A company that is limited by guarantee is a company formed on the principle of having the liability of its members limited to the respective amounts that the members undertake to contribute to the property of the company if it is wound up (see section 9 of the Corporations Act 2001 (Cth)). The member’s liability is limited to the amount set out in the constitution and the members agree in writing (the ‘guarantee’) to pay a nominal amount to the property of the company.
The most common types of companies that are limited by guarantee are not-for-profit or charitable organisations. These types of companies will generally be public companies and are governed by the Corporations Act 2001 (Cth) and regulated by the Australian Securities and Investments Commission (ASIC). Directors of a company limited by guarantee will generally have the same legal duties, responsibilities and liabilities as other registered public companies.
This type of company has a separate legal personality from its members, however the company does not have the power to issue shares or distribute dividends to its members. The inability to issue shares means that no person can acquire a controlling interest or profit from a share sale, which is a reason why many not-for-profit organisations utilise this company structure.