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Setting up a Company Limited by Guarantee

  • 8 min read

Setting up a company limited by guarantee is a popular option for those looking to found clubs, charities or not for profit organisations. Not only does it provide these organisations with a legal structure, it also protects the assets of the organisation and gives it a separate legal identity from those who run the club, charity or not for profit.  

Company by guarantee structures are mostly beneficial for clubs, charities, co-operatives, community projects, membership organisations, not-for-profit organisations and social enterprises. 

This is because companies limited by guarantee do not have shareholders or a share capital, and members instead act as guarantors. This perfectly suits charitable, community based, social or other non-commercial interests who tend to retain surplus income for reinvestment or use it to promote the non-profit objectives of the organisation rather than distributing excess income between members.

So if you’re considering using a company limited by guarantee structure, read on to find out its differences compared to a limited company structure, the advantages and disadvantages, and how to form your company limited by guarantee.

Related Reading: There are four prominent business types in the UK. Find out more about their differences here.

What is the difference between a limited company and a company limited by guarantee?

There are several main differences between limited companies and companies limited by guarantee. They are:

  1. Shareholders and members

In limited companies, the company is ‘limited by shares’. This means it’s owned by shareholders who possess certain rights, like voting to agree changes to the company. 

In a company limited by guarantee, it has guarantors and a “guaranteed amount” as opposed to shareholders and share capital.

Guarantors, also known as members, are then entitled to organise and attend general meetings and can vote on company decisions.

Outside of this, all usual company law provisions that are applicable to limited companies regarding general meetings, resolutions and votes also apply to companies limited by guarantee.

  1. No share capital

Companies limited by guarantee cannot have share capital limits because it does not issue shares, unlike in a limited company. Limited companies can issue shares upon incorporation, or to new members, or even to employees because it has a share capital: A company by guarantee does not. 

Due to there being no shareholders, it is also not possible to fully own a company limited by guarantee as a limited company with share capital can be owned by its shareholders. 

Instead in companies limited by guarantee the members, or guarantors, of the company control it. 

  1. Not for profits

Limited companies are usually incorporated because the business will be making profit, and therefore it is a way of protecting the assets and liabilities of directors and shareholders.

Companies limited by guarantee usually have restrictions issued upon them regarding profit distribution as they are predominantly formed for not-for-profit purposes. 

Restrictions tend to apply both to profits incurred whilst the company by guarantee is running, as well as to the distribution of assets upon it being wound up. Restrictions are reinforced by prohibitions on the payment of salaries or fees to directors.

  1. Exempt from ‘limited’ in the name

Companies limited by guarantee are exempt from including the word “limited” or the shortened “Ltd” at the end of their name depending on what they are set up for, for example charities, art, or educational purposes.

Why have a company limited by guarantee?

The advantages of a company limited by guarantee are the safety and security of having a structure that protects the company’s assets from those of the directors in charitable, community or not-for-profit organisations. Other advantages include:

  • Having identical company law provisions to a limited company, but appointing guarantors instead of shareholders to make the company appropriate for voluntary organisations.
  • The organisation becomes a separate legal entity from the persons involved in running it, and this allows it to own property, enter into contracts like lease agreements and even employ staff in its own name. Should the directors change this does not affect the company from owning its land or contracts, but changes must be submitted to Companies House. 
  • Companies limited by guarantee are usually preferred by funding bodies and public agencies when it comes to not-for-profit organisations because they are seen as a more stable and safer legal structure.

What are the disadvantages of a company limited by guarantee?

Just like with incorporating any company, there are still disadvantages to be aware of when forming a company limited by guarantee. The main disadvantages include:

  • Formal company registration procedures must be followed (see more in the next section) when incorporating a company limited by guarantee. This must be completed alongside the process of applying to be recognised as a charity, club or other not-for-profit organisation.
  • Any internal company changes must be notified to Companies House by law. This includes changes in staff or even registered directors offices. Annual accounts and annual returns will also need to be filed to Companies House, and charities will also need to file annual returns with the Charity Commission.
  • Initial set up costs may be higher than those of a voluntary association or trust, and annual costs may also be higher if the company accountant or secretary is external or a formal audit is required.

What is involved in setting up a company limited by guarantee?

Companies limited by guarantee have separate legal identities from their members which means that property and assets can be held in the company’s name. Due to this fact, there are a number of legal requirements which must be adhered to when setting up a company limited by guarantee. Just like other variations of private limited companies, companies limited by guarantee are legally required to:

  • Be incorporated at and be regulated by Companies House, and be subject to the Companies Acts. Should the company by guarantee be charitable, it must also be in line with charity laws as well as be regulated by the Charity Commission
  • Be subject to appropriate rules on its name. The suffix ‘Limited’ or ‘Ltd’ must be included in their names, but there is an available exemption from this requirement if the company is set up for certain objectives.
  • Possess both a Memorandum and Articles of Association.
  • Have a registered office address located in the country of the company’s incorporation.
  • Register its annual accounts.
  • Submit its annual return to Companies House and make various other financial filings.
  • Maintain certain statutory registers.

If you’ve been wanting to set up your own business, don’t do so without following our 7 must know tips.

Forming a company limited by guarantee

To form your company limited by guarantee you’ll need the following information:

Information for Companies House

To incorporate your company, Companies House will need the following information:

  1. Information about the first directors
  • Full names (including middle names)
  • Details of any former names
  • Service address (the service address does not need to be a residential address. If the service address is the registered business address this can be indicated)
  • Home address (will be kept private from the public record)
  • Date of birth
  • Nationality
  • Business occupation

Directors Addresses, Service Addresses and Registered Office addresses. Which one do you need to refer to? Check here.

  1. Information about the proposed company secretary
  • Full name (including middle names)
  • Details of any former names 
  • Service address (the service address does not need to be a residential address. If the service address is the registered business address this can be indicated)
  • Details regarding the registered office
  • The proposed address of the registered office
  1. Information about the subscribers (first members)
  • Full name (including all middle names, if the subscriber is an individual)
  • Addresses

Applying to Companies House

To prepare your application to Companies House you will need:

  • An IN01 form 
  • A signed copy of the memorandum of association 
  • A copy of the final version of the articles of association
  • If the company name will not include the word “Limited”, this must be indicated in Section A3 of the form IN01
  • If the company is applying for charitable status you will need to wait until the Charities Commission has confirmed that the company will be registered as a charity.
  • Should any additional members or directors need to be admitted this will need to take place after the incorporation. 
  • The full package of incorporation documents should then be sent to Companies House alongside the incorporation dues fee.

The company’s certificate of incorporation will usually be issued around a week after receiving the necessary documents by Companies House. 

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