What you should know...
Limited by guarantee companies are most often formed by non-profit organisations such as sports clubs, workers' co-operatives and membership organisations, whose owners wish to have the benefit of limited financial liability.
A company limited by guarantee does not have any shares or shareholders (like the more common limited by shares structure) but is owned by guarantors who agree to pay a set amount of money towards company debts.
Furthermore, there will generally be no profits distributed to the guarantors as they will usually be re-invested in the business to help promote the non-profit objectives of the company. If any profits are distributed to the owners, then the company will forfeit its right to apply for charitable status.
Benefits of companies limited by guarantee
- A company limited by guarantee is a distinct legal entity from its owners and is responsible for its own debts.
- The personal finances of the company’s guarantors are protected. They will only be responsible for paying company debts up to the amount of their guarantees.
- 'Limited' status builds trust and confidence amongst clients and investors. This type of professional credibility is valuable and can help a company achieve its objectives more effectively.
Forming a company limited by guarantee
It is easy to set up a company limited by guarantee through 1st Formations because we offer a specialist 'Guarantee Package' designed for this purpose.
Please make yourself aware of the following requirements and regulations before applying to incorporate a limited company:
- All companies limited by guarantee must be registered with Companies House, the Registrar of Companies in the UK.
- A company limited by guarantee must have at least one director and one guarantor. One person may assume both positions, or there can be multiple directors and guarantors. Information held on all directors and guarantors will be available on public record.
- All limited companies must provide a physical address to be used as the registered office address in the country (jurisdiction) where your company is registered. This should be based in the UK.
- Standard Industrial Classification (SIC) codes should be supplied. These codes explain the nature of your company’s trading activities. You can have up to four SIC codes.
- Information about People with Significant Control (PSCs) in the business should be provided. Normally, the directors and guarantors will be PSCs.
- All registered companies require a memorandum of association and articles of association. The memorandum states the name of each owner (guarantor) and their agreement to set up the company and become members. The articles outline the rules and regulations the company must follow. The memorandum is provided by Companies House and the articles are supplied by 1st Formations.
Frequently asked questions
Why would I incorporate a company limited by guarantee?
The majority of companies limited by guarantee are set up by non-profit organisations such as sports and social clubs, unions, workers’ co-operatives, etc. If you require a company for the purpose of raising money to promote and further the aims of your business alone, rather than taking profits for yourself, a limited by guarantee company is a good choice.
Who owns a company limited by guarantee?
A company limited by guarantee is owned by individuals and/or corporate bodies known as ‘guarantors’. Guarantors do not have any shares in the company and, generally, they do not take any of the profits. The owners of a company limited by guarantee will agree to pay a sum of money, known as a ‘guarantee’, if the company has any debts or becomes insolvent.
Who can be a guarantor?
A guarantor can be any person or a corporate body. Their details will be registered with Companies House and displayed on public record.
How many people will I require to register a company limited by guarantee?
You will need at least one director and one guarantor - but, one person can assume both positions so you could start a company on your own. Alternatively, you can multiple directors and guarantors. The choice is yours.
Can guarantors take a share of the profits?
Guarantors can certainly take a portion of company profits for themselves, but most of the time this does not happen because limited by guarantee companies are usually set up for non-profit purposes. This means that all of the money generated by this type of company is kept in the business or used to promote its non-profit purpose and activities.
If guarantors do keep any profit for themselves, the company will no longer be considered 'non-profit' and it will be ineligible for charitable status. There is nothing to prevent someone setting up this type of company to run a profit-making business in which the guarantors will keep the profits, but a limited by shares structure simply makes more sense for that purpose.