What is a Company Limited by Guarantee?

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A business limited by Guarantee is also referred to as a 'not-for-profit' or 'charitable organisation,' this applies to the fact that the parties concerned are not extracting the company's income as shareholders of a limited business would. Every benefit that the company generates is reused for the good of the company.

A Guarantee-limited company has a somewhat similar structure to a share-limited company, as it has directors named to oversee the day-to-day operation of the company. A secretary for the organisation can also be named if appropriate.

Members' liability is also limited just as it is limited to shareholders, but it is not limited to the value of the stock because a guarantee company is not issuing securities.

The term enterprise limited by guarantee refers to what happens when this form of enterprise is winded up. Members of a limited company shall decide the amount they can contribute to the company 's property upon dissolution and this shall define or limit the liability of the members of the company.

Like other public companies, there are many legal restrictions and requirements on a company limited by guarantee. The following is an extract from some of the standards of ASIC, please see this page for more information or seek legal advice as neither our list is exhaustive nor theirs.

A business which is limited by guarantee must at least:

  • It has at least 3 directors and 1 secretary
  • A minimum of one member
  • Be governed internally by a Constitution or by replaceable laws
  • Maintain the members' list
  • Keep lists of all administrators and members; minutes and motions to meet

  • Nominate an engraved business auditor within one month of registration

  • Hold financial reports correct
  • Prepare, audit and submit the financial statements and reports after each financial year has ended
  • Give a copy of its annual statements and accounts to its members, unless the Member has a standing agreement with the organisation not to obtain them

Some of this legal form's primary benefits are that it requires the company to work nationally. The strict legal criteria of this system will also give confidence to potential supporters, clients, and business partners that the company is managed according to strict rules and agreed standards. Besides, some types of organisations are mandated by law to have that structure. Nevertheless, this regulatory system is not one that can be entered into easily, because it's legal and administrative responsibilities are substantial and can be too burdensome for a resource-limited organisation.

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