Features of Guarantee Company

This guide explores the Features of Guarantee Company. A Private Company Limited By Guarantee (Ltd/Gte) is a company that does not have a share capital and the constitution of which provides that the liability of its members is limited to such amount as the members may, in the constitution, respectively undertake to contribute to the assets of the Ltd/Gte in the event of it being wound up.

The users of these types of companies include charities, sports, social clubs, and management companies. Their key
distinguishing feature is the absence of a share capital so that their members are not shareholders and do not have a distinct economic interest in their capital.

A person ceases to be a member of an Ltd/Gte on death or bankruptcy but subjects thereto the constitution of an Ltd/Gte might provide for membership to be transferable. Each member usually has only one vote. An Ltd/Gte may have certain debentures listed on an exchange.


Features of Company Limited By Guarantee (Ltd/Gte) in Nigeria

Here are some of the salient features of a Guarantee Company:


  • Constitution

The constitution of a Company Limited By Guarantee (Ltd/Gte) must accord with the form set out in the Act and comprise a memorandum of association and articles of association.


  • Memorandum of Association

The memorandum of association must state that the Ltd/Gte is limited by guarantee and that the liability of the members of the Ltd/Gte is limited to the amount specified in the memorandum as the amount which he or she undertakes to pay in the event that the Ltd/Gte is wound up.

The memorandum must also set out the objects of the Ltd/Gte and the Ltd/Gte will have the capacity to do any act or thing stated in the objects (this extends to certain acts or things that appear to it to be advantageous or incidental to attaining the objects and which are not inconsistent with any enactment).


  • Articles of Association

The articles of association of a Company Limited By Guarantee (Ltd/Gte) may simply state that the provisions of the Act apply. Alternatively, an Ltd/Gte may exclude or modify the application of optional provisions contained in the Act. In the event that the articles do not contain an express exclusion, the optional provisions contained will apply to the Ltd/Gte. Subject to the requirements of the Act, the Ltd/Gte can amend its articles of association by special resolution.


  • The Ltd/Gte’s Name

The name must end with the words “company limited by guarantee”, or “Ltd/Gte”.

  • Capacity

The Act provides that the validity of an act done by a Company Limited By Guarantee (Ltd/Gte) will not be compromised by virtue of anything contained within its objects. The doctrine of constructive notice has also been removed so that a third party is not bound to enquire as to whether the Company Limited By Guarantee (Ltd/Gte) is acting within its objects. Consequently, persons dealing with an Ltd/Gte will not be prejudiced in circumstances in which the Ltd/Gte acts beyond the scope of its objects. An Ltd/Gte may not be formed unless it carries on an activity in the State that is mentioned in its memorandum.


  • Directors

Any number of guarantors or directors is allowed to be a part of a company limited by guarantee. A minimum of one director and one guarantor are mandatory for the establishment of the company. It is also possible that the same person handles the mantle of both a guarantor and a director.

Unless its constitution provides otherwise, the remuneration (if any) of directors of an Ltd/Gte must be determined in a general meeting by its members. The Charities Act restricts the ability of charities to pay directors.


  • Proceedings of Directors

Unless the constitution of a Company Limited By Guarantee (Ltd/Gte) provides otherwise a director of an Ltd/Gte

(i) may not vote in respect of any contract, appointment, or arrangement in which he or she is interested and shall not be counted in the quorum,

(ii) may not hold any such position in conjunction with his or her office of director and

(iii) must retire by rotation.


  • Members

Unless its constitution provides otherwise, a Company Limited By Guarantee (Ltd/Gte) can avail of powers in the Act to pass unanimous resolutions of members instead of holding physical meetings.

An Ltd/Gte with two or more members may not dispense with the requirement to hold an Annual General Meeting. An Ltd/Gte cannot use the majority members' written resolution and can, in its constitution, remove the right of members to appoint proxies.


  • Non-Profit

A Company Limited by Guarantee is typically set up for non-profit purposes. Any profit generated by the company is reinvested and used for promoting its non-profit activities.


  • Liability

A Company Limited by Guarantee is separate from its owner and is considered a unique legal entity. The approach signifies that the company is deemed to be responsible for the debts it has amassed. Since this business structure would hold the company responsible for any of the debt taken by the company, the personal assets of the owner/shareholder are protected. They need to pay the amount as mentioned in the guarantee and that too only in the event of the company’s insolvency.


  • Audit Exemption

A Company Limited By Guarantee (Ltd/Gte) benefits from an audit exemption vis-à-vis its financial accounts (subject to certain modifications).


  • Filing of Financial Statements

A Company Limited By Guarantee which is formed for charitable purposes may be exempted from filing financial statements.


  • Disclosure Obligations

The provisions of the Act, which deal with financial statements, annual returns,s and audits, will not apply to a Company Limited By Guarantee which is a credit institution or insurance undertaking that is subject to alternative requirements.


When is it appropriate?

A company limited by guarantee is usually appropriate when some or all apply:

  • the organisation is to be quite large
  • it will have employees
  • it will deliver charitable services under contractual agreements
  • it will regularly enter into commercial contracts
  • it will own property or leasehold land



If you are still not sure which one to pick for your business, feel free to reach out to us and our experts will guide you in making the right decision.


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