What does it mean for a company to be limited by guarantee?

Section 26 of the Companies and Allied Matters Act Cap C20 Laws (CAMA) of the Federation of Nigeria 2004 states what a company limited by guarantee is all about. The exact words are thus replicated below:

“Where a company is to be formed for promoting commerce, art, science, religion, sports, culture, education, research, charity or other similar objects, and the income and property of the company are to be applied solely towards the promotion of its objects and no portion thereof is to be paid or transferred directly or indirectly to the  members of the company except as permitted by this Act, the company shall not be registered as a company  limited by shares, but may be registered as a company limited by guarantee.”

It is worthy of note that the major difference between a company limited by guarantee and Incorporated trustees is enshrined in the word “commerce”. Better explained, a company limited by guarantee can be formed for commercial purposes, while incorporated trustees cannot engage in commercial businesses and trading.

Also, section 21 of the CAMA states that a company limited by guarantee is a companyhaving the liability of its members limited by the memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of it being wound up.

The information in this blog post (“post”) is provided for general informational purposes only, no information contained in this post should be construed as legal advice, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through this post without seeking the appropriate legal or professional advice from the particular facts and circumstances at issue from a lawyer.This post is protected by intellectual property law and regulations. It may however be shared using appropriate sharing tools provided that our authorship is always acknowledged and this Disclaimer Notice attached.