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August 30, 2026
What Is the Difference Between a Company Limited by Shares and by Guarantee?
A company limited by shares has shareholders and share capital, while a company limited by guarantee has members known as guarantors and no share capital.
Companies limited by shares are normally used for commercial businesses that intend to generate profits for their owners. Companies limited by guarantee are commonly used for charities, clubs, associations, membership organisations and other organisations that reinvest their income.
Both structures create separate legal entities and provide limited liability, but their ownership, funding and profit-distribution arrangements are different.
A company limited by shares is owned by one or more shareholders.
Each shareholder holds shares representing part of the company’s ownership. The rights attached to those shares may include:
Most commercial private limited companies in the UK are limited by shares.
A company limited by guarantee does not normally have shares or shareholders.
Instead, it has guarantors who are members of the company. Each member agrees to contribute a specified amount if the company is wound up and cannot pay its debts.
The guaranteed amount is commonly a nominal sum, such as £1, although the company can set a higher amount.
Companies limited by guarantee are commonly used for:
The main difference concerns how membership and financial ownership are structured.
In a company limited by shares, ownership is divided into shares. Shareholders may receive dividends and benefit financially if their shares increase in value.
In a company limited by guarantee, there are no conventional ownership shares. Guarantors normally participate as members but do not hold a transferable percentage of the company’s capital.
A guarantor’s membership may give them voting rights, but it does not normally provide the same economic ownership rights as company shares.
Both structures normally provide limited liability.
A shareholder’s liability is generally limited to the amount unpaid on their shares.
For example, if a shareholder holds ten shares with a nominal value of £1 each and has paid for them in full, they will not normally be required to contribute more solely because the company cannot pay its debts.
A guarantor’s liability is generally limited to the amount stated in the guarantee.
If the member guarantees £1, they may be required to contribute that £1 if the company is wound up while they are a member or within the applicable period after their membership ends.
Limited liability does not protect directors or members from liability arising from personal guarantees, fraud, breaches of duty or other wrongful conduct.
A company limited by shares is owned by its shareholders. Their ownership percentages can usually be calculated from the number and class of shares they hold.
For example, if a company has 100 identical ordinary shares and one person holds 60, that person normally owns 60% of the company.
A company limited by guarantee has members rather than shareholders. They may be described as controlling or governing the organisation, but they do not normally own a defined percentage of its economic value.
Membership rights are established by the company’s articles of association.
Yes. Both structures can conduct business, generate income and make a profit.
The important difference is how those profits are normally used.
A company limited by shares will often distribute some profits to shareholders through dividends, provided that the company has sufficient distributable profits and follows the correct procedure.
A company limited by guarantee will commonly retain and reinvest its profits to support its activities or objectives.
Being limited by guarantee does not, by itself, automatically make a company a charity or prevent every form of distribution. Restrictions normally arise from the company’s articles, charitable status, CIC status, funding agreements or other applicable rules.
A conventional company limited by guarantee does not have shares, so it cannot pay ordinary share dividends in the same way as a company limited by shares.
Its articles will often prohibit distributing profits to members. This is especially important for charities and organisations established for non-profit purposes.
A charity must use its income and assets for its charitable purposes and cannot distribute profits to its members.
If an organisation intends to provide financial returns to investors, a company limited by shares will normally be more appropriate.
A company limited by shares may obtain funding through:
The ability to issue shares makes this structure more suitable for businesses seeking equity investment.
A company limited by guarantee may obtain funding through:
It cannot issue conventional equity shares to investors because it does not have share capital.
A share represents an ownership interest in a company. It may have financial value and can carry voting, dividend and capital rights.
A guarantee is a commitment to contribute an agreed amount if the company is wound up and cannot pay its debts.
The guaranteed amount:
Yes. Both types of private company must have at least one director.
The directors are legally responsible for managing the company and ensuring that it meets its filing, accounting and statutory obligations.
A person can be both:
The roles remain legally distinct even when the same individual performs both.
Yes. “Member” is the legal term for someone who belongs to a company.
In a company limited by shares, the members are generally its registered shareholders.
In a company limited by guarantee, the members are its guarantors.
Members usually exercise voting and constitutional rights according to the company’s articles.
Yes. Both structures require articles of association.
The articles explain how the company will be governed and may cover:
A company limited by guarantee should use articles designed for a guarantee structure. Articles created for a company with shareholders may not be suitable.
A company limited by shares provides a statement of capital containing information about:
A company limited by guarantee provides a statement of guarantee containing:
Both companies also provide information about their directors, registered office, articles and people with significant control.
Yes. Both companies limited by shares and companies limited by guarantee may need to identify people with significant control.
In a company limited by shares, a person may be a PSC if they hold more than 25% of the shares or voting rights, can appoint or remove most directors or otherwise exercise significant influence or control.
In a company limited by guarantee, PSC status is more likely to be based on voting rights, director-appointment rights or significant influence and control.
A guarantor who controls more than 25% of the voting rights may qualify as a PSC.
A company limited by guarantee is commonly used for incorporated charities, but it does not become a charity automatically.
The organisation must separately satisfy the legal requirements for charitable status and, where required, register with the appropriate charity regulator.
A company limited by shares can only operate as a charity in limited and unusual circumstances because charities cannot normally distribute profits for private benefit.
For most charitable organisations choosing a company structure, limited by guarantee is the more conventional option.
A community interest company can be limited by shares or limited by guarantee.
A CIC limited by guarantee may suit a social enterprise that intends to reinvest its surplus and does not need equity investors.
A CIC limited by shares may suit a social enterprise that wants to attract investors and pay restricted dividends, subject to the CIC asset lock and dividend rules.
A CIC is subject to additional regulation and reporting requirements that do not automatically apply to an ordinary limited company.
Shares in a company limited by shares can normally be transferred, subject to:
Membership in a company limited by guarantee is not normally a transferable financial asset. Admission, resignation and termination of members are governed by the articles.
This makes a guarantee company more suitable for membership-based organisations and less suitable for investors who expect to sell their ownership interest.
If a solvent company limited by shares is wound up, any remaining assets may be distributed to shareholders according to the rights attached to their shares after all debts and liabilities have been settled.
For a company limited by guarantee, the articles will determine what happens to any remaining assets.
Many guarantee companies include provisions requiring surplus assets to be transferred to another organisation with similar objectives. Charities and CICs are subject to additional restrictions preventing assets from being distributed freely to members.
No. “Limited by guarantee” describes the company’s membership and liability structure, not a separate tax status.
A guarantee company can generate trading income and make a financial surplus. However, its articles will often require that the surplus be reinvested rather than distributed to members.
The company does not receive automatic tax exemptions merely because it is limited by guarantee. Any tax relief will depend on factors such as charitable status, activities and applicable tax rules.
A company limited by shares is normally better for a profit-making commercial business.
It allows the owners to:
A guarantee company is generally unsuitable when investors expect a financial return or a transferable ownership interest.
A company limited by guarantee is often better for a club, association or membership organisation.
It allows the organisation to have a changing membership without transferring shares every time someone joins or leaves.
The articles can give members voting rights while requiring the organisation’s income and assets to be used for its stated purposes.
There is generally no simple Companies House procedure that converts an existing company limited by guarantee directly into a company limited by shares.
An organisation that needs a different structure may have to incorporate a new company and transfer its activities, contracts, assets and liabilities.
Such a transfer may have legal, tax, contractual and regulatory consequences, particularly if the existing organisation is a charity or CIC.
The preferred structure should therefore be selected carefully before incorporation.
A company limited by shares may be suitable if:
A company limited by guarantee may be suitable if:
A company limited by shares has shareholders whose ownership is represented by shares. It is normally used for commercial businesses and can distribute profits through dividends.
A company limited by guarantee has guarantors who promise to contribute a specified amount if the company is wound up. It has no conventional share capital and is commonly used for charities, clubs, associations and non-profit organisations.
Both provide limited liability, but they serve different purposes. A commercial business seeking investment will usually choose a company limited by shares, while a membership or non-profit organisation will often choose a company limited by guarantee.
This article provides general information and does not constitute legal, tax or financial advice.
