When it comes to setting up a charity organization in Nigeria, the popular entity choice that comes to mind is registering such an organization as an incorporated trustee. However, most people fail to realize that there is an alternative choice of entity known as a Company Limited by Guarantee, probably due to the fact that it is the least popular entity type in Nigeria.
For those who are aware that this type of entity exists as a choice of entity, the question remains, which of the two entities is ideal for registering my non-government organization (NGO) or charity organization in Nigeria?
We have examined the requirements for registering a company limited by guarantee in our previous article and you may read it here. We also provided a mini guide to registering an NGO in Nigeria, you may also find it here. However, in this article, we will highlight the key differences between them.
Differences between Company Limited by Guarantee and Incorporated Trustees
According to section 26 (1) of the CAMA 2020, a company limited by guarantee is a company formed for the purpose of promoting commerce, art, religion, sports, culture, education, research, charity, or other similar objects. Also, all income, property, and profits made for the company are for the promoting of its objects or objectives not for its members, i.e. it is allowed to make profits while promoting its objectives but is not allowed to share it among its members.
On the other hand, Section 590, defines an incorporated trustee as a non-business and non-profit making organization formed by one or more trustees bound by custom, religion, kinship, nationality or by anybody or association of persons established for any religious, educational, literary, scientific, social, development, cultural, sporting or charitable purpose with the aim of not making profits i.e. incorporated trustees are prohibited from making profits.
2. Share Capital
Under Section 26(2), a Company Limited by Guarantee is not allowed to be registered with a share capital. Furthermore, it has no shareholders just members called “Guarantors” who are selected and agree that a specified amount be paid in the event of the insolvency and winding up of the company.
Where an already existing company wishes to be changed or altered to a company limited by guarantee, such company will be mandated to alter its memorandum so it becomes a company limited by guarantee without a share capital while an incorporated trustee has a share capital and shareholders who at the winding up of the company are liable for unpaid shares.
3. The Attorney General’s consent
Under Section 26(5) memorandum of a Company Limited by Guarantee cannot be registered without the consent of the Attorney General of the Federation while in the case of an incorporated trustee, the consent of the Attorney General, is not a requirement for the registration of the constitution of an Incorporated Trustee
4. Rules governing the operations of the entity
The articles of association of a company, are the written rules that govern the operations of a company limited by guarantee and are filed alongside other documents during incorporation.
On the other hand, the written laws that govern the operations of an incorporated trustee are referred to as the constitution which is filed alongside other documents during incorporation
5. Governing body or representatives
A Company Limited by Guarantee has a “Board of Directors” as representatives while representatives of an Incorporated Trustee are called the “Board of Trustees”.
6. Minimum number of members
The minimum number of persons required for the formation of a Company Limited by Guarantee is (1) director.
The minimum number of persons required to register an incorporated trustee is two (2) persons (trustees) i.e. so long as such trustee has a sound mind, is an adult, or an undischarged bankrupt.
Making a choice on which type of entity is best for your humanitarian goals can be quite confusing considering the near similarity between an incorporated trustee and a company limited by guarantee.
There is however need for clarity on which entity type is ideal for your goals.
Do you need clarity and help with setting up your non-profit organization and you are confused about whether or not a company limited by guarantee or an incorporated trustee is ideal for you?
Feel free to reach out to us through the Whatsapp icon on the lower right part of this page or HERE and we will be delighted to assist you.