Company Limited by Guarantee

A Company Limited by Guarantee is a democratic legal structure, usually with a two-tier membership.

The general members will elect or appoint people from the membership who they believe will run the company in a competent manner on their behalf. These people will be the Board of Directors. The Board must not include anyone who is legally disqualified from becoming a Director of a Company Limited by Guarantee:-

someone who is an undischarged bankrupt (except with leave of the court)
anyone under the age of 16
anyone disqualified by a court from acting as a company director (unless he or she has been given permission to act by a court for a particular company)

All important matters affecting the structure of the company are referred to the members for a decision.

The constitution or governing document of a Company Ltd by Guarantee is called the Articles of Association (previously the Memorandum and Articles). The Articles will set out the period of office that board members can serve before they need to stand down (or retire) from office, along with procedures for re-election and the election of new directors. The Articles will be formally adopted by the members at the first general meeting of the organisation.

The membership of a Company Ltd By Guarantee - including the Directors - cannot benefit from any profits (surplus income) made by the company. If the organisation runs into debt, the members' liability is limited to an agreed guaranteed amount (usually a nominal sum of £1 each). However, incorporated limited company status does not protect directors found to be willfully negligent or who do not have due regard for the interests of creditors. They can also be found guilty of a criminal offence.

As a corporate body, a Company Ltd by Guarantee is regulated by company law (currently the Companies Act 2006). Compliance is regulated by Companies House.

Director responsibilities include statutory obligations in relation to filing returns and keeping proper records and most importantly in monitoring the company's financial position and taking immediate steps to prevent insolvency.

If a Company Ltd by Guarantee also has charitable status, this will be regulated separately under the Charities and Trustee Investment (Scotland) Act 2005 with the Office of the Scottish Charity Regulator (OSCR) ensuring compliance. Directors of a Company Ltd By Guarantee with charitable status will therefore have dual statutory responsibilities and filing duties.

Advantages to being a Company Ltd by Guarantee

the organisation can hold property and borrow money in its own name
personal liability of members is limited
may be eligible to apply for charitable status (if the group’s purposes are ‘charitable’ and its services/activities offer community benefit)
two tier structure for decision making allowing democratic input from members including the chance to vote on election/re-election of the board of directors

Disadvantages of being a Company Ltd by Guarantee

may incur some setting up costs
statutory filing to Companies House
will need to prepare Annual Accounts compliant with company law (and if a registered charity these will also need to be compliant with charity legislation)
if a registered charity – legal duties/responsibilities for the Trustees and filing commitments to OSCR
members cannot benefit from any ‘profits’ made

Most suitable for

This is a useful structure for community groups/organisation which:-

are actively involved in (or planning to be involved in) the running of projects which require lease or purchase of premises, long-term contractual commitments or the employment of paid staff.
are handling substantial sums of money
want the option of applying for charitable status (if the group has charitable purposes and activities which offer community benefit)

How to become a Company Ltd by Guarantee

Applications for incorporation as a Company Ltd by Guarantee are made to Companies House The application may be submitted online using the Web Incorporation Service or by completion and submission of a form to Companies House by post.

Further sources of information

Model Articles for Companies (Companies House)Model Articles for a Company Limited by Guarantee (SCVO)