Company Limited by Guarantee | Sprintlaw Australia

If you’re running (or planning) a not-for-profit (NFP), community organisation, club, charity, or even a purpose-driven business, you’ve probably come across the phrase “company limited by guarantee”. It’s a popular structure in Australia for organisations that want a formal corporate framework, strong governance, and limited liability - without shares and shareholders.

But it can also feel confusing at first, especially when you start reading about the Corporations Act 2001 (Cth) and Australian Securities and Investments Commission (ASIC) requirements. The good news is that, once you understand the basics, it becomes much easier to decide whether this structure is right for you - and what you need to do to set it up properly.

This guide explains how a company limited by guarantee under the Corporations Act works, when it’s used, what your ongoing obligations are, and what documents you should have in place so you can operate confidently from day one.

What Is A Company Limited By Guarantee Under The Corporations Act?

A company limited by guarantee is a type of company registered under the Corporations Act 2001 (Cth). It is commonly used by not‑for‑profits because it:

does not issue shares
does not have shareholders
has “members” instead (who agree to contribute a fixed amount if the company is wound up)

That “fixed amount” is called the guarantee. It’s usually a small sum (for example, $10, $100, or $500), and it’s only payable if the company is wound up and can’t pay its debts.

In practical terms, the structure is designed to:

support organisations that are not set up to distribute profits to owners (like charities and clubs)
provide limited liability protection for members
create a familiar governance structure for funders, regulators, banks, and counterparties (directors, reporting, registers, etc.)

How Is This Different From A Standard Company?

Most “standard” companies you see in small business are proprietary companies (often “Pty Ltd”). Those companies typically have shareholders who own shares, and they can distribute profits (like dividends) if they want to.

A company limited by guarantee generally doesn’t distribute profits to members. Instead, it reinvests surplus funds back into the organisation’s purpose (as set out in its constitution).

In Australia, a company limited by guarantee is generally registered as a public company under the Corporations Act (including where it’s set up for not‑for‑profit purposes). In practice, the compliance and reporting requirements can vary depending on your circumstances - including whether you’re registered with the ACNC as a charity and whether you’re eligible for any specific reporting concessions.

Why Would An NFP Or Small Business Choose This Structure?

If you’re choosing a structure, it’s worth stepping back and asking: what are you trying to achieve?

A company limited by guarantee can be a great fit if you need a structure that supports credibility and long-term operations - not just a side project or informal group.

Common Reasons People Use A Company Limited By Guarantee

Limited liability: members generally aren’t personally responsible for company debts beyond their guarantee amount (subject to director duties and other exceptions).
Clear governance: directors and members have defined roles, which can reduce conflict and confusion.
Funding and grant requirements: many grant-makers, government bodies, and philanthropists prefer (or require) incorporated entities with solid governance.
Continuity: the organisation can continue even as people come and go (unlike an informal association that might depend heavily on a few individuals).
Reputation and trust: a company structure can help when you’re signing leases, entering supplier contracts, dealing with banks, or hiring staff.

When This Structure Might Not Be Ideal

It’s not always the best match, particularly if you want to:

bring in investors in exchange for equity
issue shares
sell the business later as a straightforward “share sale”

In those cases, another structure (like a proprietary limited company) might suit better. The right choice depends on your goals, your risk profile, and how you plan to operate and grow.

How The “Guarantee” Works (And What Members Are Actually Agreeing To)

The guarantee is one of the most misunderstood parts of this structure.

Members don’t pay the guarantee amount upfront (unless your constitution requires a separate membership fee, which is different). Instead, they promise to contribute a stated amount if the company is wound up and the company’s assets aren’t enough to cover its debts.

What’s Usually Written Into The Constitution

Your constitution will generally specify:

who can be a member
how membership starts and ends
the guarantee amount each member agrees to
what happens to surplus assets on winding up (often a “non-distribution” clause and a direction to pass assets to an organisation with similar purposes)

This is one reason the constitution is such an important document for a company limited by guarantee. If you’re setting this up, it’s worth having a Company Constitution that matches how your organisation actually operates (and how it needs to operate for funding and compliance purposes).

Members Vs Directors: Why The Distinction Matters

In many not‑for‑profits, the same people might be both members and directors - especially in the early days. But legally, the roles are different:

Members are like the “owners” in the sense that they can vote on key matters (depending on the constitution), including appointing directors and approving certain major decisions.
Directors manage the company and have legal duties under the Corporations Act.

Being clear about who is wearing which “hat” can prevent governance issues later, particularly when disagreements arise or leadership changes.

Setting Up A Company Limited By Guarantee: The Practical Steps

If you’re ready to formalise your organisation, here’s what the setup process typically involves. Some steps will be handled through ASIC forms and registrations, and some are internal governance decisions you should make carefully.

1. Decide Your Purpose And Governance Model

Before you register anything, get clear on the fundamentals:

What is your organisation’s purpose?
Will you operate nationally or in a specific state/territory?
Will you have different classes of members?
How will directors be appointed and removed?
Do you need member approval for major contracts or spending?

These decisions feed directly into your constitution and your internal policies.

2. Prepare Your Constitution (And Any Key Governance Documents)

Your constitution is effectively your organisation’s rulebook. It sets out how decisions are made and how the organisation is run.

If you want a structure that’s clear and scalable, you may also want supporting governance documents and resolutions - for example, a Directors Resolution Template can be useful for documenting decisions properly (particularly where banks, funders, or auditors want to see board approvals).

3. Register With ASIC

Companies limited by guarantee are registered with ASIC under the Corporations Act. Once registered, the company will receive an Australian Company Number (ACN).

Depending on your situation, you may also apply for an ABN and register for GST (for example, if required). Many organisations also register a business name if they’ll trade under a name that’s different from their company’s legal name.

4. Put The Right Contracts In Place Early

Even purpose-driven organisations still enter real-world commercial arrangements - and that’s where disputes often arise if expectations aren’t clearly documented.

For example, if you’re engaging consultants, facilitators, or service providers (common for NFP programs), a clear Consulting Agreement can help set scope, payment, ownership of materials, confidentiality, and liability boundaries.

5. If You’re Handling Personal Information, Get Your Privacy Settings Right

Many NFPs and member-based organisations collect personal information - member lists, donor data, volunteer applications, program participant details, newsletter sign-ups, and more.

That’s where privacy compliance becomes relevant, and in many cases you’ll want a Privacy Policy that matches how you collect, store, and disclose information. Even where the Privacy Act doesn’t apply to you yet (for example, due to turnover thresholds), privacy good practice can still be important for trust and risk management.

Ongoing Obligations Under The Corporations Act: What You Need To Maintain

Choosing a company limited by guarantee isn’t just about registration - it’s also about ongoing compliance. The more organised you are from the start, the easier it is to stay on top of your obligations.

ASIC Compliance And Record-Keeping

Most companies limited by guarantee need to keep corporate records up to date, including:

registers of members and directors
minutes of meetings and resolutions
company details kept current with ASIC
financial records (even for smaller organisations)

Depending on your circumstances, you may also have obligations around annual financial reporting, member reporting, and audit or review requirements. The triggers and concessions can be specific (and may depend on factors like whether the company is required to prepare financial reports under the Corporations Act, and whether the organisation is registered with the ACNC and can access charity reporting arrangements).

Director Duties Still Apply (Even In An NFP)

A common misconception is that director duties are “lighter” in a not-for-profit. In reality, directors of companies limited by guarantee have duties under the Corporations Act, and breaches can have serious consequences.

While the details can get technical, the practical idea is straightforward: directors must act carefully, act in good faith for the organisation’s benefit, and avoid conflicts and misuse of position or information.

If you’re setting up governance frameworks (like conflict management and decision-making protocols), it’s often a good time to make sure your constitution and board processes are actually workable, rather than just copied from a generic template.

Employment And Volunteers: Get The Foundations Right

Many not‑for‑profits start with volunteers and eventually expand into paid staff. When you start hiring, you’ll want proper employment documentation and processes from the outset, including a compliant Employment Contract that reflects the role, the modern award or agreement coverage (if relevant), and your policies.

Even if you mainly engage contractors, it’s still important to document the relationship clearly and avoid accidentally creating an employment relationship by the way the work is structured and managed.

What Legal Documents Should A Company Limited By Guarantee Have?

Every organisation is different, but there are some documents we commonly see as “must-haves” (or at least strong “should-haves”) for companies limited by guarantee - especially where you’re dealing with members, the public, or external funding.

Core Documents To Consider

Company Constitution: sets out the rules for membership, director powers, meetings, voting, guarantee amount, and winding up. A tailored Company Constitution is usually central to the structure.
Member Terms Or Policies: helpful where you have member benefits, conduct expectations, fees, or disciplinary processes (even if these sit outside the constitution).
Service Agreements: if you deliver programs or services, having written agreements helps manage scope, payment terms (if any), liability, and termination. For many organisations, a Service Agreement can be a practical foundation.
Privacy Policy: sets out how you manage personal information (members, donors, volunteers, participants). A clear Privacy Policy is often important for transparency and trust.
Employment Contracts And Workplace Policies: if you have staff, documentation reduces uncertainty and helps you stay compliant. An Employment Contract should reflect your operational reality.
Board Minutes And Resolutions: these show that decisions were properly made and approved (and they can become crucial in disputes or audits). Tools like a Directors Resolution Template can help keep this consistent.

A Note On “Not For Profit” Clauses

Many companies limited by guarantee include clauses that prevent profits or assets being distributed to members (except in limited circumstances, such as genuine reimbursements). This is often essential if you want to reflect an NFP purpose and may be relevant for eligibility for grants, tax concessions, or charity registration.

The right drafting here matters, because the constitution is often reviewed by external stakeholders - and you don’t want your eligibility questioned due to unclear or inconsistent wording.

Key Takeaways

A company limited by guarantee is commonly used by Australian not‑for‑profits because it provides limited liability and a formal governance structure without shares.
Instead of shareholders, the company has members who agree to pay a set guarantee amount only if the company is wound up and can’t pay its debts.
Your constitution is the key legal document that sets out membership rules, governance, the guarantee amount, and winding-up arrangements.
Ongoing compliance matters - including record-keeping, ASIC obligations, and directors’ duties - and it’s much easier when you build good governance habits early.
Most organisations also need practical contracts and policies (like service agreements, privacy documentation, and employment contracts) to reduce risk and operate smoothly.

Information in this article is general only and is not legal or tax advice. If you need advice on your organisation’s tax position (including ABN/GST registration, tax concessions, or charity-related tax issues), you should speak with an accountant or registered tax agent.

If you’d like help setting up a company limited by guarantee or reviewing your constitution and governance documents, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

Company Limited by Guarantee Under the Corporations Act: Key Rules