Is A Company Limited By Guarantee The Right Choice?

Choice of Entity

Dear Entrepreneur,

In Nigeria, the most frequently used structure for non-profit organizations is the Incorporated Trustees. However, there’s another type of legal structure that’s also suitable for non-profits and charities, known as a Company Limited by Guarantee (Company Ltd/Gte). Different from the conventional business model, a Company Ltd/Gte, regulated by the Corporate Affairs Commission (CAC), doesn’t have shareholders or share capital. Instead, its members, referred to as Guarantors, are obligated to cover a specific amount if the company is dissolved. This article aims to illuminate the main features and registration requirements of a Company Ltd/Gte in Nigeria.

Key Features Of A Company Limited By Guarantee

  1. Objectives: A Company Ltd/Gte is established primarily for charitable purposes, with all revenue being reinvested into the organization’s charitable goals. The Corporate Affairs Commission (CAC) ensures that the funds are used exclusively for the promotion of these objectives.
  2. Legal Personality: The CAC recognizes a Company Ltd/Gte as a separate legal entity that can own property, take out loans, and can be sued or sue others.
  3. Name: The CAC requires the suffix “LIMITED BY GUARANTEE” or “LTD/GTE” to be included in the name of this type of company.
  4. Tax Exemption: A Company Ltd/Gte is usually exempt from Corporate Income Tax.
  5. Membership: Unlike regular businesses, a Company Ltd/Gte cannot be incorporated by a single individual according to the CAC’s regulations.
  6. Absence Of Share Capital: This type of company, registered under the CAC, does not have a share capital or shareholders.
  7. Liability Of Members: The liability of each member is confined to the amount they’ve committed to contribute in the event of dissolution, as outlined in the memorandum of association.
  8. Winding Up: On winding up, any remaining assets after debts and liabilities have been settled cannot be distributed among members. They must be transferred to another Company Ltd/Gte with similar objectives or used for charitable purposes.

CAC Registration In Nigeria

Requirements For Registration Under CAC

  1. Preferred Name Options: Upon deciding to register a Company Ltd/Gte, the first step is to check the availability of the preferred name with the CAC.
  2. Directors: A Company Ltd/Gte must have at least one director for registration with the CAC. The director’s details and the appointment of a company secretary are required.
  3. Guarantors: Members must commit to contributing a minimum of N100,000 in the event of dissolution. These members are known as Guarantors.
  4. Aims and Objectives: The objectives of the company must align with the promotion of commerce, art, science, religion, sports, culture, education, research, charity, or other similar objectives.
  5. Consent of the Attorney General of the Federation (AGF): Registration of a Company Ltd/Gte with the CAC requires the consent of the AGF. If not granted within 30 days, the company may advertise in three national newspapers, inviting objections within 28 days. If there are no objections, the CAC can proceed with registration without AGF’s approval.

Parting Thoughts

Registering a Company Limited by Guarantee with the CAC has its merits. It offers limited liability protection for its members and is not subject to the same regulation as a Company Limited by Shares. This makes it a viable option for non-profit organizations, charities, clubs, and societies. Nevertheless, these companies can only operate to promote their objectives, with no profits or dividends allowed for the directors and guarantors

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