Setting Up A Company Limited By Guarantee (2026 Updated)

Not every organisation is built to “make profits for shareholders”. If you’re setting up a charity, community group, industry body, club, or social enterprise, you might be looking for a structure that gives you credibility and continuity, without needing shareholders or share capital.

That’s where a company limited by guarantee can be a great fit.

This guide is updated for 2026 so you can feel confident you’re working with current, practical information. We’ll walk you through what a company limited by guarantee is, when it makes sense, how to set one up in New Zealand, and the legal documents you’ll want in place so you’re protected from day one.

What Is A Company Limited By Guarantee In New Zealand?

A company limited by guarantee is a type of company structure usually used for not-for-profit purposes. Instead of having shareholders who own shares, the company has members who agree to contribute a set amount (a “guarantee”) if the company is wound up.

In simple terms:

• No shares (so no shareholders and no share capital).
• Members support the company and agree to a financial “backstop” if things end.
• Limited liability for members (limited to the guarantee amount, subject to certain circumstances).
• It’s still a registered company, with directors and governance obligations.

This structure is popular for:

• Charities and charitable trusts that want a corporate vehicle
• Clubs and membership organisations (sports, cultural, professional)
• Peak bodies / industry associations
• Social enterprises that reinvest money into their mission
• Organisations that want a clear governance framework with directors

Even though it’s “not-for-profit” in purpose, it’s still a company. That means you’ll be operating under the Companies Act 1993, and directors have real responsibilities.

Is A Company Limited By Guarantee The Right Structure For You?

This is the key question. A company limited by guarantee can be an excellent structure, but it isn’t automatically the best choice for every not-for-profit.

Why People Choose This Structure

Many founders choose a company limited by guarantee because it can feel more “business-like” and scalable than some alternatives. It can also make it easier to deal with third parties like banks, funders, suppliers, and government agencies because the structure is widely recognised.

Some common advantages include:

• Limited liability for members (typically limited to the guarantee amount).
• Separate legal entity, meaning the organisation can own assets, enter contracts, and keep operating even if members/directors change.
• Clear governance with directors, rules, and decision-making processes.
• Credibility with stakeholders who are used to dealing with “companies”.

When It Might Not Be The Best Fit

You may want to consider other structures if:

• You want a simpler governance model with fewer corporate formalities.
• You’re setting up something small and local where an incorporated society or trust is clearly the norm.
• You actually want investors to take equity (a company limited by guarantee is not built for that).

Also, while members’ liability is limited, the company still has obligations. Directors can be personally exposed in certain situations (for example, where directors’ duties are breached). If you want to understand that risk profile, it’s worth getting advice on Personal Liability early on.

Company Limited By Guarantee vs Charitable Trust vs Incorporated Society

These are the three structures most not-for-profits weigh up. The “best” option depends on what you’re building and how you’ll run it.

• Company limited by guarantee: corporate governance (directors), members rather than shareholders, familiar structure for commercial counterparties.
• Charitable trust: run by trustees and governed by a trust deed; often common for charities and grant-making bodies.
• Incorporated society: member-based organisation with its own rules; commonly used for clubs and groups.

If you’re not sure, getting targeted advice before you lock it in can save you a lot of admin (and legal cost) later.

How Do You Set Up A Company Limited By Guarantee? (Step-By-Step)

Setting up a company limited by guarantee involves more than just filling out a form. You’re creating an entity that needs proper governance, clear rules, and a structure that matches how you’ll actually operate.

Here’s a practical step-by-step approach.

1. Clarify Your Purpose And “Not-For-Profit” Settings

Start with the basics:

• What is the organisation’s mission?
• Who will benefit from what you do?
• Will you apply for charitable status, or operate as a non-charitable not-for-profit?
• Will you have members who vote and participate, or a small group of founders?

This matters because your purpose and “profit distribution” settings should line up with your governing documents and how you describe the organisation publicly.

2. Decide Who The Members Will Be (And What The Guarantee Amount Is)

Members in a company limited by guarantee are not shareholders. They typically have voting rights and certain powers (like appointing directors or approving major changes), depending on what your governing documents say.

Each member agrees to contribute up to a set amount if the company is wound up. That amount is often modest (for example, $10, $100, or $1,000), but it should be chosen deliberately.

It’s also important to think about:

• How do people become members?
• Can members be removed (and in what circumstances)?
• What happens if a member resigns?
• What notice is required for meetings and voting?

3. Appoint Directors (And Understand Their Duties)

Just like any other company, a company limited by guarantee will have directors who manage the company’s affairs.

Directors’ duties (under the Companies Act 1993) are taken seriously. Practically, that means directors need to:

• Act in good faith and in the best interests of the company
• Use powers for a proper purpose
• Not trade recklessly
• Take reasonable care, diligence, and skill
• Manage conflicts of interest properly

If your organisation will have overlapping relationships (common in not-for-profits), it’s smart to set expectations early with a Conflict Of Interest Policy.

4. Prepare Your Constitution (This Is Where Most Problems Start Or Get Solved)

A constitution is basically the rulebook for how your organisation runs. It’s also where you can bake in the “not-for-profit” character of the organisation (for example, how money can be used, and what happens to assets on winding up).

Common constitution clauses for a company limited by guarantee include:

• Purpose / objects
• Membership (admission, resignation, termination, fees if any)
• Member meetings and voting processes
• Director appointment and removal
• Decision-making rules (including written resolutions)
• Conflicts of interest rules
• Use of funds and restrictions on distributions
• Winding up and asset distribution (often to another not-for-profit)
• Dispute resolution processes

If you want the constitution done properly (and tailored to your purpose), having a lawyer draft or review it is a big advantage. This is exactly what a Company Constitution is for.

5. Register The Company And Keep Your Records Clean

Once the structure is designed, you’ll need to register the company through the Companies Office and complete the required company set-up steps.

After registration, make sure you maintain good corporate housekeeping, such as:

• director and member registers
• meeting minutes and resolutions
• records of major decisions
• signed contracts and key policies

Not-for-profits often have changing volunteers and board members over time, so good records protect continuity and avoid misunderstandings later.

What Legal Documents And Policies Should You Have From Day One?

Once your company limited by guarantee exists, the next step is making sure it can operate safely in the real world.

That usually comes down to having the right documents in place, so everyone is on the same page and you’re not relying on “handshake agreements” (which can get messy fast, even when everyone has good intentions).

Constitution And Governance Documents

Your constitution is the core document. Depending on your organisation, you may also want:

• Board charter or governance manual (to document meeting expectations and board processes)
• Delegations of authority (what management can approve vs what the board must approve)
• Policies for conflicts, complaints, and conduct

Where directors are stepping into roles with real responsibility, it’s also common to put proper protections in place. For example, some organisations use a Deed Of Access And Indemnity to help directors feel comfortable that they’ll be supported (within the legal limits) when acting properly.

Employment And Contractor Documents

If you’re hiring staff (even just one employee), you’ll want an employment agreement that matches how the role will actually work, including pay, duties, hours, and confidentiality.

A tailored Employment Contract can help prevent disputes and make performance expectations clearer from the start.

If you’re engaging contractors, volunteers, or casual support workers, it’s also worth making sure the arrangement is correctly documented (and correctly classified) so you don’t accidentally create employment obligations.

Privacy And Data Handling

Most not-for-profits collect personal information at some point, such as:

• member records
• donor lists
• event registrations
• mailing lists
• health or accessibility information (sometimes)

That means you need to think about compliance with the Privacy Act 2020, including how you collect, store, use, and share personal information.

If you have a website or collect personal information, having a clear Privacy Policy is a practical (and often expected) starting point.

Commercial Contracts (Even For Not-For-Profits)

Not-for-profit doesn’t mean “no contracts”. You may need:

• sponsorship agreements
• venue hire agreements
• supplier agreements
• service agreements for programs you deliver
• partnership or collaboration agreements

Having a properly drafted Service Agreement can be especially important if you deliver services to the public or other organisations, because it sets expectations around scope, payment (if any), cancellations, liability, and disputes.

What Ongoing Compliance Do You Need To Think About?

Once your company limited by guarantee is registered and operating, your focus shifts to ongoing compliance.

This doesn’t need to be overwhelming, but you do need to understand your baseline obligations so you don’t get caught out when you’re busy running programs, raising funds, or managing volunteers.

Director Duties And Good Governance

Directors need to keep making decisions that are in the best interests of the company, manage finances responsibly, and avoid conflicts of interest.

Practically, good governance includes:

• regular board meetings and minutes
• clear budgeting and financial oversight
• documented decisions for major commitments
• updating company records when directors change

Health And Safety Responsibilities

If your organisation has staff, volunteers, events, or a workplace, you may have obligations under the Health and Safety at Work Act 2015.

This can apply even if you’re volunteer-heavy. The key idea is that the organisation must take reasonably practicable steps to keep people safe.

Fundraising, Marketing, And Consumer Law Basics

If you advertise services, sell tickets, run paid programs, or sell goods (even to fundraise), you should also be mindful of:

• Fair Trading Act 1986 (be accurate in advertising and don’t mislead people)
• Consumer Guarantees Act 1993 (consumer rights may apply when supplying goods/services to consumers)

Not every not-for-profit activity will look like a standard “consumer transaction”, but plenty do (for example, selling event tickets or paid memberships). This is why it’s helpful to treat your organisation like a professional service provider and get your terms right upfront.

Financial Management And Tax Settings

Companies limited by guarantee still need to manage tax, GST (if applicable), and financial reporting. Whether you’re charitable, tax-exempt, GST-registered, or not will depend on your activities and structure.

This is one area where legal and accounting advice should work together, so you’re not guessing your way through compliance.

Key Takeaways

• A company limited by guarantee is a member-based company structure usually used for not-for-profits, where members guarantee a set amount if the company is wound up.
• This structure can offer strong credibility and governance, but directors still have real legal duties and the organisation needs proper documentation and record-keeping.
• Your constitution is the backbone of the organisation and should clearly deal with membership, decision-making, director appointments, financial rules, and what happens on winding up.
• Even not-for-profits need tailored legal documents like employment agreements, service contracts, and policies (especially around conflicts of interest and privacy).
• Ongoing compliance matters, including governance, health and safety obligations, and the consumer and advertising rules that apply to many public-facing activities.
• If you’re unsure whether a company limited by guarantee is the best structure for your goals, getting tailored advice early can save major costs and headaches later.

If you’d like help setting up a company limited by guarantee (or you want someone to review your constitution and governance settings), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.