What is a company limited by guarantee?
In Australia, a company limited by guarantee (CLG) is subject to the Corporations Act 2001 (Cth) (Corporations Act) administered by the Australian Securities and Investments Commission (ASIC).
Note: sections mentioned below refer to the Corporations Act.
A “company limited by guarantee” is defined as a type of public company established on the principle that the liability of members is limited to the amount they agree to contribute if the company is wound up (section 9). The amount a member pays is typically nominal and set out in the company’s constitution.
Common characteristics of a CLG are:
- they are prohibited from paying any dividends to members (section 254SA);
- they cannot issue shares and therefore no person can acquire a controlling interest or profit from a share sale (section 124(1)); and
- each member of the company has a single vote (section 250E(2)).
A CLG is commonly used in the charity and not-for-profit sector. If a CLG is a registered charity with the Australian Charities and Not-for-profits Commission (ACNC), it has ongoing obligations to the ACNC and is not required to report annually to ASIC or to notify ASIC of most changes.
Financial and directors’ reporting obligations
For CLGs, there are three tiers with different financial and directors’ reporting obligations (section 285A):
1. Small company limited by guarantee (section 45B)
A company is a small company limited by guarantee in a particular financial year if:
- it is a company limited by guarantee for the whole of the financial year;
- it is not a deductible gift recipient (DGR) at any time during the financial year; and
- its revenue (or consolidated revenue) for the financial year is less than $250,000.
2. CLG with annual (or consolidated) revenue of less than $1 million
3. CLG with annual (or consolidated) revenue of $1 million or more
The table below sets out the tiers and summarises the corresponding obligations for financial reporting, auditing and directors’ reporting (section 285A):
FAL Lawyers is well placed to assist you in determining which structure is the most appropriate for your organisation, having regard to its activities, resources and objectives. If you have any queries or would like to discuss, please do not hesitate to contact us.