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Company Limited by Guarantee

A company limited by guarantee is a form of incorporated body — registered at Companies House, with its own legal identity — but structured without share capital. Instead of shareholders, it has members who each guarantee a nominal sum in the event of the company being wound up. It is the structure most commonly used by charities, membership organisations, professional bodies, community groups, and not-for-profit entities that want the legal protection of incorporation without the commercial share structure of a limited company.

What a company limited by guarantee is

A company limited by guarantee — sometimes called a CLG — is incorporated under the Companies Act 2006 in the same way as a company limited by shares. It is a separate legal entity, with its own legal personality, capable of owning property, entering contracts, and being sued in its own name. The key difference from a standard limited company is that it has no share capital and no shareholders. Instead, it has members — and each member agrees to contribute a defined amount, typically £1, towards the company's debts if it is ever wound up. Beyond this guarantee, members have no personal financial liability for the company's obligations.

Because there are no shares, there is no ownership in the commercial sense. Members do not own the company, cannot receive dividends, and have no entitlement to the company's assets on a winding up — unless the articles specifically provide for this, which is unusual. The company exists for its stated purpose — whether charitable, community, professional, or otherwise — rather than for the financial benefit of its members.

How it is created

A company limited by guarantee is incorporated by registration at Companies House. The registration requires a company name, a registered address, at least one director, at least one member, and the submission of a memorandum and articles of association. The memorandum records the members' intention to form the company and their agreement to contribute the guaranteed sum if the company is wound up. The articles govern how the company is run — how members are admitted, how directors are appointed, how decisions are made, and what happens to the company's assets if it is dissolved.

Once incorporated, the company must file annual accounts and a confirmation statement at Companies House. Its accounts and certain details about its directors and members are publicly available on the Companies House register — though the level of detail required depends on the size of the company and whether it is registered as a charity.

Membership

Membership of a company limited by guarantee is defined by the articles. Members may be admitted by application, by election, by appointment, or automatically — depending on how the articles are structured. Unlike shareholders in a limited company, members of a CLG do not hold a transferable asset. Membership cannot be bought, sold, or given away — it exists for as long as the member meets the conditions set out in the articles and ceases when those conditions are no longer met, when the member resigns, or when the member dies.

Members exercise their control through voting at general meetings — typically on the appointment of directors, changes to the articles, and other significant decisions. The extent of each member's voting rights depends on the articles. In many CLGs, each member has one vote regardless of their level of involvement or contribution.

Governance

A company limited by guarantee is governed by its board of directors — sometimes called trustees where the company is also a registered charity. The directors manage the company on a day-to-day basis, subject to the articles and to any decisions made by the members at general meetings. Directors owe duties to the company under the Companies Act 2006 — including the duty to act within their powers, to promote the success of the company, and to avoid conflicts of interest.

Where the CLG is also a registered charity, the directors are also charity trustees and owe additional duties under charity law — including the duty to act in the interests of the charity's beneficiaries, to protect the charity's assets, and to comply with the Charity Commission's requirements. Charity trustees cannot be paid for their trustee role unless the articles specifically permit it — which is unusual.

Tax

A company limited by guarantee is subject to corporation tax on any trading profits it generates, in the same way as a limited company with shares. However, if the CLG is registered as a charity, it benefits from significant tax reliefs — including exemption from corporation tax on income and gains applied for charitable purposes, exemption from stamp duty land tax, and eligibility to claim Gift Aid on donations. Many CLGs are structured specifically to qualify as charities in order to access these reliefs.

On death — what happens to the company

A company limited by guarantee does not cease to exist on the death of a member or director. The company continues as a legal entity — this is one of the fundamental advantages of incorporation. What changes is the membership and the composition of the board.

Because membership of a CLG is personal and non-transferable, it cannot be passed on through a Will or inherited by a beneficiary. When a member dies, their membership ceases. It does not form part of their estate. There are no shares to value, no interest to transfer, and no asset for the executor to deal with. The member simply leaves the membership register on death.

Where the deceased was also a director, their directorship terminates on death. The remaining directors continue to manage the company. If the deceased was the sole director, the members must appoint a replacement — and if the company's articles require a minimum number of directors, the remaining board may need to act quickly to ensure that minimum is maintained and the company can continue to function.

Founder directors and succession planning. In many CLGs — particularly community organisations, professional bodies, and membership associations — the founding directors are the individuals around whom the organisation was built. Their knowledge, relationships, and authority are central to what the organisation is. When a founder director dies, the organisation does not cease to exist — but it may lose something that is very difficult to replace. Succession planning for key directors is an important governance consideration that many CLGs overlook until it is too late. The articles should address how directors are replaced, and the organisation should have a plan for what happens when a key individual is no longer able to act.

On death — estate planning considerations

Because membership of a CLG is not a transferable asset, it has no value for IHT purposes and does not form part of the member's taxable estate. This is a significant difference from a limited company with shares — there is no business interest to value, no Business Relief to claim, and no asset for the executor to deal with in relation to the membership itself.

Where a director of a CLG also holds assets personally — property used by the organisation, loans made to the company, or intellectual property created in their own name — these do form part of the estate and need to be dealt with accordingly. The articles and any loan agreements should address what happens to these assets on the director's death — whether they are purchased by the company, written off, or transferred to a successor.

Where the CLG is also a charity, gifts to it on death are exempt from IHT — and may reduce the IHT rate on the remainder of the estate from 40% to 36% if at least 10% of the net estate passes to qualifying charities. This is covered in more detail in the Charity help sheet and the Gifting Rules & Exemptions help sheet.

On incapacity — what happens to the company

A company limited by guarantee does not cease to exist if a member or director loses capacity. The company continues. But the incapacitated director's ability to manage the company is immediately affected — they cannot sign documents, cannot attend board meetings, and cannot fulfil their obligations as a director.

A Property & Financial Affairs LPA — naming a trusted attorney with authority to deal with the director's personal financial affairs — does not automatically give that attorney the right to act as a director of the CLG. Directorship is a personal role, and an attorney acting under an LPA steps into the director's personal financial shoes — not necessarily into their governance role. The articles of the CLG should address this specifically — whether an attorney can exercise a director's voting rights, attend meetings on their behalf, or whether the incapacitated director's appointment simply needs to be terminated and a replacement appointed.

Where a director of a CLG holds assets personally that are used by the organisation — such as property or intellectual property — an LPA is important to ensure those assets can be managed appropriately if the director loses capacity, and that the organisation's use of them can continue without interruption.

"A professional body has operated for thirty years under the leadership of its founding director. He loses capacity. His LPA covers his personal financial affairs — but the articles of the company are silent on what happens to his directorship. The remaining directors cannot agree on a course of action. The founding director's attorney has no authority to vote at board meetings. The organisation drifts for months without clear leadership — not because the structure failed, but because the governing documents never addressed the question of what happens when a key person can no longer act."

Key planning points for CLG directors and members

• Articles of association that address succession — how directors are replaced on death or incapacity, the minimum number of directors required, and how the organisation continues to function when a key individual is no longer available.

• A succession plan for key directors — particularly founders — that identifies who will take on their role, how their knowledge and relationships will be transferred, and how the organisation's governance will be maintained through the transition.

• A Property & Financial Affairs LPA for each director — particularly where the director holds personal assets used by the organisation, or where their personal financial affairs are intertwined with the company's operations.

• Clear documentation of any personal assets used by the organisation — loans, property, intellectual property — and clear provisions in the articles or separate agreements for what happens to those assets on the director's death or incapacity.

• Where the CLG is a charity — consideration of whether gifts to the organisation on death are appropriate, and how they interact with the estate's IHT position.