When starting or expanding your business, you might think only about traditional companies with shareholders. But there’s another type of company structure that can be very useful, especially if you’re planning a nonprofit, charity, or community organization: the Company Limited by Guarantee (CLG).
In this blog, we’ll break down what a CLG is, why it matters, and when it might be the right choice for you.
What is a Company Limited by Guarantee?
Unlike regular companies that have shareholders and share capital, a Company Limited by Guarantee has members who promise to contribute a fixed amount if the company faces financial trouble or liquidation. This amount is usually small, like $1 or $100, and it protects members from personal liability beyond that guarantee.
CLGs are often used for organizations with a social purpose — think charities, clubs, sports organizations, and nonprofits — where the goal isn’t to make profits for owners, but to promote a cause or provide community benefits.
How Do You Set Up a Company Limited by Guarantee?
Forming a CLG involves:
- Submitting an application to the Registrar,
- Providing the company’s articles of association (the rules that govern the company),
- Getting consent from initial directors and a secretary to act in those roles.
The articles must clearly state the company’s purpose and the amount each member guarantees to pay if things go south.
Why Should Business Owners Care About This Structure?
1. Limited Liability for Members
Members’ personal assets are protected—they only risk the guaranteed amount, which is usually very minimal.
2. No Shares or Dividends
There are no shareholders or shares, so no dividends. This means profits are reinvested to support the company’s goals, making this ideal for social enterprises and nonprofits.
3. Ability to Drop “Limited” from the Name
If your CLG’s main goal is charitable or community-focused, the Registrar may allow you to omit “Limited” from your company name. This can enhance your reputation by signaling a nonprofit mission.
Real-World Example: Starting a Community Sports Club
Let’s say you want to launch a local sports club that encourages youth participation but doesn’t aim to make profits. Forming a CLG means:
- Members (like club founders) have limited financial risk,
- Funds raised go directly to the club’s activities,
- The club can enter into contracts and hold property in its own name,
- Donors and sponsors feel more confident because the club operates under a recognized legal structure.
What You Should Keep in Mind
Companies limited by guarantee are still bound by company laws and must maintain proper records, such as a register of members. Also, any changes to the company’s articles or name often require approval from the Registrar, especially if you enjoy the benefit of dropping “Limited” from your name.
Is a Company Limited by Guarantee Right for You?
If your business goal is purely commercial and profit-driven, a traditional company limited by shares might suit you better. But if your mission involves promoting a cause, charity, or community benefit without profit distribution, a CLG offers protection, credibility, and clear governance tailored to nonprofit needs.
Need Help?
If you’re considering setting up a company limited by guarantee or want to understand the best legal structure for your business or nonprofit, consult with a business advisor or legal expert. They can guide you through the process and ensure your company complies with all legal requirements.
