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.
Learn what a company limited by guarantee is and what it is used for in England and Wales, including common uses for charities, clubs, trade associations, social enterprises and community organisations, how members' liability works, governance features and practical legal considerations for mission‑focused entities.
A company limited by guarantee (CLG) is a distinct legal entity most commonly used in England and Wales for organisations that do not intend to distribute profits to private owners but want the benefits of corporate status. Unlike a conventional company limited by shares, it has no share capital and no shareholders; instead, it is owned and controlled by members who act as guarantors. These members agree to contribute a nominal amount (often £1) towards the company's liabilities if it is wound up. This structure offers limited liability protection and a formal legal framework suitable for a wide range of not‑for‑profit and mission‑focused organisations.
This article explains the purpose, common uses, legal characteristics, and practical considerations of a company limited by guarantee, guiding readers through why and when this structure is appropriate.
Understanding the Legal Nature of a Company Limited by Guarantee
A company limited by guarantee is a private company structure defined under the Companies Act 2006. Instead of issuing shares, it has members (also known as guarantors) who undertake to contribute a fixed amount to the company's assets if it becomes insolvent or is wound up. The guarantor's liability is typically limited to a nominal sum specified in the company's constitution.
This corporate form has separate legal personality, meaning the company can:
- enter into contracts in its own name,
- own property,
- employ staff,
- open bank accounts, and
- sue or be sued in its own right.
Members' personal assets are generally protected, as they are only liable up to the limit of their guarantee.
Why Use This Structure Instead of a Company Limited by Shares?
The key distinction between a company limited by guarantee and a company limited by shares is in purpose and profit distribution:
- Share capital and dividends: Companies limited by shares have shareholders who can receive dividends. Companies limited by guarantee have no share capital, and profits are typically retained to further the organisation's goals rather than distributed to members.
- Ownership and control: Members of a CLG exercise control through membership rather than shareholding, often with equal voting rights irrespective of financial contribution.
- Limited liability: Both structures provide limited liability, but the guarantee form is particularly suitable where members do not expect to derive financial returns.
Because of these differences, a CLG is often chosen for organisations focused on social impact, community benefit, or collective objectives, rather than commercial profit.
Common Uses of Companies Limited by Guarantee
1. Charities and Foundations
Many charities choose to incorporate as a company limited by guarantee. This structure allows them to operate under a clear legal framework with limited liability, while any surplus income is used to support their charitable purposes. Registration with the Charity Commission is a separate process, but a CLG provides a robust corporate form for charitable activity.
Examples include large charitable organisations with extensive operations, such as the Youth Hostels Association (England & Wales).
2. Clubs, Societies and Membership Organisations
Sports clubs, hobby societies, community groups and membership organisations often adopt the guarantee structure because it reflects their collective membership model and avoids distributing profits to individuals.
3. Trade Associations and Professional Bodies
Industry groups, trade associations and professional bodies that represent members' interests use companies limited by guarantee to formalise governance, hold funds and enter into contracts without prioritising profit distribution. Examples include organisations like the IP Federation.
4. Social Enterprises and Community Projects
Social enterprises that aim to deliver community benefit, environmental objectives, or social outcomes frequently use CLGs because they emphasise mission over commercial returns. Some may operate trading activities, but any surplus is reinvested in the organisation's objectives rather than distributed.
5. Non‑Governmental Organisations and Co‑operatives
NGOs, co‑operatives, housing associations and similar bodies often prefer a guarantee structure because it combines a not‑for‑profit ethos with legal capacity to operate professionally and hold assets.
6. Community Interest Companies (CICs)
A Community Interest Company - a form of social enterprise - is often set up as a company limited by guarantee, especially when there are no shares to issue. Although CICs can be limited by shares, the guarantee form suits many when distributing profits to individuals is not intended.
Legal Characteristics and Member Obligations
No Share Capital
A defining characteristic of a company limited by guarantee is the absence of share capital. The company's members are not shareholders and do not hold equity that can be sold for financial gain. Instead, they guarantee a predetermined amount, typically nominal, which they might contribute only if the company is wound up.
Profit and Asset Use
While there is no statutory requirement that a CLG must be not‑for‑profit, most adopt constitutional clauses that prohibit distribution of profits to members, reinforcing a mission‑focused approach. This makes a CLG well suited to organisations receiving grants, donations, sponsorships or public funding, where accountability on use of funds is important.
Governance and Compliance
A company limited by guarantee is governed by its articles of association and must comply with the Companies Act 2006, including filing annual accounts and confirmation statements with Companies House. Members appoint directors to manage the company's affairs.
Practical Considerations
Credibility and Legal Capacity
Incorporating as a CLG gives organisations formal legal status, which can enhance credibility with funders, grant bodies, partners and regulators. It also allows the company to enter contracts, employ staff, lease premises and hold assets in its own name, reducing personal risk for members and directors.
Tax and Regulation
A company limited by guarantee does not automatically enjoy charity tax reliefs unless it is separately registered as a charity with the Charity Commission and meets the legal conditions for charitable status. However, the structure itself provides a recognised framework for tax reporting and statutory compliance.
Flexibility
While often associated with not‑for‑profit activity, a CLG can also be used for mutual or member‑driven business models where profit distribution is not the focus, and the governance model aligns with members' shared objectives.
Common Questions
Can a Company Limited by Guarantee Make a Profit?
Yes, a company limited by guarantee can generate a surplus. However, in practice it does not distribute profits to members; any surplus is usually reinvested in the organisation's mission or retained for future use, consistent with its objects.
Do Members Have Control?
Members (guarantors) control the company through voting rights defined in the articles of association, similar to shareholders in a company limited by shares, but without equity ownership.
Is It Automatically a Charity?
No. Incorporation as a company limited by guarantee does not automatically confer charitable status. To be a charity, the company must also register with the Charity Commission and meet the legal definition of charitable purposes.
Key Takeaways
A company limited by guarantee is a flexible corporate structure predominantly used in England and Wales for organisations where profit distribution is not the primary aim. It provides a separate legal personality with limited liability for members who guarantee a nominal amount if the company is wound up. This structure suits charities, clubs, community groups, trade associations, social enterprises, NGOs and similar mission‑driven bodies needing the legal capacity to enter contracts, hold assets, manage funds and operate professionally. While often associated with not‑for‑profit objectives, it can also serve mutual organisations and membership bodies where control and accountability are central.
