What is a company limited by guarantee?
A company limited by guarantee (CLG) is a type of company that does not have share capital. Instead of shareholders, it has members who guarantee to contribute a specified amount (usually a nominal amount such as $10) to the company’s debts if it is wound up. This structure is commonly used for not-for-profit organisations, charities, sporting clubs, and industry associations.
CLGs are governed by the Corporations Act 2001 and registered with ASIC, just like proprietary companies. However, they have some important differences: they cannot pay dividends to members (s254SA), they must have at least one member, and their financial reporting depends on revenue: under $250,000 (and not a DGR) no report is needed unless requested, $250,000 to under $1 million needs a reviewed or audited report, and $1 million or more needs an audited report. A CLG registered with the ACNC reports to the ACNC under its thresholds instead.
A company limited by guarantee can apply to the ACNC (Australian Charities and Not-for-profits Commission) for registration as a charity if it meets the relevant criteria. Charity registration provides access to tax concessions, once endorsed by the ATO, including income tax exemption, GST concessions, and FBT concessions (a rebate for most charities, or a capped exemption for public benevolent institutions and health promotion charities). It also allows the organisation to receive tax-deductible donations if it is endorsed as a deductible gift recipient (DGR).
To get charity registration, tax concessions or the reduced ASIC fee, the constitution of a CLG needs specific not-for-profit provisions, including a clause prohibiting the distribution of profits or assets to members, provisions for the application of surplus assets on winding up, and the guarantee amount for each member.
CoSec Partners registers companies limited by guarantee for $1,261 including GST and ASIC fees. The registration includes a constitution specifically drafted for not-for-profit entities, all required consents and resolutions, and the member guarantee schedule.
Frequently asked questions
Is a company limited by guarantee automatically a charity?
No. The structure is common among charities but confers no charitable status of its own. Charity status comes from registration with the ACNC, which is a separate application assessed against the charitable purpose tests, and deductible gift recipient endorsement is a further step again with the ATO.
How much is the members’ guarantee?
The amount is set in the constitution and is usually nominal, commonly $10 or $20 per member. It becomes payable only if the company is wound up and cannot meet its debts, and the member’s exposure is capped at that figure.
Can a company limited by guarantee pay its directors?
It depends on the constitution and on whether the company is claiming concessions that prohibit it. A constitution drafted to meet the ASIC special purpose company fee concession for charities, for example, prohibits director fees. Reasonable payment for services rendered in another capacity is treated differently from a fee for acting as a director.
This article is general information only and does not constitute legal, financial, or tax advice. While we endeavour to keep content accurate and current, laws and regulations change frequently. For advice specific to your circumstances, please consult a qualified professional adviser. CoSec Partners Pty Ltd accepts no liability for actions taken based on this content.