What is a Company Limited by Guarantee

In the UK, not all companies are set up to make a profit. Some exist to serve a social purpose, support a community, or manage activities where income is reinvested rather than distributed. These organisations often choose to register as a company limited by guarantee.

A company limited by guarantee is a specific type of legal structure designed for non-profit organisations, such as charities, membership groups, sports clubs, and community projects. Unlike companies limited by shares, they do not have shareholders or issue dividends. Instead, they have members who act as guarantors and agree to contribute a small fixed amount if the company is ever wound up.

This article explains what a company limited by guarantee is, how it differs from other company types, and when it might be the best choice for your organisation.

How does a company limited by guarantee work?

A company limited by guarantee is a legal entity in its own right. It is registered with Companies House and must follow company law, including filing annual accounts and a confirmation statement.

Instead of shareholders, the company has members, usually individuals or organisations who support its aims. These members act as guarantors and agree to pay a nominal amount, often £1, towards the company’s debts if it is dissolved.

Because there are no shares, there are no dividends. Any surplus income is reinvested into the company to support its work. This structure ensures that money is used to advance the organisation’s objectives rather than generate profit for owners.

Directors are appointed to manage the day-to-day running of the company. In many cases, the same people act as both directors and members, but this is not a legal requirement.

Key features

A company limited by guarantee is often chosen by not-for-profit organisations because it provides:

• Limited liability protection for members and directors

• A clear legal structure with accountability

• The ability to enter contracts, employ staff and own property in the company’s name

• Public credibility and transparency, especially when applying for funding or grants

Because it is a company, it must comply with the Companies Act 2006, including maintaining statutory registers and preparing annual reports.

How is it different from a company limited by shares?

The most common type of company in the UK is the private company limited by shares. This structure is designed for businesses that intend to make a profit for their shareholders.

The key differences between the two structures include:

• A company limited by shares has shareholders and distributes profits

• A company limited by guarantee has members and reinvests profits

• Shareholders own part of the company based on their shareholding

• Guarantors do not own the company and only guarantee a small amount on dissolution

Because of these differences, a company limited by guarantee is not suitable for commercial trading with the intention of generating profit for individuals.

Can a company limited by guarantee be a charity?

Yes. Many charities are set up as companies limited by guarantee. This structure gives the charity legal status and limited liability while allowing it to meet the requirements of both the Charity Commission and Companies House.

If your organisation is a charity, you will also need to register separately with the Charity Commission in England and Wales, OSCR in Scotland or the Charity Commission for Northern Ireland. In these cases, the company must include charitable objects in its articles of association and comply with additional rules around governance and reporting.

How to set one up

To register a company limited by guarantee, you must:

• Choose a unique company name

• Prepare a memorandum and articles of association tailored to a guarantee company

• Provide a UK registered office address

• Appoint at least one director

• List the guarantors and their guarantee amounts (usually £1 each)

You can register the company online with Companies House for £50, or use a company formation agent if you need help drafting the documents or structuring the organisation correctly.

Final thoughts

A company limited by guarantee is ideal for organisations that want a formal legal structure but do not intend to distribute profits. It is commonly used by charities, clubs and societies where the focus is on purpose rather than personal gain.

This structure offers credibility, protection and flexibility, making it a popular choice for community-led initiatives and non-profit ventures. If you are unsure whether this is the right setup for your group or project, speak to a legal or financial adviser who specialises in charity and non-profit law.