Which statement best describes the nature of Limited liability by guarantee?

• A. It refers to organizations where members' liability is limited to the amount they guarantee
• B. It refers to corporate bonds
• C. It refers to all shareholders' liability up to share capital
• D. It refers to unlimited liability for founders

Answer: (A)

The main idea here is how liability works when an organization is limited by guarantee. In this setup there’s no share capital and no owners with shares. Instead, members agree to contribute a fixed amount if the company is wound up. That means each member’s financial risk is capped at the amount they guarantee, regardless of the organization’s overall debts. This structure is common for charities, clubs, and other non-profits because it protects members from having to pay more than that set amount.

This differs from liability limited by shares, where liability is limited to what shareholders have unpaid on their shares, and from unlimited liability, where there’s no cap on what individuals might have to contribute. It also isn’t about corporate bonds, which are debt instruments rather than a guarantee of contribution to winding up.