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What Is a Company Limited by Guarantee?

What Is a Company Limited by Guarantee?

A helpful guide to an alternative company structure.

13th December 2018

A company limited by guarantee is a public company that limits the amount shareholders will have to pay if the company is wound up. This amount is typically set out in the company’s constitution.

These companies are further distinguished from other types of companies, in that they cannot issue shares or pay dividends. Because of this, many commercial or revenue raising companies do not use this model. Instead, this type of company is popular among not-for-profits, charities and recreational or sporting clubs.

Depending on the Company’s revenue, a company can be further divided in that one is either a ‘small company limited by guarantee’ or a ‘company limited by guarantee’. With each having different obligations and exceptions.

Small Company Limited By Guarantee

The Corporations act defines a small company limited by guarantee as being:

  • A company limited by guarantee for the whole of the financial year, and;
  • Was not a deductible gift recipient at any time during the financial year, and;
  • its revenue (or consolidated revenue) for the financial year is less than $250,000

In terms of financial reporting these types of companies have few obligations, but when instructed by a shareholder of the company or by the Australian Securities & Investments Commission (ASIC) they must:

  • Prepare a financial report and have the report audited.
  • Prepare a director’s report.
  • Inform members/shareholders of the report.

Company Limited By Guarantee

Companies that have a revenue greater than $250,000 can be further subdivided into companies making less than $1 million in revenue or companies making a $1 million or greater. Their financial reporting obligations are practically the same in that these companies must:

  • Provide annual financial reports, and;
  • Directors reports (with specific disclosure as per s300B of the Corporations Act).

Both documents need to be set out and prepared according to Chapter 2M of the Corporations Act. Moreover, these documents must be supplied to any member or shareholder that requests to receive them.

The main difference between the two is that companies making less than $1 million can elect to either have their documents reviewed or audited. Companies making $1 million or more must have their documents audited.

General Obligations

Companies limited by guarantee have certain obligations. These include:

  • Making their books and records available for inspection by directors.
  • Keeping written records of members’ resolutions and meetings.
  • Holding meetings as required by the Corporations Act.

However, charities will have different obligations and requirements as per the regulations sets by the Australian Charities and Not-for-profits Commission.

Don’t know where to start? Contact LawPath consultants on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.

Author
Jackie Olling

Jackie is the Content Manager at Lawpath and manages the content team. She has a Law/Arts (Politics) degree from Macquarie University and is an admitted solicitor in the Supreme Court of NSW. She's interested in how technology can help shape the future legal landscape.