What Is A Company Limited By Guarantee?

A company limited by guarantee is a form of public company, typically set up for charitable and not-for-profit organisations where profit is put back toward the organisation’s purposes. 

A company limited by guarantee is set up by the Companies Act 2006 and is registered with Companies House in the UK.

In the UK, a company limited by guarantee must be a public company, so all of the requirements to be a public company apply— such as minimum director numbers and the need for a public office.

The liability of the members of this type of company is limited to a predetermined amount - also known as the ‘guarantee’. The company’s constitution usually sets out this amount, which is often a very small amount.

In the not-for-profit space, there are many other options other than companies limited by guarantee, so you might want to compare the pros and cons. For example, compared to an unincorporated association, a company limited by guarantee enables you to limit the members’ liability and operate as a standalone entity. Likewise, there are benefits over the state-based incorporated association if you’re looking to operate nationwide. Companies limited by guarantee also only need one member.

Some features of a company limited by guarantee are as follows:

• There are no dividends
• Directors have the same duties and liabilities as other for-profit directors of public companies
• A board of directors is required, comprising of at least 2 directors and 1 company secretary
• Each member has one vote

If a public company limited by guarantee is a registered charity under the Charity Commission for England and Wales, it does not have the same obligations of typical public companies. The inverse is also true, in that if the company is not a registered charity, it may have more onerous reporting obligations.

Furthermore, companies limited by guarantee have different reporting obligations, depending on their turnover. A ‘small’ company limited by guarantee that has consolidated revenue of less than £6.5 million for the financial year has fewer financial reporting requirements.

The obligations on larger companies that make more than £6.5 million annually include preparing annual financial and director reports and audit obligations.