Thinking about setting up a not‑for‑profit, charity or member‑based organisation in Australia? A company limited by guarantee (CLG) is a popular structure designed for organisations that reinvest profits into a purpose rather than pay dividends to owners.
Choosing the right structure early can save you time, money and headaches later. In this guide, we’ll explain what a company limited by guarantee is, when it makes sense, how to set one up, and the key legal and governance requirements to stay compliant in Australia.
What Is A Company Limited By Guarantee In Australia?
A company limited by guarantee is a special type of public company under the Corporations Act 2001 (Cth) used mainly by not‑for‑profits (NFPs), charities, clubs and associations.
Instead of shareholders, a CLG has members. Members don’t hold shares and can’t receive dividends. Instead, each member agrees to contribute a set amount (the “guarantee” - often $10 or $100) if the company is wound up. This is where the “limited by guarantee” protection comes from.
Key features at a glance:
- No shares or dividends. Surpluses are reinvested to further the organisation’s purpose.
- Members’ liability is limited to the nominal guarantee amount if the company winds up.
- It’s a public company type, so higher governance and reporting standards apply than for a proprietary company.
- Often eligible to register as a charity with the Australian Charities and Not‑for‑profits Commission (ACNC), which can unlock tax concessions (via the ATO) and sometimes reduced ASIC fees.
Because there are no owners in the traditional sense, good governance, a clear constitution and transparent reporting are essential.
Is A Company Limited By Guarantee Right For Your Organisation?
Before you incorporate, consider how the CLG stacks up against other structures such as an incorporated association (state‑based) or a proprietary limited company (share‑based). A CLG can be a great fit if:
- Your purpose is not‑for‑profit or charitable, and you don’t intend to distribute profits to individuals.
- You want national scope (not just one state) or expect to operate across Australia.
- You want a professional, credible structure to attract grants, donors, corporate partners or government funding.
- You need stronger governance, limited liability for members and a robust framework for a board of directors.
On the other hand, if your activities are very local and small‑scale, a state‑based incorporated association may be simpler and cheaper to maintain. And if you’re building a commercial venture for profit with investors or founders who will hold equity, a proprietary company limited by shares is usually the better fit.
CLGs are a type of public company. If you’re comparing public vs proprietary structures more broadly, it can help to read what defines a public company in Australia and how the obligations differ.
How Do You Set Up A Company Limited By Guarantee?
Setting up a CLG is a structured process. Here’s a practical, step‑by‑step roadmap.
1) Clarify Your Purpose And Business Plan
Start with your purpose, activities and funding model. Will you seek donations, grants, membership fees, trading income, or a mix? A short plan helps you decide whether to pursue ACNC charity registration and any specific tax concessions (like DGR endorsement) down the track.
2) Choose A Name And Check Availability
Pick a name that reflects your purpose and isn’t already taken or too similar to an existing entity. For CLGs, the name usually ends with “Limited” or “Ltd”. If you’re a registered charity, you can often omit “Limited” in your public‑facing name, but it will still appear in formal records.
3) Draft Your Constitution (Don’t Rely Only On Replaceable Rules)
A tailored constitution is critical for a CLG. It sets out your purpose, not‑for‑profit and winding‑up clauses, membership rules, how meetings are held, voting rights, and directors’ powers. Most CLGs also include a clause preventing the distribution of profits to members.
Replaceable rules are not designed for CLGs. You’ll typically adopt a custom Company Constitution (or update an existing one with Adopt A Constitution) tailored to your governance needs and any ACNC requirements.
4) Appoint Your Board And Officeholders
As a public company, a CLG must have at least three directors (with at least two ordinarily resident in Australia) and at least one company secretary who resides in Australia. Think about skills mix too: finance, governance, fundraising, program expertise and community representation.
For residency and director eligibility rules, it’s worth reviewing Australian resident director requirements so your appointments satisfy the Corporations Act.
5) Register The Company With ASIC
Apply to the Australian Securities and Investments Commission (ASIC) to incorporate the CLG. You’ll need your company name, registered office and principal place of business, details of directors/secretary, and your constitution. On registration, you’ll receive an ACN.
After ASIC registration, apply for an ABN, TFN and, if applicable, GST. If your organisation is charitable, you can apply to the ACNC and then seek relevant ATO tax concessions (like charity tax concessions or DGR status) if eligible.
6) Open A Bank Account And Put Governance To Work
Open an account in the company’s name and set internal authorisations (e.g. who can approve payments). Document key board processes, including conflict management, delegations and meeting calendars. Having a practical Conflict Of Interest Policy will help directors and key staff manage perceived and actual conflicts.
7) Execute Contracts Correctly From Day One
Once incorporated, the company can enter contracts in its own name. Use the correct execution method for companies under the Corporations Act. If you’re unsure about signatories and formats, it’s helpful to review signing documents under section 127, including when electronic signatures are acceptable.
What Laws And Ongoing Compliance Apply?
CLGs enjoy the credibility of a company structure but must meet higher governance standards. Here are the main compliance areas to plan for.
Corporations Act And ASIC
- Directors’ duties apply, including acting in good faith and with reasonable care and diligence (the business judgment rule in section 180(2) is often relevant to board decisions).
- Hold annual general meetings (AGMs) unless exempt, keep proper registers and minutes, and pass resolutions correctly. A practical Directors’ Resolution format helps keep records consistent.
- Complete ASIC annual reviews, pay fees and notify changes to details on time.
ACNC (If You’re A Registered Charity)
- Annual reporting to the ACNC (small, medium and large charities have different financial reporting thresholds).
- Comply with the ACNC Governance Standards (board accountability, purposes, compliance with laws, suitability of responsible people and more).
- Use charitable funds appropriately and for your stated charitable purposes.
Privacy And Data Handling
If you collect personal information (for example, donor details, membership data or website form submissions), you’ll need a clear Privacy Policy and processes that align with the Privacy Act 1988 (Cth). Consider how long you keep records and why - this should align with your obligations and good practice under data retention laws.
Consumer Law
If your CLG sells goods or services or runs events, the Australian Consumer Law (ACL) applies. Make sure your advertising and ticketing are not misleading and that your refund and cancellation terms are fair. The general misleading or deceptive conduct rule in section 18 of the ACL will be part of your day‑to‑day compliance.
Employment And Volunteers
Hiring staff triggers Fair Work obligations: minimum pay, leave entitlements, workplace safety and proper record‑keeping. Use a tailored Employment Contract for employees and appropriate agreements for contractors and volunteers.
Tax And Fundraising
Work with your accountant to stay on top of GST, PAYG withholding and FBT, as relevant. If you’ll be fundraising publicly, check whether you need a state‑based fundraising licence and ensure your solicitation practices are transparent and compliant.
What Governance Documents And Policies Should You Have?
Good documents turn your values into day‑to‑day practice. Not every CLG needs every policy from day one, but the following are common and highly useful.
- Company Constitution: Your central governance document setting your purpose, not‑for‑profit clause, membership rules, board powers and meeting processes. Start with a tailored Company Constitution to reduce ambiguity and meet charity requirements.
- Board Charter And Delegations: Clarify roles (board vs management), meeting cadence, committee structures and delegated authorities.
- Conflict Of Interest Policy: A practical Conflict Of Interest Policy helps directors and key staff identify and manage conflicts early to maintain trust.
- Privacy Policy: If you collect personal information, a concise, compliant Privacy Policy is essential, supported by internal data handling procedures.
- Website Terms Of Use: If you have a website or accept online donations or registrations, have clear Website Terms Of Use that set user rules and limit liability.
- Fundraising And Gift Acceptance Policy: Define how you solicit and accept donations, manage restricted funds and handle refunds or cancellations for events.
- Finance Policy: Cover budgeting, approvals, reimbursement, asset control, credit cards and reserves.
- Employment Contracts And Key HR Policies: Use tailored Employment Contracts and consider policies on code of conduct, WHS, bullying/harassment and grievance handling.
- Whistleblower Policy (if applicable): Larger entities or those within certain regimes should consider a compliant Whistleblower Policy to support disclosures and protect reporters.
- Minutes, Resolutions And Registers: Keep tidy minute templates and a register for members, interests and delegations. Tools like a Directors’ Resolution template help maintain consistency.
Finally, make sure the company signs contracts correctly. If you need to streamline approvals and remote execution, align your processes with section 127 and, where relevant, your preferred e‑signature workflow.
CLG vs Proprietary Company: What’s Different In Practice?
Both structures offer limited liability, but they operate differently.
- Purpose: CLG suits not‑for‑profits and charities; a proprietary company suits profit‑distributing ventures.
- Owners vs Members: Proprietary companies have shareholders and can pay dividends; CLGs have members and reinvest surpluses.
- Governance Load: CLGs (as public companies) face higher governance and reporting expectations than proprietary companies.
- Perception: CLGs often enjoy strong credibility with donors, granting bodies and government because of their transparency and governance standards.
If you’re building a social enterprise that trades to fund purpose but still intends to reinvest profits into activities rather than paying dividends, a CLG can be a clean fit. If you plan on raising equity from investors, a share‑based company will be more suitable.
Practical Tips To Set Your CLG Up For Success
- Start with your constitution: Bake your purpose and governance into a clear, practical document rather than retrofitting later.
- Build a skills‑based board: Finance, legal/governance, fundraising and sector expertise will carry you far.
- Keep records simple and consistent: Use standard resolution and minute templates to stay compliant.
- Be transparent with members and donors: Good reporting builds trust and unlocks funding opportunities.
- Think digital from day one: Align your policies and workflows with privacy, data and electronic signing rules to reduce admin friction.
Key Takeaways
- A company limited by guarantee in Australia is a public company structure designed for not‑for‑profits and charities, with members instead of shareholders and no dividends.
- It’s ideal when you want national scope, strong governance and credibility with donors or grant makers, and when profits will be reinvested into purpose.
- Set‑up steps include drafting a tailored constitution, appointing a compliant board, registering with ASIC, and (if eligible) seeking ACNC charity registration and ATO tax concessions.
- Ongoing obligations cover Corporations Act and (if applicable) ACNC reporting, privacy and data handling, consumer law, employment compliance and accurate record‑keeping.
- Core governance documents include a Company Constitution, Conflict Of Interest Policy, Privacy Policy, Website Terms Of Use and consistent minutes and resolutions.
- Getting legal guidance early helps you tailor your constitution, policies and contracts to your actual activities and stay compliant as you grow.
If you’d like a consultation on setting up a company limited by guarantee, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.
