A company limited by guarantee has members rather than shareholders, and each member promises to contribute a fixed sum, very often £1, if the company is wound up while they are a member or within one year after they leave. It cannot have a share capital, which makes it the usual structure for charitable companies, right to manage companies, commonhold associations, clubs and other bodies that do not aim to pay profits to their owners.

How does the guarantee work?

Section 3(3) of the Companies Act 2006 says a company is limited by guarantee if its members’ liability is limited to the amount they undertake to contribute to its assets if it is wound up. On formation, section 11 requires a statement of guarantee in which each member undertakes that, if the company is wound up while they are a member or within one year after they cease to be one, they will contribute up to a specified amount towards debts contracted before they left, the costs of the winding up and adjustment of the contributories’ rights.

Section 74(3) of the Insolvency Act 1986 then caps each member’s contribution in a winding up at the amount they undertook to contribute. The model articles for private companies limited by guarantee (Schedule 2 to SI 2008/3229) set that amount at £1 in article 2. GOV.UK explains that the guaranteed amount is not linked to the company’s value, that you choose it, and that setting it low limits a guarantor’s liability. Nothing is paid in on formation: the guarantee is a promise that is only called on in a winding up.

Why can it not have shares?

Section 5(1) provides that a company cannot be formed as, or become, a company limited by guarantee with a share capital; the prohibition has applied in Great Britain since 22 December 1980. Section 5(3) closes the obvious workaround: any provision in the constitution that purports to divide the company’s undertaking into shares or interests counts as a share capital, whether or not a nominal value or number is stated.

The choice is also hard to reverse. Guidance from the CIC Regulator states that once incorporated, a company limited by guarantee cannot be converted into a company limited by shares, or the other way round. If outside equity investment is likely, a company limited by shares is the usual answer.

Who are the members, and how do they join and leave?

Under section 112 the subscribers become members on registration, and anyone else becomes a member by agreeing to and being entered in the register of members. GOV.UK calls members of a guarantee company guarantors: they control the company and make important decisions, do not usually take profit from it, and can also be directors. A company must have at least one.

The model guarantee articles add practical rules:

  • no one becomes a member unless they complete an application in a form the directors approve and the directors approve it (article 21);
  • a member may withdraw by giving 7 days’ written notice (article 22(1));
  • membership is not transferable (article 22(2)) and ends on death or, for a corporate member, when it ceases to exist (article 22(3)).

Because there are no shares, voting power is set by the articles rather than shareholdings. Section 303(2)(b) gives members of a company without a share capital who hold at least 5 per cent of total voting rights the power to require a general meeting. GOV.UK states that a guarantor with more than 25 per cent of voting rights is a person with significant control.

What is it typically used for?

  • Charitable companies. GOV.UK guidance on charity structures says a charitable company has to be limited by guarantee rather than shares.
  • Right to manage companies. Section 73(2) of the Commonhold and Leasehold Reform Act 2002 requires an RTM company to be a private company limited by guarantee whose articles include acquiring and exercising the right to manage the premises.
  • Commonhold associations. Section 34 of the same Act makes a commonhold association a private company limited by guarantee with a guarantee of £1 per member.
  • Community interest companies. The CIC Regulator’s guidance says a CIC must be limited by guarantee or by shares, that guarantee CICs suit organisations that do not want to pay dividends, and that the guarantee company has been the traditional form for companies operating without a motive of profit for distribution. See community interest companies.
  • Clubs, trade bodies and residents’ companies, where members want limited liability and a democratic structure. Tax points for these are covered in residents’ management company tax and corporation tax for clubs and associations.

Does the name have to end in Limited?

Normally yes: section 59 requires a private limited company’s name to end with limited or ltd. Section 60 exempts a charity, and section 62 preserves an older exemption for guarantee companies that already held one under the 1985 Act, as long as two conditions continue to be met. The objects must be the promotion of commerce, art, science, education, religion, charity or any profession, and the articles must require income to be applied in promoting those objects, prohibit dividends to members, and require surplus assets on a winding up to pass to a body with similar or charitable objects. Changing the name loses the exemption. See company name rules.

How is it taxed and what must it file?

Not for profit status does not take a company outside Corporation Tax. Section 1121 of the Corporation Tax Act 2010 defines a company as any body corporate or unincorporated association, so a guarantee company is within the charge unless a specific relief or exemption applies, such as charitable status. The Companies Act filing rules are the same as for any private company: accounts within nine months of the end of the accounting reference period (section 442) and a confirmation statement within 14 days after each review period (section 853A). Directors owe the same statutory duties as directors of a share company.

How does the guarantee work in practice?

Illustration only. The owners of 40 flats form a company limited by guarantee, each guaranteeing £1, to run the block’s communal services. Two years later the company is wound up owing a contractor £10,000.

  • Each current member can be called on for at most £1, so the guarantees raise at most £40.
  • A member who sold her flat and left the company six months before the winding up can still be asked for her £1, because she left less than a year earlier and the debt was contracted while she was a member.
  • Someone who left 18 months earlier cannot be asked for anything.

The contractor bears the shortfall, so anyone extending significant credit to a guarantee company should look at its accounts rather than the guarantees.

What are the common mistakes?

  • Referring to members as shareholders, or trying to issue shares to raise money, which section 5 prevents.
  • Treating the guaranteed amount as capital that has been paid in. It is a contingent promise, and the company starts with no capital from its members.
  • Letting the register of members fall out of date, so nobody knows who can vote or who is liable.
  • Assuming not for profit means no Corporation Tax or no filing obligations.
  • Choosing the guarantee form for a venture that will later need equity investors, then discovering it cannot convert.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.