If you’re exploring structures for a not-for-profit, industry association or community initiative attached to your business, you’ll quickly come across the “company limited by guarantee” (CLG). It’s common in the charity and membership space - but where does it sit under Australian company law, and is it actually a public company?
In short: yes. A company limited by guarantee is a type of public company under the Corporations Act 2001 (Cth). It doesn’t have shareholders or share capital; instead, it has members who agree to contribute a nominal amount (often $10 or $100) if the company winds up.
In this guide, we’ll break down what that means for you, how a CLG differs from a standard proprietary company (Pty Ltd), when a CLG might make sense, how to set one up, and the key governance and legal documents to get right from day one.
What Is A Company Limited By Guarantee (And Is It A Public Company)?
A company limited by guarantee is a public company structure designed primarily for not‑for‑profit purposes. Rather than issuing shares to owners, a CLG has members who guarantee to contribute a pre‑agreed amount towards debts if the company winds up.
Because a CLG is a public company, it’s subject to the public company framework - think more formal governance, director requirements and financial reporting obligations than a proprietary (private) company. However, there are streamlined reporting concessions for certain CLGs (particularly those that are registered charities and report through the Australian Charities and Not‑for‑profits Commission (ACNC)).
If you’re still wrapping your head around what “public company” means in Australia, it can help to start with a plain‑English explainer of what a public company is before diving into the CLG specifics.
Company Limited By Guarantee vs Company Limited By Shares: Key Differences
Most small, for‑profit businesses in Australia set up as a proprietary company limited by shares (Pty Ltd). A CLG, by contrast, is built for a different purpose and has different rules. Here’s how they compare at a high level.
- Ownership and capital: A proprietary company is owned by shareholders and funded by issuing shares. A CLG has no share capital and no shareholders - only members with a limited “guarantee” obligation on winding up.
- Profit distribution: Proprietary companies can pay dividends to shareholders. CLGs are generally not‑for‑profit in purpose and typically have “no distribution” clauses in their Company Constitution to ensure profits are reinvested into the organisation’s objects (not paid to members).
- Regulatory category: A proprietary company is a private company. A CLG is a public company with corresponding governance and reporting expectations (subject to concessions for eligible not‑for‑profits/charities).
- Raising funds: Proprietary companies raise funds by issuing shares or taking on debt. CLGs often rely on memberships, grants, donations and program revenue - and some may seek Deductible Gift Recipient (DGR) endorsement for fundraising, subject to ATO criteria.
- Use case: Proprietary companies suit most for‑profit ventures. CLGs suit not‑for‑profit bodies such as charities, peak industry associations, social enterprises with a mission‑first model, sporting clubs and community organisations.
Still deciding between structures? It can be helpful to map the pros and cons of public vs private company models more broadly - see this overview of public vs private companies for context while you evaluate your goals.
When Does A CLG Make Sense For Small Businesses In Australia?
Most small businesses won’t need a CLG. A proprietary company or a sole trader structure is usually more appropriate for a commercial, profit‑driven venture.
However, a CLG can be a strong fit if you’re:
- Establishing a not‑for‑profit arm: For example, creating a separate entity to deliver community programs, scholarships or industry training where surpluses are reinvested into the mission.
- Forming an industry association or membership body: CLGs work well for peak bodies, buying groups and professional associations with member voting rights and clear governance rules.
- Running a social enterprise: If your enterprise’s purpose is mission‑first and you want a structure that locks in non‑distribution of profits (and may support charitable or DGR status if eligible), a CLG may align with that purpose.
- Delivering grant‑funded programs: Some funders prefer or require not‑for‑profit structures with transparent governance and reporting.
For some mission‑specific projects, you might also consider a special‑purpose company (for example, if you’re setting up a vehicle for a defined objective). If that’s on your radar, this explainer on special purpose companies is useful background as you assess your options.
How Do You Set Up A Company Limited By Guarantee? (Step‑By‑Step)
Setting up a CLG is similar to registering any company with ASIC, but with a handful of not‑for‑profit‑specific choices along the way. Here’s a practical path to follow.
1) Clarify Your Purpose And Governance Model
Start by documenting your purpose, activities, membership model and how decisions will be made. This will inform your constitution, member classes and voting rules.
- Define your objects (your mission and what the entity will do).
- Decide who can be a member, how they join, and any member classes.
- Map board composition (minimum directors, skills, any rotation rules).
- Settle on the guarantee amount members will commit on winding up.
2) Prepare Your Constitution
CLGs must have a tailored constitution - there’s no replaceable rules set for companies without share capital. The constitution should include your objects, not‑for‑profit and non‑distribution clauses, member rights, director powers, meeting rules and winding‑up provisions.
It’s worth getting professional help to draft or update your Company Constitution so it accurately reflects your purpose and complies with the Corporations Act and any charity requirements.
3) Choose Your Name And Check Availability
Pick a company name and check it’s available and not confusingly similar to existing brands. If you plan to omit “Limited” from your name, you’ll need approval (commonly granted to certain not‑for‑profits meeting strict criteria).
4) Appoint Directors And A Company Secretary
As a public company, a CLG must have at least three directors (and at least two ordinarily resident in Australia), plus at least one company secretary. Make sure the individuals understand director duties and conflicts management.
5) Apply To Register The CLG With ASIC
Submit your application to ASIC, selecting the “company limited by guarantee” type. You’ll provide details of your name, registered office, principal place of business, directors, secretary, members and constitution. ASIC will issue an ACN upon registration.
6) Obtain An ABN (And Consider Tax Endorsements)
Apply for an Australian Business Number (ABN). If you’re eligible and it aligns with your purpose, consider applying for charity registration (with the ACNC) and tax concessions such as income tax exemption or DGR endorsement via the ATO.
7) Put Your Operational Legal Documents In Place
Before you start taking memberships, running programs or hiring staff, set up the key contracts and policies your CLG will rely on. We outline the essentials further below.
8) Set Up Bank Accounts, Record‑Keeping And Execution Processes
Open a bank account, adopt a board paper and minute template, and establish how the company will sign documents. For execution, many organisations lean on the rules for signing documents under section 127 to streamline contracting, including e‑signing where appropriate.
What Laws And Governance Rules Apply To CLGs?
As a public company, a CLG sits within a more formal compliance framework than a proprietary company. The exact obligations depend on your size and whether you’re registered as a charity, but the main pillars are similar across the board.
Corporations Act Compliance
Directors must comply with directors’ duties, act in good faith and in the best interests of the company’s purpose, manage conflicts and maintain proper records. Boards should be familiar with practical guardrails like the business judgment rule (see a guide to section 180(2)) and ensure decisions are properly documented.
Financial Reporting And Audit
Public companies have financial reporting obligations and may require an audit. Streamlined pathways exist for certain CLGs (especially registered charities reporting to the ACNC) and for smaller entities, but you should plan for annual accounts, board approval and timely lodgements as part of your calendar.
ACNC Oversight (If A Charity)
CLGs registered as charities report to the ACNC under a tiered framework, with governance standards and annual information statements. ASIC relief is available for many charity CLGs so you aren’t double‑reporting. Make sure your constitution aligns with charity requirements (e.g. not‑for‑profit clauses and suitable winding‑up provisions).
Privacy And Data Protection
If you collect any personal information (which most membership bodies and program providers do), you’ll need a clear Privacy Policy and compliant data practices under the Privacy Act 1988 (Cth). This includes how you collect, store, use and disclose member, donor and participant data, and what rights people have to access or correct it.
Workplace And Volunteer Arrangements
Bringing on employees or contractors triggers Fair Work obligations and the need for clear agreements and policies. Even if you rely on volunteers, you should have documentation covering safety, conduct and supervision. If you’re employing staff, put proper Employment Contracts and basic workplace policies in place before anyone starts.
Whistleblower Protections
Public companies are subject to the corporate whistleblower regime. Larger organisations (and some that meet certain criteria) often adopt a formal Whistleblower Policy and internal reporting channels to ensure disclosures are handled correctly and protections are respected.
Brand And IP Protection
Your name, logo and program names are part of your identity. Consider registering your trade marks and documenting how your brand is used by chapters, partners or sponsors. Even not‑for‑profits benefit from clear IP ownership and licensing arrangements.
What Legal Documents Will You Need?
Every CLG is different, but most will need a core suite of governance documents and practical agreements to run smoothly and reduce risk.
- Company Constitution: Sets out your objects, non‑distribution clauses, member rights, director powers, meetings and winding‑up. A tailored Company Constitution keeps your governance tight and fit‑for‑purpose.
- Board And Policy Framework: Board charter, conflicts of interest procedures, delegations, code of conduct and risk management settings. These can be light‑touch but should be documented and adopted.
- Membership Terms: Rules around joining, fees, conduct, voting rights and termination. These can sit in your constitution and/or a separate member agreement or bylaws, depending on your model.
- Program Or Service Terms: If you deliver services, publish plain‑English terms that explain eligibility, inclusions, fees, cancellations and liability limits. For online delivery, use clear website or platform terms grounded in Australian Consumer Law principles.
- Privacy Policy: Explains how you collect, use and store personal information, and how people can contact you or make complaints. A compliant Privacy Policy is essential if you handle member or donor data.
- Employment Contracts And Policies: Agreements for employees and contractors, plus essential policies (work health and safety, bullying and harassment, leave, IT and social media). You can start with a core Employment Contract and add policies as you grow.
- Sponsorship, Grant And Partnership Agreements: Document obligations, deliverables, branding use, reporting and termination so relationships remain clear and low‑risk. If sponsors will use your brand, set rules in writing.
- Whistleblower Policy: If you meet the criteria (or are planning to scale), a formal Whistleblower Policy helps you comply with the regime and handle disclosures confidently.
- Execution Playbook: Internal guidance on who can sign what, and how you’ll execute documents (including electronic signatures) consistent with section 127.
If you’re converting an existing incorporated association or special‑purpose entity into a CLG, you’ll also want a transition plan covering member transfers, asset and contract assignment, and any stakeholder approvals. Where you’re repurposing a corporate entity for a narrowly defined objective, consider whether a special purpose company or other structure would be more efficient.
Frequently Asked Questions About CLGs (For Small Business Owners)
Is a company limited by guarantee always a public company?
Yes. Under Australian law, a CLG is a public company category. It doesn’t have shareholders or share capital but is regulated as a public company with corresponding governance and reporting settings.
Can a CLG distribute profits to members?
No, not in the usual sense. CLGs are typically not‑for‑profit in purpose. Constitutions include non‑distribution clauses so any surplus is reinvested into the organisation’s objects rather than paid to members.
Do CLGs have lower reporting obligations than proprietary companies?
Not generally. CLGs are public companies, so the baseline obligations are more formal. That said, smaller CLGs and charities may access concessions or report through the ACNC rather than ASIC. Build annual reporting and audits into your planning from the outset.
Can I convert a proprietary company to a CLG?
Yes, restructures are possible, but they involve formal steps including constitutional changes, shareholder/member approvals, and ASIC processes. Because share capital and ownership rights are different, you’ll need careful planning and legal advice to manage the transition fairly and lawfully.
Will a CLG work for my social enterprise?
It can. If your aim is impact over profit distribution - and you want to lock in mission and reinvest surpluses - a CLG can be ideal. If you’re weighing whether a public or private structure better fits your funding and governance plans, review the public vs private company pros and cons in light of your roadmap.
Key Takeaways
- A company limited by guarantee is a public company with members (not shareholders) and is typically used for not‑for‑profit and membership‑based organisations.
- CLGs differ from proprietary companies on ownership, profit distribution and governance - they’re mission‑first and usually reinvest surpluses into their objects.
- Setting up a CLG involves clarifying your purpose, preparing a tailored constitution, appointing directors and a secretary, registering with ASIC and putting core contracts and policies in place.
- Expect more formal governance and reporting than a private company, with possible concessions for smaller entities and charities reporting to the ACNC.
- Don’t overlook day‑one documents like your Constitution, Privacy Policy, Employment Contracts and clear execution processes under section 127.
- If you’re unsure whether a CLG, a proprietary company or a special‑purpose vehicle best fits your goals, getting advice early will save time and rework.
If you’d like a consultation on setting up a company limited by guarantee (or choosing the right structure for your not‑for‑profit or social enterprise), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.
