Setting Up A Company Limited By Guarantee

Contents

If you’re setting up a not-for-profit organisation, a Public Company Limited by Guarantee (“CLG”) may be a suitable structure for you.

What Are Your Options?

If you’re considering setting up a not-for-profit, charity or social organisation, there are several different structures that may suit your requirements:

a Public Company Limited by Guarantee;
a Incorporated Association; or
a Proprietary Company (a for-profit company with a social purpose).

This article will consider when a CLG would be the most appropriate structure, depending on the purpose and operation of your organisation.

What Is A Company Limited By Guarantee?

A Company Limited by Guarantee (CLG) is a legal structure that is particularly common among organisations that are also planning on registering as a charity.

Like a Proprietary Limited (Pty Ltd) company, the CLG becomes a “separate legal person” that can enter into contracts, be sued and own property.

In the event that the CLG cannot meet its debts, the liability of the members is limited to the amount that the member agreed to contribute if the CLG is wound up. This amount is usually fairly insignificant, so members often aren’t liable to pay a large sum of money if things don’t go as planned.

A CLG is governed by its constitution, which is an internal document setting out how the CLG is to be run, how decisions are made, what the organisation’s charitable purpose is, and other important matters related to the CLG’s operation.

Benefits Of A CLG

A CLG structure is often preferred by some organisations for the reasons below.

Geographic Operation

CLGs are administered by a nation-wide government body called ASIC (the Australian Securities and Investments Commission), meaning that the organisation can operate Australia-wide.

This differs from Incorporated Associations, which are regulated by the relevant state and territory legislation. If the majority of the organisation’s operations occur outside of their relevant state, a CLG may be a more suitable option as it is regulated on the national level.

Registering as a Charity

Most CLGs decide to also register as a charity with the ACNC (the Australian Charities and Not-for-profits Commission). Once the CLG is registered as an ACNC, the CLG will deal primarily with the ACNC instead of ASIC.

This is beneficial from an administrative and reporting point of view, as certain obligations that apply to CLGs generally do not apply to charitable CLGs. For this reason, if the CLG is not intending to also register as a charity, we’d generally recommend considering a different structure to avoid onerous reporting obligations.

Members

Instead of shareholders, the “owners” of a CLG are called “members”. CLGs are only required to have one member, whereas when registering an Incorporated Association, the organisation must have at least 5 members on record in NSW.

Other Things To Consider

A CLG must have a public address that is accessible to the public for a certain period of time each business day, which may not be feasible for some smaller organisations.

There are also some reporting and record keeping obligations you’ll need to be aware of, including keeping financial records, operational records and a members’ register.

Need Help?

If you’re not sure if a Public Company Limited by Guarantee is the right choice for your organisation, you can read a bit more about the various not-for-profit structures in our article here. Feel free to get in touch with us to discuss your options or for help setting up your Incorporated Association! You can reach us on 1800 730 617 or team@sprintlaw.com.au.

Embeth Sadie

Embeth is a senior lawyer at Sprintlaw. Having previously practised at a commercial litigation firm, Embeth has a deep understanding of commercial law and how to identify the legal needs of businesses.