Company Limited by Guarantee

Scottish Charity Awards 2017 winner – Leading Light – Celine Sinclair, The Yard

A company is a membership organisation formed and registered under the provisions of the Companies Acts. It is incorporated and benefits from limited liability for its members.

It’s a structure that can be chosen by voluntary organisations that employ staff, regularly enter into contracts, manage investments, and/or own property and other assets, because limited liability helps to minimise the threat of personal liability for the directors.

It is regulated by Companies House and subject to the Companies Acts and other legislation. If a company is charitable then it will be subject to charity law and regulated by OSCR as well.

If you are considering this structure and are planning to apply for charitable status, why not consider setting up as a Scottish Charitable Incorporated Organisation? This is a corporate body which provides limited liability for its members and is suitable for organisations that want to become charities, but do not want or need the complex structure of company law.


  • It’s a private limited company that has guarantors rather than shareholders, so it’s suitable for voluntary organisations. The members agree to pay a fixed amount known as a guarantee (usually £1) towards the company’s debts if it goes into liquidation.
  • The company is a clear legal entity, separate from the persons involved in it – and can hold property, enter into leases and other contracts, employ people, etc, in its own name. It doesn’t matter if the directors change because it is the company and not the directors that hold title to land, enter into contracts, etc, but changes must be notified to Companies House.
  • A company is generally regarded by funding bodies and public agencies as a more ‘stable’ structure than a voluntary association.


  • There are formal registration procedures to be followed in relation to creating a company, in addition to the process of applying to be recognised as a charity, unlike with a SCIO which needs only to be registered with OSCR.
  • There is an ongoing requirement to notify a change in directors, a change in the company secretary, or a change in the registered office to Companies House. Similarly, annual accounts and annual returns have to be filed. If a charitable, a company must also file an annual return with OSCR, and notify or seek prior consent from OSCR before making certain changes.
  • There are various statutory requirements which have to be followed in relation to members’ meetings etc.
  • A company structure may be more intimidating for those considering whether to join as members or put themselves forward for election to the board of directors.
  • Set up costs can be higher than for a voluntary association or trust; and annual costs are higher, particularly if there is an external company secretary and/or if a formal audit is required.

How is it governed?

A company is created with documents known as a memorandum of association and articles of association. If a charity, these must be approved by OSCR.

Its governing body is made up of the directors who have a legal responsibility for the company and ensure it carries out its activities properly.

Charitable status?

You may choose to set up a company and register as a Scottish charity if the company meets the criteria for being a charity. Equally, you can set up a company without seeking charitable status.

Yes. However, so far as limited liability is concerned, it should be recognised that, although the company format does provide a very substantial level of protection against personal liability, the limit on liability does not extend to any liability which a person might incur in their capacity as director of the company, as distinct from their capacity as a member. There are a range of legal duties imposed on directors of a limited company which could give rise to personal liability. Broadly speaking, however, it is extremely unlikely that a director would find themselves personally liable as a matter of practice, unless they acted in a manner which was negligent or improper. It is important, though, that those involved should have a reasonable understanding of what is involved in relation to their duties as directors.

Write your constitution

A company limited by guarantee is a clear legal entity separate from the people involved in it. It must comply with UK company law and is accountable to Companies House. The company has no shareholders and does not distribute profit. Its members’ liabilities are limited to a guaranteed sum – usually £1. If it is a charitable company, then it will also be accountable to the Office of the Scottish Charity Regulator, and must comply with charity law. It is possible to create a not-for-profit company which is not a charity, in which case it is accountable only to Companies House. If your organisation is not proposing to pursue charitable status, but will clearly be operating for the benefit of the community, the CIC model may be worthy of consideration. The key features of a CIC are set out in the section Decide on a Legal Structure. Many organisations are now investigating becoming a Scottish Charitable Incorporated Organisation (SCIO) rather than a charitable company limited by guarantee. This offers all of the same advantages of being a company limited by guarantee with the added benefit of only reporting to one regulator (OSCR).

Choosing the Name

There are a number of things you need to think about when choosing the name of your organisation. There are some particular issues when choosing a suitable name for a voluntary sector company. If the company is expected to be registered as a charity, it would be possible to omit the word “Limited” from the company name. That would not affect the principle of limited liability, and the only implication is that the company would have to state clearly on its communications that it was a limited company. There are certain words laid down in statutory instruments which can be used in a company name only if their use can be justified in reference to certain criteria, or if special clearance has been obtained. The “sensitive” words which are likely to be of most relevance in the context of a new voluntary-sector company are as follows:

  • Association
  • Charitable
  • Federation
  • Foundation
  • Fund
  • Group
  • Holdings
  • Institute
  • International
  • Scotland
  • Scottish
  • Society
  • Trust

The level of justification (and, in some cases, support from public bodies) – and the effect on the timescale for incorporating the company – varies very much depending on the particular word involved. For example, inclusion of the word “Scotland” in brackets in a company name requires only a statement in a covering letter to Companies House that the organisation will have its administrative offices in Scotland, whereas inclusion of the word “Scottish” requires supporting letters from government agencies, etc to establish pre-eminence and may involve a significant delay before clearance is given. If the proposed company name will include any of the words listed above, you should speak to the Names Section at Companies House for guidance.

Model set of memorandum and articles

You can download a model set of memorandum and articles (the “constitution” of a limited company) and use it as the basis for your organisation. Remember that they need to be carefully drafted to reflect the aims which the organisation will be pursuing in practice, and its activities. This model memorandum and articles reflects the features that are most commonly found in the charity/voluntary sector. Be careful when making changes as there is a risk that Companies House will reject any wording which does not comply with company law. In the same way, if you are applying to OSCR for charitable status, the extent to which you can depart from the model in certain areas is limited. Those areas are identified in the detailed clause-by-clause guidance set out below.

Clause by clause guidance

Follow our detailed clause-by-clause guidance to find explanations of what the clause is there for, whether it is required by law, and information about decisions to be made between alternative possibilities.

Additional clauses

These are additional clauses you may want to use, again modelled on common features within the sector. They cover such things as:

  • Membership by incorporated or unincorporated bodies
  • Co-opted directors
  • Some, but not all, elected directors to retire each year
  • Maximum period in office for directors
  • Outside body having right to representation on board
  • Annual membership subscription
  • Members’ power to require an extraordinary general meeting to be held
  • Alternate directors

Forming the company


You should circulate the first draft of your articles among your steering group so everyone has the opportunity to comment, and ensure any relevant outside organisations, the wider community and key partner bodies are brought into the process of finalising the articles.

Information for Companies House

Once the draft is finalised the steering group should gather together the various items of information which will be needed for the incorporation documents. Where the company is applying for charitable status, this could happen while the draft is being considered by OSCR. You will need: Information about the first directors:

  • Full name (including all middle names)
  • Any former name (ignoring for this purpose a maiden surname)
  • Service address (this does not need to be the person’s usual residential address. If the service address is the registered business address you must indicate this)
  • Home address (this will not appear on the public record)
  • Date of birth
  • Nationality
  • Business occupation

Information about the proposed company secretary

  • Full name (including all middle names)
  • Any former name (ignoring for this purpose a maiden surname)
  • Service address (this does not need to be the person’s usual residential address. If the service address is the registered business address you must indicate this)

Information about the registered office

  • Proposed address of the registered office (including post code)

Information about the subscribers (first members)

  • Full name (including all middle names, if the subscriber is an individual)
  • Address

Applying to Companies House

You will need to prepare a form IN01, a signed copy of the memorandum of association and a copy of the final version of the articles of association, incorporating the information referred to above. If the company name is not to include the word “Limited”, this should be indicated in Section A3 of the form IN01. Every box on the form has to be completed. The forms and further guidance can be obtained from Companies House. Where the company is applying for charitable status you will need to wait until OSCR has issued a letter giving its informal assurance that the company will be registered as a charity. It simplifies the mechanics of obtaining signatures if the number of people signing the incorporation documents is kept fairly low. Additional members and directors can be admitted just after the company is formed. It is important that sufficient people sign the incorporation documents as first directors to form a quorum for the first meeting of the board. The full package of incorporation documents should sent to Companies House with the fee to meet the incorporation dues.

What happens then

The certificate of incorporation, which brings the company into existence, is normally issued around a week after receipt by Companies House. It is important to note that contracts should not be entered into until you receive the certificate of incorporation. If you urgently require a legal entity, eg to open a bank account or apply for grant funding before a specific deadline, Companies House offer a “same day” incorporation service for an increased fee. If your company is pursuing registration as a charity, you should submit a certified copy of the memorandum and articles (as submitted to Companies House), together with a copy of the certificate of incorporation to OSCR, to enable the charity registration process to be completed.

Keep a copy

A final copy of the memorandum and articles should be carefully preserved. Each of the directors should be given a copy for future reference, and a copy should also be sent to any accountant engaged by the company.

Page last modified on 16th January 2018