Are, you considering registering a company limited by guarantee in Nigeria? You’ve probably heard about it, but not sure what it entails. This article will consider everything you need to know about registering a company limited by guarantee in line with the latest law governing companies in Nigeria which is the Companies and Allied Matters Act 2020.
WHAT DOES IT MEAN WHEN A COMPANY IS LIMITED BY GUARANTEE
A company is said to be limited by guarantee when the liability of members of the company is restricted or limited to the amount such members undertake or guarantee to contribute to the assets of the company in the event the company in question folds up.
In simple terms, a distinctive feature of a company limited by guarantee amongst all other types of companies is that members make a promise/undertaking/guarantee to contribute a certain amount to the assets of the company should the company face a threat of being shut down or wound up.
This is because a company limited by guarantee does not own shares that members can purchase as is the case with a private company limited by shares or a public company.
The amount undertaken by members cannot be less than N100,000 (one hundred thousand naira)
Although a company limited by guarantee makes a profit, such profit is not for the benefit of members (i.e. Shareholders as in the case of a Limited Liability Company or Public Company)
Companies limited by guarantee are usually established to promote a cause. It could be social, cultural, religious, commercial, educational, scientific, etc.
WHAT IS THE MINIMUM SHARE CAPITAL FOR REGISTERING A COMPANY LIMITED BY GUARANTEE IN NIGERIA?
As stated earlier, a company limited by guarantee does not have a share capital, and as such it cannot issue shares to its members. Members only undertake to contribute a certain amount (not less than ten thousand naira) to the company, in the event of its winding up.
HOW MANY DIRECTORS IS A COMPANY LIMITED BY GUARANTEE EXPECTED TO HAVE
Under Section 22 (3) of the Companies and Allied Matters Act (CAMA) 2020, the number of members of a private company (including a company limited by guarantee) cannot exceed 50 (fifty) members.
WHAT ARE THE REQUIREMENTS FOR REGISTERING A COMPANY LIMITED BY GUARANTEE
To register a company limited by guarantee in Nigeria, you the promoters/founders of such a company are required to provide the following;
i. A minimum of 2 names to be submitted for consent to register the company using the name
ii. A summary of the objectives of the company
iii. Details of the Director(s) of the company such as name, residential address, email, phone number, etc.
iv. Government-issued ID cards of Director(s)
v. Original newspaper publication in 3 national daily newspapers
As part of the registration requirement, the consent of the Attorney General of the Federation to register a company limited by guarantee is required to be sought and obtained for a period of 30 days. Where no decision is made by the Attorney General, an applicant may place an advertisement in 3 newspaper dailies, calling for objections to registering the company. The publication is meant to be for a period of 28 days.
WHAT ARE THE LIMITATIONS OF A COMPANY LIMITED BY GUARANTEE IN NIGERIA
I wouldn’t want to refer to such limitations as disadvantages, as a company limited by guarantee has its advantages. However, this type of company is quite an unpopular choice in Nigeria due to certain reasons.
1. Although this type of company is permitted to make profit, the profit made cannot be shared amongst members. Such profits can only be reinvested into the company so as to promote the activities of the company. Where profits are shared amongst members, the company and its members will be liable to penalties.
2. In practice, it is difficult to get the consent of the Attorney General to register a company limited by guarantee, and this makes registering this type of company, a turn-off for most clients.
3. The 30 days consent requirement from the Attorney General and the additional 28 days newspaper publication requirement makes the time frame for the registration process a bit longer when compared with the time frame for registering an NGO/non-profit.
4. Since a company limited by guarantee is not permitted to own shares, fundraising options for this type of company are restricted. Companies such as this may have to resort to grants and donations as their sole option for fundraising.
A company limited by guarantee is a great option if you wish to set up an organization that promotes a cause and you don’t want the operation of such a cause to be solely dependent on donations and grants.
Since this type of company is permitted to make profits so long as such profits are reinvested into the objectives of the company and not shared amongst its members, this could be a great alternative to non-profit organizations which are not established to make profit.
Now there you have it. Everything you need to know about registering a company limited by guarantee in Nigeria.
If you’ve read this article, and you wish to set up a company limited by guarantee in Nigeria, or you need further guidance in this regard, feel free to leave a message by clicking the Whatsapp icon at the lower right part of the screen or leave a message here, and we will be delighted to speak with you.
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