Limited by Guarantee

A company limited by guarantee is an alternative type of corporation used primarily for non-profit organisations that require legal personality. A guarantee company does not usually have a share capital or shareholders, but instead has members who act as guarantors. The guarantors give an undertaking to contribute a nominal amount (typically very small) in the event of the winding up of the company. It is often believed that it cannot distribute its profits to its members but (depending on the provisions of the articles) this is not actually true. However a company limited by guarantee that distributes its profits to members would not be eligible for charitable status.

Like a private company limited by shares, a company limited by guarantee must include the suffix "Limited" in its name, except in circumstances specifically excluded by law. One condition of this exclusion is that the company does not distribute profits.

Common uses of guarantee companies include clubs, membership organisations, including students' unions, sports associations, workers' co-operatives, other social enterprises, non-governmental organizations (NGOs) and charities (such as Oxfam).

Under section 5 of the Companies Act 2006, new companies cannot be formed as a company limited by guarantee with a share capital; which makes this type of company unsuitable for commercial enterprises.

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