Why do companies limited by guarantee have guarantors?


I have got a question about limited by guarantee companies. I understand instead of shareholders, like limited companies have got, limited by guarantee companies have got what’s called guarantors. Based on the name of this structure, that makes a lot of sense. But I don’t really get why. I thought the whole point of a non-profit was to benefit everyone, so why make a guarantor step up to the plate and be responsible for failures? What’s the point?



Companies limited by guarantee need at least one person to act as a guarantor in case the company itself is unable to pay its debts. A guarantor is an owner of the company. Each guarantor is therefore required to ‘guarantee’ a fixed sum of money to the company, but they only have to contribute this money if the company becomes insolvent.

These guarantees create the limited liability of a company. Without having guarantors and guarantees, the liability of a company could not be limited by guarantee. Guarantors are simply a legal requirement of limited by guarantee companies.

2 years ago

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