Limited by guarantee

A charity or not for profit organisation may be set up simply as a company limited by guarantee.

A company limited by guarantee will, unlike other types of organisation, have a governing document called the Articles of Association and Memorandum of Association. It will also have a board of directors (who are likely to be known as the board of trustees), but each trustee will have been formally appointed as a director and registered as such at Companies House.

Being a limited company the board of directors are protected from being personally liable for the organisation’s principal debts. It is the company that is liable for its debts and contracts it has entered into.

Being limited by guarantee means the members of the organisation are liable on a winding up to contribute an amount to the debts of the company and costs of winding up as outlined in the articles of association. It is common for the members to be limited to £1 or £5, however it is possible, although very uncommon, for the amount to be significant.

Because the organisation is a limited company it has the widest range of options available to it to deal with its financial difficulties. It also means it is likely to have the widest appeal to potential trustees/directors who may be interested in helping the organisation turn its fortunes around.

A charity or not for profit organisation limited by guarantee has access to the full range of corporate insolvency procedures available to deal with its financial difficulties:

  • Company Voluntary Arrangement
  • Administration
  • Voluntary Liquidation
  • Compulsory Liquidation

The first 3 are available at the discretion of the board of directors and allow them to retain as much control as possible of what is happening, the last is predominantly under the control of a creditor who would make an application to the court for the winding up of the company (referred to as a winding up order or winding up petition).

If your organisation is a company limited by guarantee and is in financial difficulty then contact Kevin Lucas for more information and help on 0330 900 2000.