In British or Irish company law, 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, but instead has members who are guarantors instead of shareholders. The guarantors give an undertaking to contribute a nominal amount (typically very small) towards the winding up of the company in the event of a shortfall upon cessation of business. It is commonly believed that it cannot distribute its profits to its members but this is not actually true.[1] A company limited by guarantee that distributes its profits to members would not be eligible for charitable status.
Like a private limited company, 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 not distribute profits.
Common uses of guarantee companies include clubs, membership organisations (including students' unions, sports associations (such as the PGA European Tour), workers' co-operatives, other social enterprises, non-governmental organizations (NGOs) and charities (such as Oxfam). The railway infrastructure provider Network Rail, domain name registry Nominet UK, England and Wales Cricket Board and IXP LINX (London Internet Exchange) are also companies limited by guarantee. Australia also has companies limited by guarantee, Cricket Australia being one example.
When incorporating multi-stakeholder organisations, this form is sometimes preferred over the industrial and provident society because company law allows multiple classes of member with separate voting constituencies.
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 companies unsuitable for commercial enterprises.
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