Business formats explained: Companies limited by guarantee

Companies limited by guarantee (CLGs) are often social enterprises, charities or other not-for-profit organisations, such as a sports clubs or political parties, where all profits are reinvested back into either the organisation itself or its objectives.The following guide explains exactly what CLGs are, how they work and what you need to do register.

What is a company limited by guarantee?

A company limited by guarantee has no share capital or shareholders, only members act as guarantors (or trustees) to a pay predetermined sum (usually £1) in the event of winding-up the company. A CLG cannot raise finance by issuing shares or pay dividends to its members.

  • No capital or shareholders
  • Guarantors cover predetermined winding up cost

Who is it suited to?

CLGs are usually formed to manage social enterprises that don't make profits, charities or other not-for-profit organisations such as a sports clubs or political parties, where all profits are reinvested back into either the organisation itself or its objectives.

  • For social enterprises, charity, not-for-profit
  • All profits reinvested

How do the shares work?

As there are no shareholders, just members, a list of predetermined 'objects' is stipulated in the Memorandum of Association, which defines what the company will do and usually includes a clause to restrict the directors from paying out any profits but rather reinvest them in fulfilling the company's objects.

  • No shareholders, no profits paid to directors
We use cookies to create the most secure and effective website possible for our customers. Full details can be found here