Form a Limited By Guarantee Company Online

A company limited by guarantee is a type of limited company typically used by social enterprises, membership organisations, worker co-operatives, sports clubs, and community centres. Unlike a standard limited company, it has no shareholders or shares. Instead, it has guarantors who agree in advance to contribute a set amount towards company liabilities if the company is wound up. It is a separate legal entity with its own identity, and the personal finances of its guarantors are protected by the pre-agreed limit of liability set at the point of formation.

The key difference lies in ownership and purpose. A company limited by shares has shareholders who own a portion of the company and are entitled to receive a share of its profits as dividends. A company limited by guarantee has no shares or shareholders. Instead, it has guarantors who agree to cover a fixed amount of any debts if the company becomes insolvent. A company limited by shares is typically used for profit-driven businesses, while a company limited by guarantee is used for non-profit purposes where any surplus is reinvested into the organisation rather than distributed to its members.

A company limited by guarantee is suited to organisations that operate for a social, community, or non-commercial purpose rather than to generate personal profit. Common examples include membership organisations, worker co-operatives, sports clubs, community centres, and social enterprises. It is also worth noting that a company limited by guarantee is not the appropriate vehicle for forming a charitable company, which requires a separate structure. If your goal is to run a profit-driven business, a private company limited by shares is the more appropriate choice.

Yes, a company limited by guarantee can generate a surplus, but it is not generally distributed to its members in the way that dividends are paid to shareholders in a standard limited company. Any surplus funds are expected to be reinvested into the organisation to help it achieve its social or other stated aims. Guarantors are legally entitled to take profits from the company, but if they do so, the company will lose its right to be treated as a not-for-profit enterprise. The not-for-profit status is therefore contingent on keeping profits within the organisation.

Limited liability means that a guarantor's personal financial exposure is capped at the amount they agreed to guarantee when joining the company. If the company becomes insolvent and cannot meet its debts, each guarantor is only required to contribute up to their pre-agreed guaranteed amount. Their personal assets beyond that amount are protected. This is similar in principle to the limited liability enjoyed by shareholders in a standard limited company, where a shareholder's liability is limited to the value of their shares.

The guaranteed amount is the sum each guarantor agrees to contribute towards the company's liabilities if it is wound up and cannot pay its debts. It is set at the point of formation and forms the basis of each member's limited liability. The page does not specify a standard or recommended figure for the guaranteed amount. In practice, the amount is typically very small, often as little as £1, as its primary purpose is to establish the legal structure of limited liability rather than to create a meaningful financial reserve. The appropriate amount will depend on the nature and requirements of the specific organisation.

The page does not set out specific eligibility criteria for membership of a company limited by guarantee. Members, referred to as guarantors, are the people who agree to contribute a set amount towards company debts if the company is wound up. In practice, membership is open to individuals and, in some cases, other organisations, depending on the company's Articles of Association. The Articles define who can become a member, how members are admitted, and how membership can be terminated. The structure is flexible and can be tailored to suit the specific needs and purpose of the organisation.