DEFINITION of 'Guarantee Company'

A form of corporation designed to protect members from liability, but which typically does not distribute profits to its members and does not divide assets into shares.  Members of a guarantee company are obligated to pay a specific sum of money – a guarantee – if the company is wound up. This amount of money can vary by member, but is typically very small for private guarantee companies and larger for public guarantee companies.

BREAKING DOWN 'Guarantee Company'

Guarantee companies are most commonly found in the United Kingdom, and are formed to protect the assets of non-profit organizations, unions and membership organizations. This type of corporation is recognizable by the use of the word “limited” in its name.

In addition to being limited by guarantee, a guarantee company may also be limited by share capital. If the company has any funds remaining from contributions from members, they have to be used according to the purpose the guarantee company was formed to undertake, such as funding a museum, and cannot be distributed to members.

The allure of guarantee companies is their limited liability. Members have legal protection to shield them from instances in which a transaction the guarantee company is involved in fails, but they will be responsible for a nominal sum of money if the guarantee dissolves.

RELATED TERMS
  1. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities ...
  2. Guaranteed Stock

    An infrequently used form of common or preferred stock, whose ...
  3. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific ...
  4. Guaranteed Investment Contract ...

    Insurance contracts that guarantee the owner principal repayment ...
  5. Protected Fund

    A type of mutual fund that guarantees an investor at least the ...
  6. Window Guaranteed Investment Contract ...

    A type of investment plan where a series of payments are made ...
Related Articles
  1. Insurance

    Does Buying a Guaranteed Life Insurance Policy Make Sense?

    When does it make sense to buy a life insurance policy that is guaranteed?
  2. Retirement

    The Cost Of Variable Annuity Guarantees

    These products tempt investors with some impressive benefits - but they come at a price.
  3. Small Business

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.
  4. Insurance

    Are You Protected If Your Insurance Company Goes Belly-Up?

    Consumer protection against insurance company failures actually falls into the hands of state governments. How much protection do you have?
  5. Financial Advisor

    Preparing Finances For Deployment: A Guide For Service Members

    Those who follow the instruction in this article can look forward to a homecoming of financial prosperity.
  6. Investing

    What's a Bank Guarantee?

    Bank guarantees are used to assure a third party of payment or performance of an obligation. The obligation can be either to pay an amount due or to perform on a contract. By granting the guarantee, ...
  7. Investing

    The LLC Operating Agreement Template, And Why You Need It

    For some business owners, creating an LLC offers the best of both worlds. But your state's rules might not suit your needs. Hence the Operation Agreement.
  8. Insurance

    How to Choose Permanent Life Insurance Policies

    When does it makes sense to buy a guaranteed rather than a non-guaranteed life insurance policy?
  9. Investing

    Segregated Funds: Investment Protection For Canadian Citizens

    These funds contain the best of all worlds, providing opportunities for market growth with a no-loss guarantee.
  10. Financial Advisor

    Tips to Help Retirees Combat Low Interest Rates

    Planning for retirement in a zero interest rate environment can be tricky. Here are some ways to make it work and generate income.
RELATED FAQS
  1. How does a company obtain a bank guarantee?

    Find out how bank guarantees work, why they are issued and the process that a business normally goes through to acquire one ... Read Answer >>
  2. What is the difference between a bank guarantee and a bond?

    Understand what a bank guarantee is and what a bond is, and which one is a debt instrument. Learn the differences between ... Read Answer >>
  3. How is a bank guarantee different from a traditional loan?

    Read about the differences between a traditional bank loan and a bank guarantee, and why a third party might require a guarantee ... Read Answer >>
  4. What's the difference between a bank guarantee and a letter of credit?

    A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure ... Read Answer >>
  5. Can a Limited Liability Company (LLC) issue stock?

    Learn about a limited liability company, or LLC, and if it is able to issue stock. Understand the benefits of an LLC, both ... Read Answer >>
Hot Definitions
  1. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  2. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  3. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  4. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  5. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  6. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
Trading Center