Sometimes this entity type emerges for our clients
Here is how ASIC explains it:
A company limited by guarantee is a common company structure used for not-for-profit and charitable organisations in Australia that reinvest any surplus (profit) towards the organisation's purposes.
Recreational (sports and bowling clubs), cultural and charitable organisations commonly use this type of corporate structure.
A company limited by guarantee is a type of public company registered under the Corporations Act 2001 (Corporations Act).
Like all other companies, companies limited by guarantee must comply with the applicable provisions of the Corporations Act.
They are formed on the principle that the liability of members is limited to the amount they agree to contribute if the company is wound up.
This amount is typically nominal and set out in the company's constitution.
Companies limited by guarantee cannot pay dividends.
Our Experience
We have seen this across ACNC and registered clubs.
The differences we see in report format are:
- There is NO share capital recorded, as there are no shares, its a membership
- Dividends are never accounted for, as the profit is reinvested for the entity, not the members
- The equity section says "profit" or "loss", it does NOT say "surplus"
- There is a disclosure that shows the "guarantee amount" which is in the constitution
- There is a disclosure that shows the number of members
- The income tax accounting policy may vary, based on the type of entity, such as registered clubs