A company limited by guarantee is a type of legal structure that is commonly used for non-profit and charitable organizations. It is a form of incorporation where the liability of its members is limited to a predetermined amount, usually a nominal sum like £1.
In a company limited by guarantee, the members act as guarantors rather than shareholders. They guarantee to contribute a specific sum of money to cover any outstanding liabilities if the company becomes insolvent or is wound up. This guarantees the company's creditors, including suppliers and lenders, that there are funds available to satisfy any outstanding debts.
Unlike traditional companies with shares, a company limited by guarantee does not have share capital or shareholders. Instead, it has members who effectively serve as guarantors of the company's debts. The guarantors may be natural persons or other corporate entities.
The primary purpose of a company limited by guarantee is usually non-profit or charitable in nature. This structure is often adopted by charities, social enterprises, professional associations, clubs, and societies. Its primary focus is on achieving specific objectives, rather than generating profits for distribution among shareholders. The company's income is typically directed towards the fulfillment of its objectives and invested back into its operations and projects.
A company limited by guarantee is regulated by the company law of the jurisdiction in which it is incorporated. It must adhere to the applicable legal requirements, file annual financial statements, and fulfill other obligations mandated by the law.
