A limited by guarantee company is a business structure that is incorporated at Companies House as a distinct legal entity, separate from the people who own and run it. This type of company is generally used by charities and non-profit enterprises for the purpose of providing limited liability protection to the members (known as ‘guarantors’) who control the company.
Rather than having shareholders and shares, companies limited by guarantee have guarantors who agree to contribute a fixed amount (a ‘guarantee’) if the company becomes insolvent and is unable to pay its debts.
Surplus income or profits generated by this type of company are usually retained and used to carry out the non-profit objectives of the venture, rather than being distributed to members in the form of dividends or bonuses.
It is possible to set up a limited by guarantee company for the purpose of running a profit-making business, but a limited by shares company is more appropriate.
Who would use a limited by guarantee company?
The types of businesses and ventures that would usually register a limited by guarantee company are those with non-profit objectives, including:
- Social enterprises
- Community groups
- Sports clubs
- Membership societies
- Trade unions
- Professional associations
- Credit unions
- Environmental groups
- Leisure trusts
- Housing associations
The main reason for setting up a limited by guarantee company is to protect the personal finances of the guarantors who set up and run the company.
This protection is provided in the form of limited liability. If the company gets into financial difficulty and is unable to meet its financial obligations, the guarantors are not personally liable beyond the sums of their guarantees.
Legal responsibilities of a limited by guarantee company
Limited by guarantee companies are governed by the Companies Act 2006 and the provisions contained within their chosen articles of association. They have the same legal responsibilities as limited by shares companies, which include:
- Running the company in accordance with the Companies Act 2006 and their articles
- Registering for business taxes, including Corporation Tax (and VAT, if applicable)
- Registering as an employer, if the company has employees
- Preparing annual accounts for Companies House
- Preparing Company Tax Returns and accounts for HMRC
- Filing a confirmation statement at Companies House every year
- Paying Corporation Tax (and VAT, applicable)
- Maintaining a registered office address
- Keeping statutory registers and accounting records
- Reporting any change of company details
- Making statutory registers available for public inspection
Charities and non-profit ventures usually pay tax on their income, just like any other type of business. However, they are often eligible for certain tax reliefs and exemptions.
If you are setting up a charity in the UK, you will have a number of additional obligations and responsibilities to meet the requirements set out by the Charity Commission (England and Wales), the OSCR (Scotland), or The Charity Commission for Northern Ireland.
How do I register a limited by guarantee company?
Limited by guarantee companies can be registered at Companies House in one of three ways:
- Online through a company formation agent
- Online on the Companies House website
- By post using Companies House form IN01
The most popular way to set up a limited company is online through a formation agent. This is the easiest, quickest, and least expensive option, with expert help and assistance available throughout the incorporation process and beyond.
To register a limited by guarantee company, you will be required to provide the following:
- Unique company name
- Registered office address
- Details of at least one director
- Details of at least one member (guarantor)
- Articles of association
- Details of all People with Significant Control (PSCs)
- Standard Industrial Classification (SIC) code
If the company is being set up for a non-profit purpose, the articles of association should include a “non-profit distribution clause” that applies to the distribution of profits and capital. In some cases, the restrictions contained in the articles of a limited by guarantee may extend to the payment of directors’ salaries.
Register a limited by guarantee company online
At Quality Company Formations, we provide a Company Limited by Guarantee Package for not-for-profit organisations, and a Charity Company Package for charities. The entire company incorporation process is completed online, with most applications approved at Companies House within 3-6 working hours.
If you have any questions or you’re unsure which package is best for you, call our friendly 24/7 Customer Service Team on 020 3908 0044 for specialist advice and assistance.