04: Companies limited by guarantee

A private company can be limited by shares or by guarantee. Shareholders of private companies limited by shares are not liable for the company’s debts if they have paid for their shares in full.

Those forming a private company limited by guarantee agree on liability limits when it is set up. Member liability is limited to the amount the member has agreed to contribute to the company’s assets if it is wound up.

This type of legal structure is often used by social enterprises such as clubs or management companies for flats in which all tenants are members, for example. The idea is to limit the personal liability of their directors and trustees.

Companies limited by guarantee cannot raise finance by issuing shares, nor pay dividends to their members.