Understanding a Company Limited by Guarantee in Nigeria

A Company Limited by Guarantee (CLG) is a unique business structure under Nigerian law, often used by entities that operate for charitable, educational, religious, or other non-profit purposes. It is governed by the Companies and Allied Matters Act (CAMA) 2020, which provides a framework for its formation, operation, and governance. Unlike companies limited by shares, a CLG does not have shareholders. Instead, it is managed by members who guarantee to contribute a fixed amount to the company’s liabilities in the event of its winding up.

Key Features of a Company Limited by Guarantee

1. Non-Profit Objective:
   A CLG is primarily established for public benefit rather than profit generation. It often supports causes like education, healthcare, community development, and the promotion of arts or sciences.

2. No Share Capital:
   Unlike companies limited by shares, a CLG does not issue shares or have shareholders. Instead, it has members who provide guarantees for the company’s debts, typically a nominal amount, such as ₦1,000.

3. Limited Liability:
   Members’ liability is limited to the amount they agree to guarantee. This protects their personal assets from company liabilities beyond the guarantee.

4. Distinct Legal Personality:
   A CLG is a separate legal entity, capable of owning property, entering into contracts, and suing or being sued in its name.

5. Approval from the Attorney General:
   To form a CLG in Nigeria, the promoters must obtain the consent of the Attorney General of the Federation. This process ensures that the intended objectives align with public interest.

6. Profit Distribution:
   Any surplus generated by the company must be reinvested into its objectives. Members are not entitled to dividends or profit-sharing.

Steps to Register a Company Limited by Guarantee in Nigeria

1. Name Reservation:
   The first step is to reserve a name with the Corporate Affairs Commission (CAC). The proposed name must include the phrase “Limited by Guarantee”.

2. Drafting the Memorandum and Articles of Association (MEMART):
   The MEMART must outline the objectives of the company and the guarantee amount members are willing to contribute.

3. Consent of the Attorney General:
   An application must be submitted to the Attorney General of the Federation with supporting documents such as the MEMART and a detailed statement of the company’s proposed objectives.

4. Submission to the CAC:
   Once the Attorney General’s consent is obtained, the promoters can file the registration with the CAC, along with the required documents and fees.

5. Issuance of Incorporation Certificate:
   Upon successful registration, the CAC will issue a certificate of incorporation.

Governance of a CLG

A CLG is managed by directors and governed by its Articles of Association. The directors are responsible for running the day-to-day affairs, while members hold the directors accountable during general meetings. Key governance practices include:

• Annual General Meetings (AGMs) to review performance.
• Transparent financial reporting to ensure accountability.
• Compliance with CAMA and other regulatory requirements.

Advantages of a Company Limited by Guarantee

• Legal Recognition: A CLG provides a formal structure for non-profit activities, making it easier to attract grants and donations.
• Tax Benefits: Registered CLGs may qualify for tax exemptions under Nigerian tax laws.
• Limited Liability: Members’ personal assets are protected in case of insolvency.

Challenges of Operating a CLG

• Lengthy Registration Process: Obtaining the Attorney General’s consent can be time-consuming.
• Strict Regulatory Oversight: CLGs must maintain high standards of accountability and transparency.
• Profit Limitation: The inability to distribute profits may restrict growth for certain types of activities.

Conclusion

A Company Limited by Guarantee is a vital legal structure for organizations dedicated to public good in Nigeria. While the registration process may be rigorous, the benefits—such as legal recognition, limited liability, and potential tax exemptions—make it a worthwhile option for non-profit endeavors. Proper governance and adherence to regulatory requirements are essential for the successful operation of a CLG.

Whether you’re looking to establish a charity, educational institution, or any other public interest organization, a CLG provides a robust foundation for sustainable impact.