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UK Private Company
Limited by Guarantee (LBG)
What Is a UK Company Limited by Guarantee?
A Private Company Limited by Guarantee (LBG) is a type of UK company structure commonly used for:
Non-profit organisations
Charities
Membership organisations
Clubs, associations, and foundations
Social enterprises
Unlike a company limited by shares, an LBG does not have shareholders or share capital. Instead, it has members who guarantee to contribute a nominal amount (usually £1–£10) if the company is wound up.
LBGs are governed by:
Companies Act 2006
Charities Act 2011 (if registered as a charity)
Key Characteristics of a UK LBG
Separate legal entity
No share capital
No shareholders
Members provide a limited guarantee
Limited liability protection
Profits are typically reinvested, not distributed
Suitable for not-for-profit and public-benefit activities
Formation Requirements
Members
Minimum 1 member
Members can be Individuals or Corporate entities
Members act as the “owners” of the company but do not receive profits
Guarantee Amount
Each member agrees to contribute a fixed amount on winding up
Typically: £1; £10
Liability is limited strictly to this amount
Directors
Minimum 1 director
Directors manage the company’s operations
Directors can also be members
Directors must comply with statutory duties under the Companies Act 2006
Incorporation Requirements
The company must be incorporated with Companies House.
Required information:
Company name
Corporate office address (UK)
Articles of Association
Details of directors
Details of members and guarantee amounts
Statement of compliance
Company Name Rules
Must end with “Limited” or “Ltd”
Charitable companies may omit “Limited” with approval
Must be unique and not misleading
Certain sensitive words require permission
Articles of Association
The Articles of Association are the most important governing document for an LBG.
Typical Contents
Company objectives
Membership rules
Voting rights
Director appointment/removal
Use of income and assets
Asset lock (for charities or CIC-style entities)
Winding-up provisions
Non-Profit Clause
Most LBGs include clauses stating:
Profits must be reinvested in the company’s objectives
No distribution of profits to members
Liability Protection
Members’ liability is limited to their guarantee amount
Directors are generally not personally liable for company debts
Personal liability may arise for:
– Fraud
– Wrongful trading
– Breach of directors’ duties
Uses and Applications of a UK LBG
Common Uses
Charities and charitable foundations
NGOs and international organisations
Trade associations
Professional bodies
Sports clubs and community groups
Educational institutions
Think tanks and research organisations
International Use
Commonly used by international NGOs with UK presence
Suitable for grant-funded and donor-funded activities
Recognised globally as a non-profit corporate form
Charitable Status (Optional)
An LBG may apply for charitable status if it meets requirements.
Requirements for Charity Registration Exclusively charitable purposes Benefits of Charitable Status Corporation tax exemptions
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Tax Treatment of a UK LBG
Corporation Tax
LBGs are subject to UK Corporation Tax
However:
– Many non-profit activities generate no taxable profit
– Charitable LBGs may be exempt on qualifying income
VAT
Having the corporate VAT is required if turnover exceeds threshold
Some charitable supplies may be zero-rated or exempt
Tax Advantages
For Non-Profit Operations
No profit distribution reduces tax leakage
Charitable exemptions may apply
Grant income is often non-taxable
Gift Aid (Charities)
Allows reclaim of tax on donations
Significantly increases donation value
Business Rates Relief
Up to 80% mandatory relief for charities
Additional discretionary relief may apply
Accounting and Compliance Requirements
Annual Requirements
Statutory accounts
Confirmation Statement
Corporation tax return (if applicable)
Charity Commission filings (if charitable)
Audit Requirements
Audit required if income exceeds statutory thresholds
Smaller entities may qualify for independent examination
Advantages of a UK LBG
Structural Advantages
Limited liability for members
No share capital required
Strong governance framework
High credibility and transparency
Operational Advantages
Ideal for non-profit and mission-driven organisations
Clear separation between control and financial benefit
Suitable for grant funding and donations
Reputational Advantages
Well-understood and trusted structure
Preferred by donors and regulators
Suitable for international operations
Disadvantages and Considerations
No profit distribution to members
Less suitable for commercial investment
Public disclosure of directors and members
Ongoing compliance and governance obligations
Charity regulation adds complexity if applicable
Comparison
LBG vs Company Limited by Shares
Feature | LBG | Limited by Shares |
Share capital | No | Yes |
Owners | Members | Shareholders |
Profit distribution | No | Yes |
Best for | Non-profits | Commercial businesses |
Investor friendly | No | Yes |
Conclusion
A UK Private Company Limited by Guarantee is the preferred legal structure for non-profit, charitable, and membership-based organisations seeking:
Limited liability
Strong governance
Credibility with funders and regulators
Long-term sustainability without profit distribution
It is not designed for commercial profit-making, but excels in public benefit, social impact, and institutional activities.
If you have any question or matter would need to discuss or clarify with us, please do not hesitate to contact us.