors may be appointed by external organizations or members. At least one director is required, but many organisations appoint a management committee or board of three or more. Directors collectively owe legal duties under the Companies Act, including the duty to promote the company's success and avoid conflicts of interest.
A company secretary is optional but useful for larger organisations. This role supports compliance, record-keeping, minutes of meetings, and statutory filings. Sub committees may also be established by the board for specific tasks or areas.
Decisions are made at two levels: board meetings (for day control and operational matters) and members' meetings (for constitutional and major decisions). Changes to the articles, company name, or other title must be filed with Companies House.
Finances, Profits and Not-for-Profit Status
"Not-for-profit" describes how funds are used, not whether the company can generate a surplus. A guarantee company can - and often does - bring in money.
CLGs typically fund themselves through grants, donations, and membership fees. Trading income related to the company's aims and borrowing are also common. Guarantee companies can secure funds through grants or borrowing, but they cannot raise funds by issuing shares.
Most companies limited by guarantee do not distribute profits to members. Instead, profits in a guarantee company are usually reinvested to support the company's purposes and certain objects. Members typically pay a nominal guarantee amount, often £1, and nothing more.
If the company's articles do allow profit distribution, this may prevent or remove charitable status and can have tax consequences. The 2006 Companies Act allows limited profit distribution under certain conditions, but for charities, this is strictly prohibited. For the main reason of preserving charitable eligibility, most CLGs prohibit any form of distribution in their articles.
Guarantee companies must still keep proper accounts. They must file accounts at Companies House, and those with charitable status also report to the relevant charity regulator. The balance sheet and annual accounts provide transparency and accountability.
Companies Limited by Guarantee and Charitable Status
Many charities in the UK choose to be companies limited by guarantee so they benefit from limited liability and clear governance while also registering as a charitable company.
To obtain charitable status, the company's objects must be exclusively charitable and its articles must prohibit distribution of profits or assets to members. The charity commission (for England and Wales), OSCR (Scotland), or CCNI (northern ireland) will assess whether the organisation meets the public benefit test.
Common examples of bodies using this form include local sports clubs, educational trusts, community centres, housing associations, and national governing bodies. Large charities like Cancer Research UK, British Red Cross, and The Scouts are all structured as CLGs.
Such organisations must register both at Companies House and with the relevant charity regulator. This means dual compliance: company law obligations (annual accounts, confirmation statements) and charity law duties (trustee responsibilities, public benefit criteria, financial thresholds for audit). Funding bodies often prefer or require this dual registration for credibility.
When Is a Company Limited by Guarantee the Right Choice?
If your organisation exists to serve a community, profession, or cause rather than to generate profit for owners, a guarantee company is likely the right fit.
Common situations where this structure is used include:
Clubs and associations (sports associations, social clubs, residents' management companies)
Professional institutes and learned societies
NGOs and community interest groups
Certain public-interest regulators (for example, Network Rail and Nominet UK are both CLGs)
Local authorities or funding bodies that require applicants to be non-profit entities
This form is usually chosen when founders want limited liability and a formal corporate structure but do not intend to distribute profits or sell the business.
Choose limited by guarantee if:
You do not need to issue shares or raise equity capital
Profits will be reinvested, not paid out as dividends
You want eligibility for grants, charitable status, or public funding
Members don't expect to receive dividends or sell ownership stakes
Consider limited by shares if:
You want to distribute profits to investors
You plan to raise capital by selling shares
You want the ability to sell or transfer ownership
How to Set Up a Company Limited by Guarantee
Setting up a guarantee company follows a clear process:
Choose a company name. It must be unique and not too similar to existing names on the register. The word limited (or "Ltd") must appear at the end unless an exemption applies - some non-profit bodies can apply to omit it.
Decide on guarantors and the guarantee amount. Determine who will be the initial members and how much each will guarantee. One guarantor is the legal minimum. The guarantee is usually £1 per member, recorded in a statement of guarantee.
Appoint directors. You need at least one director. Prepare their details and get their consent. Consider whether you also want a company secretary.
Draft the memorandum and articles of association. The articles should include the company's objects, membership rules, rules on profit distribution, voting rights, and meeting procedures. If you're applying for charitable status, the articles must meet specific requirements.
Register with Companies House. Submit the required form, pay the filing fee, and provide the registered office address, director details, member details, SIC codes, and guarantee amounts.
Once Companies House issues a certificate of incorporation with a company number, the company is a registered legal entity. It can open a bank account, enter contracts, and start operating.
If charitable status is desired, apply separately to the charity commission or the relevant regulator.
Legal and Compliance Obligations
Despite being often not-for-profit, companies limited by guarantee must comply fully with UK company law - in the same way as any private company.
Key ongoing obligations include:
Filing annual accounts and a confirmation statement (formerly the annual return) at Companies House
Keeping statutory registers of members, directors, and persons with significant control
Notifying Companies House of changes to directors, members, or the registered office
Maintaining minutes of board and members' meetings
Charitable guarantee companies face additional duties. They must file annual returns and reports with the relevant charity regulator and comply with charity accounting rules. For further details, consult the guidance published by the charity commission or equivalent body.
CLGs must follow company law and file annual accounts with Companies House - there are no exceptions based on non-profit status. Professional advice is valuable when drafting articles, applying for charitable status, or managing complex governance arrangements.
Frequently Asked Questions
Can a company limited by guarantee distribute profits to its members?
Most companies limited by guarantee are drafted so that they cannot distribute profits to members. Any surplus must be reinvested in the company's activities. If the articles do allow distribution, the company would normally be treated as non-charitable and may lose or be unable to gain charitable status. Any permitted distributions must still comply with company law and the company's articles of association. Members do not own the company or receive profits in the way that shareholders might receive dividends.
Can a company limited by guarantee be converted into a company limited by shares?
Conversion is sometimes possible but involves a formal process: changing the articles, possibly re-registering the company under a different status, and obtaining member approval. Such a change can have tax and regulatory implications, especially if the company currently has charitable status. Anyone considering conversion should seek specialist legal and accounting advice before proceeding.
Do companies limited by guarantee have to include “Limited” in the company name?
As a default rule, a company limited by guarantee must include "Limited" or "Ltd" at the end of its registered company name. Some non-profit companies can apply for an exemption from using the word limited in their name if they meet strict criteria set out in UK company law. Even where an exemption is available, many organisations choose to keep "Limited" to signal that they are a formal limited company.
Can I be the only director and only guarantor of a company limited by guarantee?
UK company law allows a single person to act as both the sole director and the sole member/guarantor. However, some funders or regulators - particularly for charities - may require a board with more than one independent director or trustee. In practice, many not-for-profit organisations choose a small board of at least three directors for better governance and continuity.
Where can I find further information about companies limited by guarantee?
Detailed guidance is available from Companies House, including model articles and step-by-step registration notes. The charity commission (England and Wales), OSCR (Scotland), and CCNI (northern ireland) publish guidance on using a company limited by guarantee as a charitable structure. Prospective founders may also want to consult a solicitor, accountant, or specialist formation agent for tailored advice on their specific organisation. For further information on money, liability, and compliance, these are authoritative starting points.
