Malaysia – Understanding Companies Limited by Guarantee: Legal Framework & Key Features.

Introduction 

A Company Limited by Guarantee (“CLBG”) is a unique corporate structure designed primarily for non-profit organisations, professional bodies, and charitable foundations. Unlike conventional companies, a CLBG has no share capital, and its members’ liability is limited to the amount they agree to contribute if the company is wound up. 

With nearly 2,000 CLBGs incorporated in Malaysia, according to the Companies Commission of Malaysia (“CCM”), this corporate model plays a significant role in the non-profit and social enterprise sectors. But what makes a CLBG different from other companies? This article explores the legal framework governing CLBGs and highlights their key features. 

Incorporation of CLBG under the Companies Act 2016 (“CA 2016”) 

Pursuant to Section 45 of the CA 2016, a CLBG can only be established for specific purposes, including: 

1. Providing recreation or amusement; 

2. Promoting commerce and industry; 

3. Promoting art; 

4. Promoting science; 

5. Promoting religion; 

6. Promoting charity; or 

7. Promoting pension or superannuation schemes. 

The CCM, through its Guidelines on CLBG, further clarifies that “useful objects” for the community or country may include initiatives related to the environment, health, education, research, social welfare, or sports.¹ 

To incorporate a CLBG, an application must be submitted to the Registrar along with the company’s constitution.² To ensure compliance, every CLBG is required to adopt Part A of the model constitution provided by the Registrar. 

A CLBG may also apply to the Minister for a licence to omit the word “Berhad” or the abbreviation “Bhd.” from its name, and for this purpose, the CLBG is required to obtain an initial fund of RM1 million to ensure that the CLBG is able to carry out its objectives as soon as it is incorporated.³ 

On the other hand, a CLBG which had been incorporated for at least two (2) years may apply to omit the word “Berhad” or “Bhd” provided that there is a cash of RM1 million shown in the bank account of the latest financial statements. Therefore, there are two (2) types of CLBG namely a CLBG without the word “Berhad” or “Bhd”, for example, The Royal Selangor Golf Club⁴ and CLBG with the word “Berhad” or “Bhd”, for instance, Khairat Keluarga Perbadanan Johor Berhad.⁵ 

Similar to the incorporation of a private limited company (“PLC”), a promoter is also required to incorporate a CLBG. According to the Guidelines, a promoter (founder member) or a director of a CLBG must be a person who is fit and proper and is not disqualified under the CA 2016. The Registrar may consider the following criteria in determining whether a person is fit and proper: 

1. Consider the experience, qualification and competency which would assist him in carrying out his duties as director of CLBG; 

2. Consider the reputation, character and integrity; 

3. Conduct a security vetting on the potential promoter (founder member) or director, and a safety filter (security vetting) shall be conducted by the Royal Malaysian Police and/or other agencies. 

General Requirements and Prohibitions 

According to the Guidelines, a CLBG must ensure that its financial resources are utilised solely to carry out its objects and comply with all the provisions set in its Constitution. The Registrar may also require the CLBG to submit segmental reports and financial statements. A CLBG must keep a list of the funds, donations, or contributions at all times, as well as the bank statement as evidence in relation to the fund transactions, donations, or contributions. The Registrar may also issue a notice and require the CLBG to submit the Financial Information Form (Borang Maklumat Kewangan – BMK) to CCM. 

A CLBG is also prohibited from doing the following, except with prior approval from the Registrar: 

1. Appointing new directors; 

2. Paying any fees, salaries and fixed allowances to its directors; 

3. Paying any fees, salaries and fixed allowances that relate to prior financial years of the company to its directors unless: 

1. The CLBG has been incorporated for at least three (3) years; 

2. The fees, salaries and fixed allowances payable must have been provided for in those financial years and do not relate to the initial three (3) financial years from the incorporation date; 

3. The total amount payable shall not exceed 30% of the total assets of the company before payment is made; and 

4. The CLBG will be solvent immediately after the payment is made, 

4. Soliciting any contribution or donation or making any money collection from the public; 

5. Incorporating or holding a subsidiary; and 

6. Amending the Constitution. 

The CCM has provided a comprehensive set of checklists (Checklist 1-8) and examples (Example 1-5) to guide the applicants in submitting requests to CCM. These checklists and examples correspond to specific matters for which a CLBG may seek approval. For instance, Checklist 3 outlines the application process for appointing a new director. 

Additionally, only CLBGs that hold a licence with conditions issued by the Minister under Section 24(3) of the Companies Act 1965, or those whose Constitutions explicitly require Ministerial approval, must obtain approval from the Minister. All other CLBGs must seek approval from the Registrar instead. It is crucial to determine the correct approving authority, as different documentation and fees apply depending on whether approval is required from the Minister or the Registrar. 

Differences between a CLBG and PLCs 

For ease of reference in examining the differences between a CLBG and a PLC, listed below are several areas that may be scrutinised. It is to be noted that the lists are non-exhaustive. The Company Secretary of the CLBG ought to check further to see whether the matter on hand will require approval from the Minister or Registrar before execution. 

Area(s)	CLBG	PLC
Shareholders vs. Members	CLBGs do not have shareholders; instead, they have members.	PLCs have shareholders who own shares in the company.
Registration of Shareholders/ Members	A CLBG is only required to record member details in the Register of Members for record-keeping purposes.	A PLC must lodge a Form under Section 78 (Return of Allotment of Shares) and a Form under Section 51 (Register of Members) to complete the registration of shareholders.
Share Capital Requirement	A CLBG does not require share capital.	A PLC must have a minimum share capital of RM1.00.
Payment of Dividends	A CLBG is strictly prohibited from distributing dividends to its members.	A PLC, when profitable, is expected to pay dividends to its shareholders.
Liability	Members’ liability is limited to the amount they have undertaken to contribute in the event of winding up.	Shareholders’ liability is limited to the amount of their fully paid shares.
Profit Generation	A CLBG is not established for profit-generating purposes.	A PLC is incorporated primarily to generate profits for the company and its shareholders.
Company Objectives	The purpose and objectives of a CLBG must be explicitly stated in its Constitution.	The objectives of a PLC may be outlined in its Constitution but are not necessarily required.

Conclusion 

In conclusion, the CLBG framework continues to serve as a vital pillar in fostering sustainability and long-term growth for non-profit entities. By offering a structured and transparent corporate model, a CLBG presents an optimal choice for individuals and organisations seeking to establish a non-profit entity with limited liability, aligned with the permissible objectives outlined in the law. 

However, strict adherence to the prescribed guidelines and regulatory requirements is paramount. Ensuring full compliance not only upholds integrity and transparency but also safeguards the entity from potential legal repercussions, including regulatory penalties. As the landscape of corporate governance evolves, the CLBG structure remains a robust and credible vehicle for driving meaningful social impact while maintaining financial and operational accountability. 

For further information, please contact:

Nadia Liyana Hassan, Azmi & Associates

nadialiyana@azmilaw.com

1. CCM, Guidelines on Company Limited by Guarantee (27 September 2021), paragraph 5. 

2. CCM, Guidelines on Company Limited by Guarantee (27 September 2021), paragraph 4. 

3. CCM, Guidelines on Company Limited by Guarantee (27 September 2021), paragraph 26. 

4. CCM, ‘List of Companies Limited by Guarantee (CLBG) Without the Word “BERHAD”’ (CCM, n.d.) <https://www.ssm.com.my/Pages/Services/Registration-of-Company-(ROC)/CLBG/List-of-Companies-Limited-by-Guarantee-(CLBG)-Without-the-Word-“BERHAD”.aspx> accessed 7 May 2025. 

CCM, ‘List of Companies Limited by Guarantee (CLBG) With the Word “BERHAD”’ (CCM, n.d.) <https://www.ssm.com.my/Pages/Services/Registration-of-Company-(ROC)/CLBG/List-of-Companies-Limited-by-Guarantee-(CLBG)-With-the-Word-‘BERHAD’.aspx> accessed 7 May 2025.