Company Limited by Guarantee (CLG)

A Company Limited by Guarantee (CLG) is a corporate body regulated by Company Law (currently the Companies Act 2006) and is regulated by Companies House.

It is a form of company that does not have any shares or shareholders but its owned by the guarantors who agree to pay a set amount of money (usually a nominal amount, such as £1) towards company debts.

There will generally be no profits distributed to the guarantors as they will usually be re-invested in the business to help promote the non-profit objectives of the company. If any profits are distributed to the owners, then the company will forfeit its right to apply for charitable status.

A CLG can be structured in two ways – by a small membership governing document or by a large membership governing document (articles of association).

Small membership articles should be used if all of the following apply to your CLG:

• It is limited by guarantee

• All the directors are also members of the CLG

• All the members are also directors of the CLG

• Large membership articles should be used if all of the following apply to your CLG:

• It is limited by guarantee

• The CLG will have more members than it has directors

Advantages:

• It is a distinct legal entity from its owners and members and is responsible for its own debts

• The personal finances of the company’s guarantors are protected. They will not be responsible for paying company debts up to the amount of their guarantees

• ‘Limited’ status builds trust and confidence amongst clients and investors. This type of profession credibility is valuable and can help a company achieve its objectives more effectively.

• It provides a democratic structure – the members elect the board and have the right to remove them

• The CLG framework is suitable for any size of organisation enabling a small organisation to expand without restriction

Disadvantages

• Statutory requirements of submission to HMRC and Companies House of annual accounts and returns – this can incur a cost for the keeping of proper accounting records and filling of annual tax returns

• Lack of privacy for individual board members as personal details submitted to Companies House are available to the public. This can be partially mitigated against however, by having a registered office address, business advisors address or accountants address that directors can use. Their name however will still be published.

• CLGs cannot raise finance by the issue of shares

• Payments to board members can only be as remuneration and not dividend

Most suitable for:

CLGs are most often formed by non-profit organisations such as community groups, membership organisations, sports clubs and workers’ co-operatives, whose owners wish to have the benefit of limited financial liability.