Why do I need to offer a "guarantee" to form a company limited by guarantee?

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What is the point of offering a guarantee to form a limited by guarantee company? I understand it’s part of the name, sure, but why is it a requirement? I just don’t get it. It feels like I’m preparing to fail by pledging to offer money in the event I fail. What’s the point?

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As the guarantor of a company limited by guarantee, you must limit your financial responsibility to a fixed sum. This is the guarantee you promise to the company if it cannot pay its debts. Most guarantees are limited to £1 but you can guarantee any sum of money you like.

Hopefully your company will never be in a position of insolvency, but you must still provide a guarantee to determine your liability if the worst were to happen. This limited liability means that creditors have no right to your personal finances beyond what you have guaranteed.

a year ago
 

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