What is a company limited by guarantee and how it compares to limited by shares

A company limited by guarantee (CLG) is a popular structure for not-for-profits, charities, and community organisations in Australia. It offers limited liability to members and ensures profits are reinvested to support the organisation’s mission. This structure provides legal protection and clear governance, making it ideal for mission-driven groups seeking to make an impact.

A quick guide to ‘company limited by guarantee’

A company limited by guarantee (CLG) is a legal structure commonly used by not-for-profits and charities. It has no shareholders, and profits are reinvested into the organisation’s mission. Members have limited liability, meaning their financial responsibility is capped. CLGs are governed by clear regulations and are ideal for groups focused on social good.[ez-toc]

What is a company limited by guarantee and why does it matter for your organisation?

A company limited by guarantee is a legal structure used by many not-for-profit and charitable groups in Australia. It suits organisations that do not aim to make a profit for owners or shareholders but instead work towards a social, cultural or community goal. These companies are owned by members, not shareholders, and do not issue shares.This type of company provides a formal structure. It helps with fundraising, signing contracts and managing assets. When a group becomes a company limited by guarantee, the liability of members is limited to a set amount. This amount, often between $1 and $10, only applies if the company is wound up. This provides limited liability while still offering strong governance and trust.CLGs must follow rules under the Corporations Act 2001. They are also usually registered as public companies under the Corporations Act. If the organisation is a registered charity, it may also be registered with the ACNC. In this case, both ASIC and the ACNC may be involved. Some registered charities must comply with Governance Standard 2, file a financial report, keep financial records, and report each financial year.This article explains how CLGs work and why many not-for-profit organisations choose them. It covers how to register, what your obligations are, and how to manage them well.Whether you run a small arts group or a large health service, this guide will help you understand if a CLG is the right company structure for you.

Who a company limited by guarantee structure is best suited for

A company limited by guarantee is a legal structure often used by groups that serve the public or community. This structure suits organisations that do not aim to make a profit for owners or shareholders. Instead, they reinvest income to support their goals.

Organisations that commonly use this structure

Many types of not-for-profit organisations choose to register as a company limited by guarantee:

• Charities
• Sporting clubs
• Cultural groups
• Community housing providers
• Professional or industry associations
• Environmental and educational foundations

These groups use the structure to get legal protection, gain trust from funders and meet government requirements.

Key features of a company limited by guarantee

This structure comes with a few distinct features that set it apart from others:

• No shareholders: The company does not issue shares or pay dividends.
• Members not owners: Control rests with members of the company, not investors.
• Limited liability: Members agree to pay a fixed amount (usually $1 or $10) if the company is wound up.
• Reinvested profits: All income supports the organisation’s activities and cannot be distributed to members.

The ‘guarantee’ refers to the fixed amount members promise to pay if the company is wound up. This amount is stated in the company’s constitution and helps limit risk.

Real-world example

A medium-sized community arts centre may choose this structure to:

• Apply for government grants
• Employ staff
• Run programs and workshops
• Maintain clear governance

Because its mission is to support artists, not make a profit, a company limited by guarantee is a strong fit.This structure helps the organisation grow while protecting its board and members.

How this type of company compares to other structures

Choosing the right legal structure is key to meeting your goals. A company limited by guarantee works well for groups that exist to serve the public or a specific cause. This section compares a company limited by guarantee with a proprietary limited (Pty Ltd) company to help you decide what fits best.

Key differences between CLG and Pty Ltd

The table below outlines the main differences between a company limited by guarantee and a Pty Ltd company:FeatureCompany limited by guaranteePty Ltd companyOwnersMembersShareholdersProfit distributionReinvestedCan be distributedIdeal forNot-for-profits, charitiesCommercial businessesRegulationASIC/ACNCASICLegal identityIncorporatedIncorporatedA company limited by guarantee must follow strict rules about how it handles money. It cannot issue shares or pay dividends. Profits must support its mission. A Pty Ltd company, on the other hand, exists to make profit for shareholders and can issue shares freely.

When to choose a company limited by guarantee

This type of company suits groups that:

• Operate for charitable purposes
• Want access to tax exemptions or public grants
• Need a legal structure that builds public trust
• Must comply with the Australian Charities and Not-for-profits Commission (ACNC)

For example, a charity that supports mental health will benefit more from a CLG than a Pty Ltd company. Its structure helps attract funding and meet compliance obligations under the Corporations Act 2001.In contrast, a small family-run café would be better suited to a Pty Ltd company. It can issue shares and keep profits.Each company structure serves a different purpose. If your focus is service, not profit, a company limited by guarantee is often the better choice.

Step-by-step guide to register a company limited by guarantee

To set up a company limited by guarantee in Australia, you must follow a clear process. Each step matters to meet legal rules and avoid delays. Whether you register with ASIC or the ACNC depends on whether your organisation is a charity.

Follow these steps to register

1. Define your missionStart by deciding your purpose. Your mission must align with not-for-profit or charitable purposes. This will guide your decisions and help you meet legal obligations.
2. Appoint members and directorsYou need at least one member and one director. Members do not own shares. They support the company’s goals and may vote at meetings. Directors of the company manage its daily operations and must follow governance standards.
3. Draft your company’s constitutionYour company’s constitution sets out its rules. It covers things like meetings, voting rights and how funds are used. You can use replaceable rules from the Corporations Act or write your own. The constitution must state that the company is not-for-profit and explain how it will use its money.
4. Apply to register
   • If your organisation is not a charity, register with ASIC.
   • If your organisation is a registered charity, apply to the ACNC first. The ACNC will then pass your details to ASIC.The company limited by guarantee must also be registered with the ACNC if it wants to access charity benefits.

Timeline, cost and documents

• Registration usually takes 1–2 weeks.
• ASIC charges a fee (around $500 as of 2024).
• You need a constitution, address of the registered office and details of directors and members.

Resources to help

Business Kitz offers templates and support that save time. You can:

• Access pre-filled documents
• Meet ASIC and ACNC rules
• Stay compliant with the Corporations Act 2001
• Keep your records in one secure place

Their tools help small companies avoid mistakes. You can focus on your cause, not paperwork.

Regulatory obligations under ASIC and ACNC

Companies limited by guarantee must meet rules set by either ASIC or the ACNC. These two bodies regulate depending on whether the company is a charity or not.

Who regulates what

• ASIC oversees companies limited by guarantee that are not registered as charities.
• ACNC oversees companies that are registered charities.
• Some companies fall under both. For example, the company is limited by guarantee, must follow ACNC rules, and still report some changes to ASIC.

Both regulators use the Corporations Act and Corporations Act 2001 as a legal base. The company’s constitution must align with this law.

Ongoing compliance requirements

Every company limited by guarantee must comply with rules, file reports and keep records up to date. These include:

• Director updates – You must notify ASIC or ACNC of any changes to directors of the company.
• Constitution changes – You must report changes to the company’s constitution.
• Financial reporting – You must lodge a financial report each financial year unless exempt.
• Governance standards – Charities must meet Governance Standard 2 and follow all governance standards.
• Annual general meetings – Some companies must hold these.
• Reporting obligations – These depend on company size and whether it is a registered charity.

ASIC vs ACNC reporting

RequirementASIC-regulated CLGsACNC-regulated CLGsAnnual review feeYesNo (if fully ACNC-regulated)Change of directorMust notify ASICMust notify ACNCConstitution updatesFile with ASICFile with ACNCFinancial reportFile with ASICFile with ACNCGovernance standardsNot requiredMust comply with ACNC standardsAudit requirementDepends on revenueDepends on revenue and charity sizeCompanies under the Corporations Act and public companies under the Corporations Act must follow strict rules. A company limited by guarantee with annual revenue of less than $250,000 may get a reporting exemption.Staying compliant helps you avoid a breach. It protects the property of the company and the rights of each member of the company. You must follow these rules to stay on the ACNC register or avoid being deregistered by ASIC.Using Business Kitz templates can make reporting, director updates and audit tasks much easier.

Compliance based on company size and annual revenue

A company limited by guarantee must meet different rules based on its size and income. Both ASIC and the ACNC group companies into small, medium or large categories. These groups help decide the company’s financial reporting obligations.

Company size and thresholds

The company is classified based on annual revenue. These thresholds apply to all companies that are limited by guarantee in Australia:

• Small company limited by guarantee – revenue of less than $250,000
• Medium company – revenue of $250,000 to $1 million
• Large company – revenue of over $1 million

These thresholds apply whether the company is a registered charity or not. A company limited by guarantee with annual income above $250,000 may also need an audit, depending on other factors.

What small companies must do

Small companies limited by guarantee have simpler compliance steps. If the company is a registered charity, it must still meet ACNC rules but may avoid a full financial report or audit. These companies:

• Must keep financial records
• May need to lodge a financial report
• May not need an audit or review
• Must update member and director details
• Must still follow governance standards if a charity

These exemptions apply only in particular circumstances, such as being a guarantee is a registered charity and meeting the revenue of less than $250,000 rule.

Use case: a local arts group

A small arts collective earns $150,000 per year. It is a charitable organisation and registered with the ACNC. As a small company limited by guarantee, it does not need to submit audited reports. It must still lodge its annual return and meet all governance standard 2 requirements. This group benefits from the limited liability and clear company structure of a CLG, while avoiding high reporting costs.By using a company limited by guarantee structure, not-for-profit organisations can stay compliant while focusing on their purpose.

What rights and responsibilities do members of a company limited by guarantee have?

Members of a company limited by guarantee have specific rights and responsibilities. These help ensure the company runs smoothly and in compliance with legal requirements.

Role of members vs directors

The members of the company are different from the directors. Members generally do not manage the company. They elect directors and have a say in major decisions, such as changes to the constitution. Directors are responsible for the day-to-day running of the company.

Rights of members

Members have several important rights:

• Voting at AGMs: Members can vote on key issues during Annual General Meetings (AGMs). This includes approving financial statements and electing directors.
• Access to company documents: Members have the right to access certain company records. This includes financial reports and governance documents. This ensures transparency within the company.

Responsibilities of members

Along with rights, members also have responsibilities:

• Upholding governance standards: Members must help uphold governance standards. This includes acting in the best interest of the company and ensuring compliance with the company’s constitution and legal obligations.
• Guarantee contribution upon winding up: If the company is wound up, members may be required to contribute a set amount. This is usually a small amount, such as $1, as stated in the company’s constitution. This is to cover any remaining liabilities of the company.

By understanding their rights and responsibilities, members help maintain the integrity and success of a company limited by guarantee.

How not-for-profits benefit from a CLG structure

A company limited by guarantee (CLG) offers several advantages for not-for-profits. This structure provides legal recognition and helps ensure the organisation operates in a transparent and accountable manner.

Advantages for not-for-profits

• Legal structure increases trust and funding eligibility: Being a CLG gives a not-for-profit a clear legal identity. This boosts the trust of donors, volunteers, and the public. It also makes it easier to apply for grants and other funding opportunities. Many funders prefer to support incorporated entities with a formal structure like a CLG.
• Clear governance and transparency: A CLG requires a defined constitution. This sets out how the company will operate and governs how decisions are made. This structure ensures clear roles for directors and members. It also promotes transparency, which is important to stakeholders and regulators.
• Limited liability: One of the biggest benefits of a CLG is limited liability. Members' personal assets are protected. If the company faces financial difficulty, the members’ liability is typically limited to a small amount, such as $1. This protection makes it less risky for individuals to become involved in the company.

Real-world example

Consider a sports club that starts as an unincorporated association. As the club grows, it faces challenges in securing funding and managing risks. By transitioning to a CLG, the club gains legal recognition, limited liability, and clearer governance. It can now apply for larger grants and provide more confidence to its members, volunteers, and sponsors. This structure is ideal for organisations aiming for growth and long-term sustainability.

Annual obligations and governance best practices

Running a company limited by guarantee (CLG) comes with certain annual obligations. These requirements ensure the company remains compliant with ASIC or ACNC regulations. Keeping track of these tasks is essential for smooth operations.

Annual reporting

Each year, your CLG must submit financial reports. These reports give a clear picture of the company’s finances. Depending on the size of the company, these reports may need to be audited. Smaller companies may have simplified reporting requirements. However, maintaining accurate and detailed records is crucial. These reports need to be submitted on time to avoid penalties.

Holding AGMs and maintaining member registers

Your CLG must hold an Annual General Meeting (AGM) every year. At the AGM, members discuss key decisions and approve financial reports. You must also keep an up-to-date register of members. This register should include information on current members and their involvement in the company. This is important for governance and transparency.

Tips for staying on top of requirements

To stay on top of your annual obligations, tools like Business Kitz offers helpful tools:

• Secure storage: Business Kitz provides secure storage for your company documents. You can safely store your financial reports, meeting minutes, and other important files.
• Audit-ready documentation: With Business Kitz, you can maintain audit-ready documentation. This means all your records are in one place and can be accessed when needed for audits or reviews.

Using these tools helps keep your company compliant and ensures a smooth governance process.

Examples of companies limited by guarantee in Australia

Many well-known organisations in Australia operate as companies limited by guarantee (CLG). This structure is ideal for groups that focus on social impact rather than profit.

Prominent organisations using this structure

• Lifeline: Lifeline is a major Australian charity offering crisis support and suicide prevention services. As a CLG, it can focus on its mission without the pressure to generate profit for shareholders.
• Australian Red Cross: This iconic charity provides emergency assistance, disaster relief, and education. It uses the CLG structure to operate across Australia and internationally while ensuring its funds go back into the community.
• ArtsHub Australia: A leading platform for the Australian arts industry, ArtsHub supports artists, educators, and audiences. As a CLG, it ensures that its resources are reinvested into its programs to support the arts community.

Industry sectors

The CLG structure is commonly used across various sectors:

• Health: Many health-focused organisations, like Lifeline and others, operate under this model. It allows them to focus on improving health outcomes rather than generating profits.
• Education: Education providers, such as private schools and educational charities, benefit from the CLG structure. It helps them focus on providing accessible and quality education without the pressure to distribute profits.
• Environment: Environmental organisations often choose this structure to drive sustainable practices and conservation efforts. These organisations can reinvest their earnings into environmental programs rather than paying dividends to shareholders.

The CLG structure suits these sectors because it aligns with their not-for-profit missions, allowing them to reinvest earnings back into their causes.

Frequently asked questions about companies limited by guarantee

What is the security of members in a company limited by guarantee?

Members of companies limited by guarantee enjoy limited liability. This means their personal assets are protected. The liability of the members is limited to the amount they have agreed to contribute if the company is wound up. This provides security for members, as they are not personally responsible for the company’s debts beyond their agreed contribution.

How do australian securities affect companies limited by guarantee?

Australian securities and investments do not directly affect companies limited by guarantee in the same way they do for share-based companies. However, these companies are still subject to regulations set by the Australian Securities and Investments Commission (ASIC). They must adhere to specific rules and report on their activities regularly, ensuring compliance with Australian law.

Do I need legal advice to set up a company limited by guarantee?

It is advisable to seek professional legal advice when setting up a company limited by guarantee. A legal expert can help you navigate the complexities of the process. They can guide you through the required documentation, including the constitution, and ensure you meet all legal obligations. This can help prevent issues when the company is deregistered or in the event the company is wound up.

What are the duties of directors of a company limited by guarantee?

Directors of a company limited by guarantee are responsible for managing the company’s internal affairs. They must ensure compliance with the rules set by ASIC or the ACNC. Directors are also required to make reports and audits that align with Australian securities and investments regulations. Failing to meet these responsibilities could lead to penalties.

How does a company limited by guarantee compare to an incorporated association?

An incorporated association is a simpler form of non-profit organisation that has fewer regulatory requirements. However, companies limited by guarantee offer greater flexibility in terms of governance and are recognised as a legal entity in a way that an incorporated association may not be. Companies limited by guarantee also provide stronger legal protections, including the limited liability of the members.

Can a company limited by guarantee have a controlling interest?

A company limited by guarantee cannot have a controlling interest like a share-based company. Instead, decisions are made by the members of companies limited by guarantee, who vote on key issues. This is different from a company limited by shares where shareholders may have a controlling interest based on the number of shares they own.

What is required for a company limited by guarantee to remain compliant with ASIC and ACNC?

A company limited by guarantee must maintain compliance by submitting regular reports and audits to both ASIC and ACNC if the company is registered as a charity. These reports include financial statements, governance updates, and other required documentation. The company must also update the details of its directors and members as required.

What happens if a company limited by guarantee is deregistered?

If a company limited by guarantee is deregistered, it ceases to exist as a legal entity. All its obligations, including reporting, cease. The members’ liability remains limited to the agreed contribution in the event the company is wound up. It is important to consult with legal advisors when considering the deregistration of a company.

How does a company limited by guarantee manage its principal place of business?

The principal place of business must be registered with the Australian Securities and Investments Commission (ASIC). This is where official communication, such as legal notices and business correspondence, will be sent. The address can be a physical office or a virtual address but must be clearly defined and updated if it changes.

Next steps for managing your CLG

A Company Limited by Guarantee (CLG) is a great choice for mission-driven organisations that need a strong legal identity and solid governance. It offers many benefits, including clear regulatory advantages when you have the right support.With Business Kitz, you can easily handle compliance, and all related tasks. Our tools help streamline the process and keep everything organised.Ready to get started? Try Business Kitz today to manage your CLG with ease and efficiency.

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