Last updated Apr 03, 2024 and written by Tom Richardson

7 Limited by Guarantee Questions Answered by FreeAgent

We asked our friends over at FreeAgent seven common(ish) questions about the Limited by Guarantee (LBG) company structure – a structure commonly favoured by charities. Take a look, and remember to get in touch if you’re interested in incorporating your own LBG company.

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What are the key differences between a standard Limited by Shares company  and a LBG?

The crucial difference is the measurement of the owners’ liability to the company in the event of the company being wound up.

For a company that’s Limited by Shares – in other words a typical limited company – the owners don’t have to pay any more than the basic value of their shares into the company to cover any other outstanding debts that the company may have when it’s closed down.

For a company that’s Limited by Guarantee, the owners guarantee a certain amount that they will put up to cover debts that the company may have when it closes. As an LBG has no shares, it cannot distribute profits in the form of dividends, and therefore LBGs are a popular business structure among charities and not-for-profit organisations. For example, Network Rail is a LBG.

Otherwise, LTD and LBG companies work in a very similar way.

Does a LBG name have to end in Ltd?

Typically an LBG’s name must end in ‘Ltd’ or ‘Limited’. However, the names of LBGs that are set up for the promotion of commerce, art, science, education, religion, charity or any profession do not have to end in ‘Ltd’ or ‘Limited’. The charity Oxfam is one example of this.

Does a LBG have to file annual accounts? What else do they need to annually file?

Just like any other company, a LBG has to file annual accounts and an annual confirmation statement at Companies House. It also has to file a Corporation Tax return with HMRC.

Can a LBG pay people a salary?

A LBG can pay a salary to employees, but not to directors.

How does it work if a guarantor wishes to leave the company?

The company should have a process laid down in its articles of association for what would happen if a guarantor (also known as a member) wished to leave the company, and/or when new members joined. This would typically involve a departing guarantor giving notice and a joining member being appointed at a meeting such as an AGM.

Can a LBG register for VAT?

Yes, an LBG may have to register for VAT – the same as any other business would – if its VATable sales go over the threshold, which is currently £85,000 a year. An LBG can also register for VAT voluntarily before then.

Thank you to FreeAgent for answering our questions! 

If you’re looking to form your own Limited By Guarantee company take a look at the below link, and as per usual, please do let us know if you have any questions.

Limited By Guarantee company incorporations.

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