MHS is registered with the Registrar of Companies as a Company Limited by Guarantee (CLBG).
Frequently, it is asked that MHS is not registered with the Registrar of Societies and doubts are raised about the status and accountability of MHS as a Company.
To address some of the above misconception, a brief explanation on the relevant legal issues will be attempted here.
What is a Company Limited by Guarantee?
- A company limited by guarantee (CLBG) is a form of business structure often used by non-profit organisations, clubs, co-operatives, social enterprises, community projects, membership organisations and charities.
- It is common practice for CLBG companies to retain their profits within the company in order to reinvest in its operations and activities rather than distribute the profits to their members.
- Unlike a company limited by shares, a CLBG company has no share capital or shareholders.
- In Malaysia, at present, there are 1331 CLBG companies. A large number of them, carry the word ‘Yayasan’ or ‘Foundation’.
Why set up a company limited by guarantee?
- Guarantee companies are incorporated for non-profit making functions, so, the income generated through businesses are used for charities, community projects, and to run its administration.
- Guarantee company can be exempt from having the word “Limited” or “Ltd” at the end of its name if it is set up for certain, usually charitable or non-profit, purposes.
- Any change or amendment to the Memorandum and Articles of Association shall require a resolution to be passed in its Annual General Meeting and further approval from the Minister. In contrast, a Society under the Registrar of Societies (ROS) may change or alter its constitution with its members’ approval alone.
- In the same way as a company limited by shares, a CLBG company will be required to file accounts and annual return at the Registrar of Companies (ROC) annually.
- Unlike unincorporated organisations, a company limited by guarantee has an existence which is legally separate from its members. This means that property and other assets can be held in the company’s name, the company can enter into contracts and employ people. Limited liability also serves to protect the members of the company from personal liability for the company’s debts.
Like other types of private limited company, a CLBG company must:
- Be incorporated at and regulated by ROC and subject to the Companies Acts.
- Requires both a Memorandum and Articles of Association. The Articles of a company limited by guarantee will often contain a list of predetermined objects, defining what the company will do. It will also often contain a specific clause restricting the payment of any profits to members, instead directing the reinvestment of surplus income to further the company’s objects.
- Must have a registered office address based in the country of incorporation
- Must register its annual accounts
- Must submit various other filings when various events occur
Position under the Companies Act 2016
~ Section 45 of Companies Act 2016 allows forming of CLBG for the specific purposes, such as to promote religion, charity, and other object useful for the community or country.
~ A CLBG company also is allowed to utilize its profits or other income in achieving or promoting its objects.
~ Section 45 (2) (b) also specifically prohibits the payment of any dividend to its members.
Therefore, forming a CLBG has several advantages over forming a society registered with the Registrar of Societies. MHS being the mother body for other Hindu organisations and Hindu temples, surely need to be on a higher footing.