What is a guarantee company?
A company limited by guarantee is primarily for non-profit organisations that require corporate status. It is common practice for guarantee companies to retain their profits within the company in order to reinvest in its operations rather than distribute the profits to their members.
Unlike a company limited by shares, a guarantee company has no share capital or shareholders. Instead it has members who undertake to contribute a nominal amount towards any shortfall in the company's assets to settle its debts in the event of its being wound up. This nominal amount, set out in the company's articles, is usually £1 but is can be any amount that is thought fit.
In this way, members of the company are protected from any personal liability for the company's debts. Only if the company is wound up and funding is needed to pay its debts,, are members liable to the extent of their guarantee.
Why set up a company limited by guarantee?
Most guarantee companies are incorporated for non-profit making functions so they are routinely used for charities, community projects, societies, clubs and other similar bodies. Organisations that are registered with the Charity Commission or intend to apply for registration must be guarantee companies.
They are also a popular choice for property management companies. These are set up to hold an interest in or manage communal facilities in a property which is divided into units, each being owned separately. These companies may be set up by landlords or developers or by the unitholders themselves.
Incorporating a guarantee company
Guarantee companies are incorporated in much the same way as companies limited by shares. A guarantee company must have at least one director and one member. Unlike companies limited by share, a guarantee company can be exempt from having the word "Limited" or "Ltd" at the end of its name if it is set up for certain, usually charitable or non-profit, purposes.
In the same way as a company limited by shares, a guarantee company will be required to file accounts and annual return at Companies House annually.
If you have all the information you need, our electronic incorporation process is simple and straightforward. But if you have further questions, our expert team can guide you through the entire process. Many companies will also require articles of association to be drafted to accurately reflect the specific needs of the organisation. This is specialist work that our legal colleagues can help you with.