This guide is maintained as a current resource for September 2026 and covers only the laws of England and Wales. Information is for general guidance, not legal advice. Consult a qualified solicitor for advice specific to your situation.
Company limited by guarantee explained in detail, including structure, legal requirements, governance, incorporation process, advantages, disadvantages, and compliance obligations under UK law. Suitable for charities, clubs, and non-profit organisations in England and Wales.
A company limited by guarantee (CLG) is a legal structure used in the United Kingdom, primarily for non-profit organisations such as charities, membership bodies, professional associations, clubs, and social enterprises. Unlike companies limited by shares, a CLG does not have shareholders or share capital. Instead, it has members who act as guarantors and agree to contribute a nominal amount if the company is wound up.
This structure is governed by the Companies Act 2006 and registered at Companies House. It is widely used where profits are reinvested into the organisation's objectives rather than distributed to owners.
What Is a Company Limited by Guarantee?
A company limited by guarantee is a separate legal entity. This means it has its own legal identity distinct from its members and directors. It can:
- Enter into contracts in its own name
- Own property and assets
- Employ staff
- Sue and be sued
The key distinction is that it does not issue shares. Instead, members provide a financial guarantee, typically a small amount (commonly £1), which is only payable if the company is wound up.
This structure is particularly suited to organisations where profit distribution is not the objective.
Key Features of a Company Limited by Guarantee
1. No Share Capital
A CLG does not have shareholders. There is no investment return or dividend structure. All funds are used to further the organisation's stated purposes.
2. Members as Guarantors
Members agree to contribute a fixed nominal amount in the event of winding up. This liability is limited and usually symbolic.
3. Separate Legal Personality
The company exists independently from its members and directors. This provides legal protection and continuity.
4. Limited Liability
Members' personal liability is restricted to the guarantee amount stated in the company's constitution.
5. Non-Profit Orientation (Typically)
While not legally required to be a charity, most CLGs operate on a not-for-profit basis.
Legal Structure and Governance
A CLG is governed by:
- A memorandum of association (initial formation document)
- Articles of association (rules governing internal management)
- Company law under the Companies Act 2006
The governance structure typically includes:
Members
Members are the guarantors of the company. They do not own the company but may have voting rights on key decisions such as appointing directors or amending articles.
Directors
Directors are responsible for day-to-day management and strategic decisions. They have legal duties, including:
- Acting in the best interests of the company
- Exercising reasonable care, skill, and diligence
- Avoiding conflicts of interest
- Ensuring compliance with legal and regulatory obligations
Board Structure
Most CLGs operate with a board of directors, similar to corporate governance structures in for-profit companies.
How to Form a Company Limited by Guarantee
The formation process involves registration with Companies House.
Step 1: Choose a Company Name
The name must be unique and comply with naming regulations. It must not be misleading or include restricted words without permission.
Step 2: Prepare Constitutional Documents
You must prepare:
- Articles of association
- Memorandum of association
- Details of directors and members
- Registered office address
Step 3: Submit Incorporation Application
An application is filed with Companies House, either online or by post.
Step 4: Pay the Registration Fee
A standard incorporation fee is required.
Step 5: Receive Certificate of Incorporation
Once approved, Companies House issues a certificate confirming the company's legal existence.
Common Uses of a Company Limited by Guarantee
CLGs are widely used across the non-profit and public benefit sector.
Charities
Many charities adopt CLG status to ensure limited liability and formal governance structures. Registration with the Charity Commission for England and Wales may also be required if charitable status is granted.
Membership Organisations
Professional bodies, trade associations, and industry groups often use CLGs.
Sports and Social Clubs
Clubs frequently use this structure to manage finances and membership rules.
Social Enterprises
Organisations reinvesting profits into social objectives commonly choose this model.
Advantages of a Company Limited by Guarantee
Limited Liability Protection
Members are protected from personal financial risk beyond their guarantee amount.
Credibility and Trust
A formal company structure enhances legitimacy with donors, funders, and stakeholders.
Separate Legal Entity
The organisation can operate independently of its members, ensuring continuity.
Suitable for Non-Profit Activities
Ideal for organisations that do not require share capital or investor ownership.
Flexible Governance
Articles of association can be tailored to suit organisational needs.
Disadvantages and Limitations
No Equity Investment Structure
A CLG cannot issue shares, limiting access to equity investment.
Administrative Requirements
Must comply with company law obligations, including filings and reporting.
Regulatory Oversight
Charitable CLGs may face dual regulation from Companies House and the Charity Commission.
Profit Distribution Restrictions
Any surplus must be reinvested into the organisation's objectives.
Legal and Compliance Obligations
A CLG must comply with ongoing legal requirements, including:
- Filing annual accounts with Companies House
- Submitting an annual confirmation statement
- Maintaining statutory registers
- Holding annual general meetings (if required by articles)
- Keeping proper accounting records
Charitable CLGs must also comply with charity law and reporting requirements to the Charity Commission for England and Wales, including submission of annual returns and trustee reports.
Tax Considerations
A CLG is not automatically exempt from tax. However:
- Charitable CLGs may qualify for tax reliefs if registered as charities
- Non-charitable CLGs are subject to corporation tax on taxable income
- VAT registration may apply depending on turnover
Tax treatment depends on the organisation's structure and activities.
Conversion and Structural Changes
A company limited by guarantee may:
- Convert to a company limited by shares (subject to legal requirements)
- Become a charitable incorporated organisation (CIO) in certain cases
- Amend its articles of association with member approval
Such changes typically require special resolutions and regulatory compliance.
Dissolution and Winding Up
A CLG may be dissolved voluntarily or compulsorily. The process includes:
- Settling debts and liabilities
- Distributing remaining assets according to the articles (often to similar organisations or charities)
- Filing dissolution documents with Companies House
Members are only liable up to their guaranteed amount, typically not exceeding £1.
Common Legal Issues and Risks
Governance Failures
Poor governance can lead to regulatory intervention or financial mismanagement.
Non-Compliance Penalties
Late filings or failure to submit accounts can result in fines or strike-off.
Misuse of Funds
Charitable CLGs must ensure funds are used strictly for charitable purposes.
Director Liability
Directors may be personally liable in cases of misconduct, fraud, or negligence.
Common Questions from our Readers
Is a company limited by guarantee a charity?
Not automatically. It can be a charity if registered with the Charity Commission and meeting legal criteria.
Can a CLG make a profit?
Yes, but profits must be reinvested into the organisation's objectives rather than distributed to members.
Who owns a CLG?
No one owns it. It is owned by itself as a legal entity. Members do not have ownership rights like shareholders.
What is the minimum guarantee amount?
There is no fixed statutory minimum, but it is commonly set at £1 per member.
Key Takeaways
A company limited by guarantee is a widely used UK legal structure designed for non-profit and membership-based organisations. It offers limited liability, legal personality, and a formal governance framework without share capital. It is particularly suitable for charities, clubs, professional associations, and social enterprises. While it provides credibility and flexibility, it also involves ongoing compliance obligations and restrictions on profit distribution. Proper understanding of its structure and legal requirements is essential before incorporation.
