Info Sheet: Company Limited By Guarantee
A company limited by guarantee is an incorporated organisation. This means that it has gone through the registration process that converts a new or existing business into a corporate body, making it a legal entity in its own right.
With a company that is limited by guarantee, the financial liability of members, including the Management Committee is usually limited to a nominal amount, should the company face financial difficulties (although it does not protect against fraud, negligence, etc).
A limited company may also be a charity, if its purposes and activities are approved by HM Revenue and Customs. More on charitable status.
Type of organisation: Company limited by guarantee
Legal status: incorporated
Governing document: memorandum and articles of association
Common examples: large voluntary organisation; community group that owns premises; organisation that employs staff.
A company limited by guarantee has:
- a legal identity;
- the ability to own property in the company's name;
- the ability to enter into contracts (e.g. service delivery agreements, terms and conditions of a grant) in the company's name;
- additional legal requirements (e.g. company law); and
- limited liability* (i.e. members only commit to pay a normal amount such as £1 if the company has outstanding debts to meet).
* Remember! Limited liability does not protect the Management Committee or its members against: negligence; acting improperly or dishonestly; failing to comply with statutory requirements (such as employment law); failing to meet obligations under company law or trading without sufficient assets to cover debts; failing to meet terms of a contractual agreement (such as spending grant money on an activity outside that agreed with your funder), etc.
When is it appropriate?
A company limited by guarantee is usually appropriate where some or all apply:
- the organisation is to be quite large;
- it will have employees;
- it will deliver charitable services under contractual agreements;
- it will regularly enter into commercial contracts; and
- it will own property or leasehold land.
Please click on the following link to see an Example: "incorporated" charitable company: