Company Limited by Guarantee
A Company Limited by Guarantee (CLG) is a corporate legal structure commonly used by non-profit organisations, particularly charities, in Scotland and the wider UK. It provides limited liability for its members and a formal governance framework, making it an historically popular choice for charities requiring a corporate identity while fulfilling their charitable purposes.
More recently, people wishing to set up corporate charities in Scotland usually opt for the Scottish Charitable Incorporated Organisation (SCIO), which is regulated solely by OSCR and can offer simpler compliance requirements for charities.
Unlike companies with share capital, a CLG does not have shareholders or distribute profits. Instead, it has members who agree to contribute a nominal sum (typically £1) in the event of the company being wound up. This structure offers a legal personality enabling the organisation to own property, employ staff, and enter contracts in its own name.
When seeking charitable status, a CLG must apply for registration as a Scottish charity with the Office of the Scottish Charity Regulator (OSCR), in addition to registering as a company with Companies House.
Legal Framework
Companies Act 2006 (for company incorporation)
Charities and Trustee Investment (Scotland) Act 2005 (for charitable status)
Note: Charities structured as CLGs are accountable to and regulated by both OSCR and Companies House
Incorporation Process
To establish a CLG as a charity in Scotland, the following steps are typically followed:
1. Draft Constitutional Documents
The Articles of Association serve as the constitution of the company, setting out the charitable purposes, governance structure, powers of directors, and rules for meetings amongst other optional or compulsory choices. SCVO - Full guidance and template on the preparation of a charitable set of Articles
2. Company Registration at Companies House
The process for incorporation at Companies House, is as follows:
- Choose your Company Directors
- Decide who the membership LINK of you CLG shall be
- Identify people with significant control over the company
- Choose a name
- Upload your Articles of Association (the company’s constitution)
- Pay the standard registration fee
3. Apply for Charitable Status
See wiki pages here.
Key Features
- A Company Limited by Guarantee can act in its own name as it has legal personality
- Members are protected from financial liability beyond their guarantee
- CLGs must file annual reports to both OSCR and Companies House
- The CLG must be set up with wholly charitable purposes, provide public benefit and meet other OSCR criteria to qualify as a charity
Advantages
- Recognised structure for funders and grant-makers
- Corporate status provides a degree of professionalism and credibility
- Greater protection for directors and members
- Suitable for charities operating at scale or delivering services under contract
Considerations
- Subject to regulation by both OSCR and Companies House
- Directors must understand obligations under both charity and company law and keep up to date under both regulatory regimes
- For charities wishing to take out loans, mortgages or in some cases buy large assets, a CLG may be the most suitable form of charitable structure. Please seek further advice.
CLGs can be established as either:
- Single-tier companies, where the charity trustees are the only members
- Two-tier companies, with a wider membership that appoints the trustees and has other powers
Membership structures are explained well in this Factsheet .pdf produced by Edinburgh Voluntary Organisation Council (EVOC)
Further resources and links
SCVO – Choosing the right structure https://scvo.scot/support/setting-up/structure
SCVO - Model Articles of Association and guidance https://scvo.scot/support/setting-up/model-constitutions
For further free, well-informed information, find your local Third Sector Interface (TSI) at the directory page here