What Is A Company Limited By Guarantee?

A company limited by guarantee is a form of public company, typically set up for charitable and not-for-profit organisations where profit is put back toward the organisation’s purposes. 

A company limited by guarantee is set up by the Corporations Act 2001 and is registered with the Australian Securities and Investments Commissions, or ASIC.

In Australia, a company limited by guarantee must be a public company, so all of the requirements to be a public company apply— such as minimum director numbers and the need for a public office.

The liability of the members of this type of company is limited to a predetermined amount - also known as the ‘guarantee’. The company’s constitution usually sets out this amount, which is often a very small amount.

In the not-for-profit space, there are many other options other than companies limited by guarantee, so you might want to compare the pros and cons. For example, compared to an unincorporated association, a company limited by guarantee enables you to limit the members’ liability and operate as a standalone entity. Likewise, there are benefits over the state-based incorporated association if you’re looking to operate nationwide. Companies limited by guarantee also only need one member.

Some features of a company limited by guarantee are as follows:

• There are no dividends
• Directors have the same duties and liabilities as other for-profit directors of public companies
• A board of directors is required, comprising of 3 directors and 1 company secretary
• Each member has one vote

If a public company limited by guarantee is a registered charity under the ACNC, it does not have the same obligations of typical public companies. The inverse is also true, in that if the company is not a registered charity, it may have more onerous reporting obligations.

Furthermore, companies limited by guarantee have different reporting obligations, depending on their turnover. A ‘small’ company limited by guarantee that has consolidated revenue of less than $250,000 for the financial year has fewer financial reporting requirements.

The obligations on larger companies that make more than $250,000 annually include preparing annual financial and director reports and audit obligations.