A company limited by guarantee (CLG) is a legal entity commonly used by non-profit organizations, charities, clubs, associations, and other similar entities. Unlike a traditional company limited by shares, where shareholders contribute capital and receive dividends based on their shareholdings, a company limited by guarantee does not have shareholders or share capital.
Instead, a CLG is owned and governed by its members, who act as guarantors rather than shareholders. Each member of the company undertakes to contribute a nominal amount (typically a small sum, such as $1) if the company is wound up and has outstanding debts. This nominal guarantee serves as a form of security for creditors and helps ensure that the company’s liabilities are limited.
Key features of a company limited by guarantee include:
Legal Structure: A CLG is a separate legal entity from its members, meaning it can enter into contracts, own property, and sue or be sued in its name.
Limited Liability: Similar to shareholders in a company limited by shares, members of a CLG have limited liability. This means their assets are generally protected from the company’s debts and liabilities, and their liability is typically limited to the amount they have guaranteed to contribute in the event of winding up.
No Share Capital: Unlike companies limited by shares, a CLG does not issue shares or have shareholders. Instead, it is governed by its members, who may have voting rights and participate in decision-making processes.
Non-profit Purposes: CLGs are often established for non-profit purposes, such as promoting education, culture, sports, or social welfare. They may be eligible for tax-exempt status or other benefits available to non-profit organizations.
Regulation: CLGs are typically subject to regulatory oversight by government authorities, such as the corporate regulator or charity commission, depending on the jurisdiction in which they operate. They may be required to comply with specific regulations and reporting requirements related to their non-profit status and activities.