Companies limited by guarantee - Disputes about members' rights
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.
This information sheet (INFO 215) explains:
- What a company limited by guarantee is
- What kinds of disputes involve companies limited by guarantee
- The rights of members of companies limited by guarantee
- The obligations of companies limited by guarantee
- ASIC's role when there are disputes about companies limited by guarantee
- What you should do to resolve a dispute about your rights as a member of a company limited by guarantee
We will generally not become involved in disputes involving companies limited by guarantee. This information sheet provides guidance on what you can do to resolve your dispute.
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.
A company limited by guarantee will usually have a constitution that sets out specific rules governing the internal affairs of the company. The Corporations Act also contains rules that deal with those affairs. Some of these rules (known as 'replaceable rules') will not apply if the constitution says so. For more information, see Information Sheet 23 Constitution and replaceable rules (INFO 23).
Directors of a company limited by guarantee will generally have the same legal duties, responsibilities and liabilities as directors of other entities registered as public companies under the Corporations Act. There are also specific provisions in the Corporations Act that govern companies limited by guarantee that undertake other corporate activities – such as issuing securities other than shares.
What are the characteristics of companies limited by guarantee?
Organisations often use companies limited by guarantee because they are particularly suited for conducting non-profit activities. Specifically:
- they cannot pay dividends
- they cannot issue shares and therefore no person can acquire a controlling interest or profit from a share sale
- each member of the company has a single vote.
Like other company structures, disputes about the internal affairs of companies limited by guarantee are generally between the directors of the company, or between the members and the governing body of the company, about:
- financial reporting
- meetings of members
- minutes of meetings
- breaches of the company constitution
- breaches of directors duties.
The Corporations Act entitles members of a company limited by guarantee to:
- access to the company's register of members
- a copy of the company's constitution
- access to minutes of meetings of members
- for small companies limited by guarantee – a financial report and directors' report if requested by 5% of members
- for large companies limited by guarantee – a financial report and a directors' report.
For a description of small and large companies limited by guarantee, see Information Sheet 131 Obligations of companies limited by guarantee (INFO 131).
Companies limited by guarantee that are registered charities – charities registered with the Australian Charities and Not-for-profits Commission (ACNC) – are generally exempt from some of the obligations applying to public companies under the Corporations Act.
You can find out more information about meeting ACNC and ASIC requirements for charitable organisations from the ACNC website.
Companies limited by guarantee have certain obligations. These include:
- making their books and records available for inspection by directors
- keeping written records of members' resolutions and meetings
- ensuring that no dividends are paid to members
- holding meetings as required by the Corporations Act
- complying with additional governance standards where the company is a registered charity.
Books and records
A director of a company has a right to access the financial records of the company at all reasonable times. They may also have access to other books of the company.
Members will generally not have a right to inspect the books and records of a company apart from certain registers and minutes of meetings. In limited cases, the directors or the company by resolution may authorise a member to inspect the books and records or the company's constitution may confer this right. To find out whether as a member of your company limited by guarantee you have this right, you should contact the company directly or seek private legal advice.
Minutes of meetings
A company must keep a written record (known as 'minutes') of the members' resolutions and meetings. Members are entitled to inspect, free of charge, the minute books of a company. Generally, the company will keep these at its registered office or principal place of business. If a member requests a copy of the minutes, the company may charge a fee for this service in accordance with Schedule 4 of the Corporations Regulations 2001.
For more details on accessing company information, see Information Sheet 186 Disputes about access to company information (INFO 186).
For more details about financial reporting obligations of companies limited by guarantee, see Information Sheet 31 Financial reports (INFO 31).
Payment of dividends by companies limited by guarantee
A company limited by guarantee registered on or after 28 June 2010 cannot pay dividends to its members.
Meetings and voting rights
Companies limited by guarantee will usually hold an annual general meeting. The company may also hold other meetings if required. The process the company must follow when calling meetings, conducting meetings and voting at meetings is set out in the Corporations Act. A company's constitution may contain rules about meetings dealing with matters not covered by that Act.
For further information on the payment of dividends to members and the conduct of meetings and voting rights, see Information Sheet 47 Members of a company (INFO 47).
Companies limited by guarantee that are registered charities
The ACNC is the independent national regulator of charities. Charities registered with the ACNC must meet the requirements of the Australian Charities and Not-for-profits Commission Act 2012 and comply with the governance standards in the Australian Charities and Not-for-profits Commission Regulation 2013.
If your company limited by guarantee is a registered charity this will affect your rights and obligations as a member. A number of provisions of the Corporations Act, which otherwise apply to companies limited by guarantee, do not apply to registered charities.
You can search the ACNC register to find out whether your company is a registered charity. If it is a registered charity, you should visit the ACNC website to learn more about how your rights and obligations as a member of a registered charity. Governance Standard 2: Accountability to members is of particular relevance to members of registered charities and is also available at the ACNC website.
In some circumstances, you may also be able to raise concerns about registered charities with the ACNC.
Incorporated associations are also a common organisational structure used for recreational, cultural and charitable organisations. Incorporated associations are formed under, and must comply with, the relevant legislation of their state or territory. We do not generally regulate the internal affairs of incorporated associations.
If you have concerns about an incorporated association, you should contact the Fair Trading or Consumer Affairs office in your state or territory.
The constitution of a company limited by guarantee usually governs the rights and responsibilities of members and directors of the company. A constitution works as a contract between, among others, the company and its members and the company and its directors. It is enforceable through private action taken by the parties to the constitution. Disputes arising from the application of a company's constitution are best resolved between the parties involved, through mediation or, failing that, by the courts.
We generally do not get involved in disputes about the rights of members of companies limited by guarantee. These disputes largely relate to your position as a member of the company, and do not affect consumers or investors in the broader community. Our role in helping you resolve a dispute is limited to providing you with information to help you address your concerns.
For example, failure by the directors of a company limited by guarantee to comply with a request from members with 5% of the votes is not an offence, but a court can order the directors to comply with the request. Accordingly, we cannot prosecute the company or its directors for failing to comply with such requests.
We may however take action where the outcome of a dispute is likely to have an impact on the broader investing public or creditors of the company, or where there is significant misconduct by company directors, officers or employees. For example, serious breaches of directors' duties, misuse of company funds or insolvent trading are matters that may require our intervention. Any action taken by ASIC may not resolve concerns regarding members' rights.
We will carefully consider a range of factors when deciding whether to take enforcement action. For more information, see Information Sheet 151 ASIC's approach to enforcement (INFO 151).
If you would like to resolve a dispute about your rights as a member of a company limited by guarantee, there are a number of options available to you.
Check the company register on ASIC Connect
Confirm whether the entity you have a dispute with is a company limited by guarantee or an incorporated association (see 'Incorporated associations' above). You can confirm whether the entity you have a dispute with is a company limited by guarantee by conducting a search using ASIC's online database, ASIC Connect.
Contact the company
Write to the company outlining your concerns and ask for the information that you are entitled to as a member (see 'Rights of members of companies limited by guarantee' above).
Negotiate a resolution
Try to resolve the dispute yourself or with the help of an independent mediator in your state or territory.
Seek legal advice
If you have contacted the company to try to resolve the matter and remain dissatisfied with its response, you can also talk to a legal adviser about what you should do next to enforce your rights as a member.
If you are unsure about how to access legal advice, contact the Law Society in your state or territory.
Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice. You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases your particular circumstances must be taken into account when determining how the law applies to you.
This is Information Sheet 215 (INFO 215), issued in August 2016. Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.