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What Are Companies Limited by Guarantee?

What Are Companies Limited by Guarantee?

A company limited by guarantee has no shares or stakeholders. Instead, it is owned by guarantors who agree a set amount of money towards company debts, if the company were to fail. Read on to find out about the different types of limited companies and the benefits of forming a company limited by guarantee.

Limited by Shares vs. Limited by Guarantee

Both commercial and charitable companies are limited either by shares or guarantee. They both have similar concepts: a company limited by guarantee is much like an ordinary private company limited by shares. It is registered at Companies House, must register its accounts, and has directors. The key difference is that it does not have a share capital or any shareholders, but instead has members who control it.

What Makes Limited by Guarantee Beneficial?

  • A company limited by guarantee is responsible for its own debts, meaning it’s a distinct legal entity.
  • A limited status shows professional credibility – this provides confidence for clients and investors as they can trust you more as a business.
  • The company guarantors’ personal finances are protected in the respect that they will only be held responsible for paying company debts up to the amount of their agreed sum of money or ‘guarantees’.

Who Typically Owns a Company Limited by Guarantee?

Guarantors do not have any shares in the company and, generally, they do not take any of the profits. This service is designed primarily for non-profit organisations such as charities. There is nothing to prevent someone setting up as limited by guarantors to run a profit-making business whereby guarantors can take a share of profits, but put simply, the structure of a limited by shares company would make more sense for that purpose.

How Many People are Needed to Register a Company Limited by Guarantee?

At least one director and one guarantor are needed. But, one person can assume both positions so you could start a company on your own. Or you can have multiple guarantors and directors - the decision is entirely yours. Setting up as a company limited by guarantee is a simple, hassle-free process (especially if you work alongside Paramount Formations).

Do Guarantors Have Shares in the Company & Can Guarantors Take a Share of the Profits?

Guarantors do not have any shares in the company and generally, they do not take any of the profits.

This is because often limited by guarantee companies are formed by non-profit organisations such as sports clubs, where the owners want the benefit of limited financial liability. Normally, for this type of organisation profits are re-invested to help run the non-profit effectively, and therefore do not go to guarantors.

It should be mentioned however that it is entirely possible for guarantors to take profits, but If this is done, then the company will not be considered as ‘non-profit’, meaning it will forfeit its right to apply for charitable status.

The Paramount Touch

If you would like any advice, information or guidance on any type of limited company and their formation, do not hesitate to ask! To purchase a company limited by guarantee or get helping forming one, you can order one of our brilliant packages online or call us on 0800 0198 698.

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