If a charity wants to limit the personal liability of its members, which legal form should it adopt?

• A. Charitable trust
• B. Company limited by guarantee
• C. Unincorporated association
• D. Public limited company

Answer: (B)

When a charity wants to protect its members from being personally on the hook for the charity’s debts, the key idea is to have a separate legal entity with limited liability for its members. A company limited by guarantee does exactly that: it is a separate legal entity, and its members’ liability is limited to the amount they agree to guarantee (often a small sum). This means if the charity runs into trouble, members aren’t personally liable beyond that fixed amount, while the charity itself can own property, enter contracts, and sue or be sued in its own name.

By contrast, a charitable trust relies on trustees who manage the assets and can face personal liability for breaches of duty, so it doesn’t provide the same protection for members. An unincorporated association has no separate legal personality, so members can be personally liable for debts and obligations. A public limited company does offer limited liability for shareholders, but it’s a for-profit form and isn’t typically used for charities, where the aim is non-profit and charitable status rather than distributing profits to shareholders.