Guarantee Company: Definition and How It Works

A guarantee company is a corporate structure commonly used in the United Kingdom and other jurisdictions for non-profit and membership organizations. It provides limited liability to its members without issuing shares or distributing profits.

Key takeaways

• Organized to provide limited liability to members by setting a fixed, nominal guarantee amount.
• Often used by nonprofits, clubs, unions, NGOs, social enterprises, co‑operatives, students’ unions, and property management companies.
• Common in England, Scotland, Wales, and Ireland.
• Members do not receive dividends; any remaining funds are used to further the company’s stated purpose.
• A guarantee company must have at least one member and one director and may call directors who receive remuneration.

How a guarantee company works

Structure and purpose
* Guarantee companies are incorporated entities created to protect members from personal liability while enabling the entity to operate, enter contracts, hold property, and carry out its objectives.
* They are typically chosen when an organization wants corporate status but not share capital—for example, charities, clubs, and organizations holding communal property.

Membership and guarantee
* Members agree to contribute a nominal sum (the “guarantee”) if the company is wound up and creditors must be paid. The guarantee amount is set in the company’s articles and is often a small fixed sum (commonly £1 in many UK examples), though it can be any amount appropriate to the organization.
* Because there are no shareholders, members collectively carry responsibility for meeting creditor claims up to their guarantee amounts if the company is insolvent.

Governance and finances
* A guarantee company appoints directors to manage operations; directors may be paid a salary or bonus if permitted by the company’s constitution.
* Profits are not distributed to members. Surplus funds are applied to the company’s stated purposes—e.g., funding programs, maintaining property, or supporting public services.

Incorporation and naming
* Incorporation generally requires at least one member and one director. Many guarantee companies include “Limited” in their legal name, though exemptions may apply for certain charities and organizations.

Typical uses

• Charities and non-profit organizations that require a legal entity but do not want share capital.
• Membership organizations such as clubs, sports associations, and students’ unions.
• Property management companies set up to hold and manage interests in buildings or developments divided into units.
• Social enterprises and NGOs that reinvest surplus into mission-related activities.

Example

Cricket Australia operates as a “company limited by guarantee.” Its members (state associations) have a capped liability under its constitution (reported as $1,000 per member). Revenue from matches is distributed according to agreement among members, and remaining funds are applied toward the organization’s objectives rather than paid out as dividends.

When to consider a guarantee company

Consider this form when an organization needs:
* Limited liability for members without share capital.
* A governance structure that prevents profit distribution to members.
* Flexibility to hold property or enter contracts while operating for public, charitable, or membership purposes.

A guarantee company is a practical, widely used option when protecting members from personal liability and directing resources toward a collective mission are priorities.