Are you seeking to know the best corporate structure for your not-for-profit? You are at the right place. In Nigeria, not-for-profits are categorized as Incorporated Trustee (IT) and Company Limited by Guarantee (CLG). This categorization is based on several factors, mainly determined by the objectives of these organizations.
In recent times, there has been an increase in not-for-profit movements. Organizations are being set up for charitable, educational, social, cultural, and research purposes. International organizations provide significant funding to this not-for-profit movement, which has led to a surge in such organizations.
This article analyzes the differences between Incorporated Trustee and Company Limited by Guarantee, helping you make an informed choice of not-for-profit structure.
What is difference Incorporate Trustee and Company Limited by Guarantee at a Glance?
| Feature | Incorporated Trustee (IT) | Company Limited by Guarantee (CLG) |
|---|---|---|
| Definition | A corporate body established for religious, educational, literary, social, cultural, sporting, or charitable purposes, run by trustees for the community. | A company formed to promote commerce, art, science, religion, sports, education, research, charity, or similar objectives; income is applied solely to its objectives. |
| Nature & Purpose | Designed for non-profit organizations like NGOs, clubs, and associations; property held by trustees. | Formed without share capital; used to promote specific objectives; profits not distributed to members. |
| Legal Personality & Ownership | Separate legal personality through trustees; property held in trustees’ names for the organization. | Full corporate body; property and assets held in the company’s name. |
| Formation Requirements | Minimum 2 trustees, a constitution, and 2 published newspaper notices for objections. | Minimum 2 members, Memorandum & Articles of Association, and prior Attorney General approval. |
| Governance Structure | Governed by a Board of Trustees under a constitution; trustees control management and finances. | Governed by a Board of Directors; management follows CAMA and Articles of Association. |
| Regulatory Compliance | Annual returns and activity reports; monitored for accountability in line with social objectives. | Rigorous compliance: annual returns, audited statements, board resolutions, and company secretarial duties. |
| Membership & Control | Membership tied to association/group; collective decision-making via trustee meetings. | Defined in Articles; members guarantee an amount; influence control through meetings/resolutions. |
| Liability Protection | Trustees generally not personally liable, except in cases of fraud or negligence. | Member liability limited to the amount guaranteed in the Memorandum of Association. |
| Profit Making | Cannot engage in profit-making; funded via gifts, grants, donations. | Can engage in profit-making, but profits must support the company’s objectives. |
| Scope of Activities | Limited to charitable, social, cultural, religious, educational, or development purposes. | Can include broader objectives such as commerce, art, research, and similar activities not available to IT. |
What is Incorporated Trustee and Company Limited by Guarantee?
An Incorporated Trustee is a corporate body established for religious, educational, literary, scientific, social, development, cultural, sporting, or charitable purposes. It is set up by two or more persons appointed by an association of persons to run the affairs of the body in trust for the larger community.
A Company Limited by Guarantee (CLG) is a company formed for the promotion of commerce, art, science, religion, sports, culture, education, research, charity, or other similar objectives. Its income and property are applied solely toward promoting its objectives.
Nature and Purpose
Incorporated Trustee:
Designed for non-profit organizations such as NGOs, religious bodies, clubs, and associations formed for charitable, educational, social, or cultural purposes. Trustees hold property on behalf of the association.
Company Limited by Guarantee:
Formed without share capital, used primarily to promote commerce, art, science, religion, sports, education, research, charity, or similar objectives. Profits are not distributed to members. The key difference is that a CLG is a company, whereas an IT is not.
Legal Personality and Ownership
Incorporated Trustee: The association acquires separate legal personality through its registered trustees, but property is held in the trustees’ names on behalf of the organization.
Company Limited by Guarantee: A full corporate body in its own right. All property and assets are held in the company’s name, not the members.
Formation Requirements
Incorporated Trustee:
- Minimum of two trustees
- Constitution
- Two published newspaper notices for objections (28 days)
Company Limited by Guarantee:
- Minimum of two members
- Memorandum and Articles of Association
- Prior approval of the Attorney General of the Federation
Governance Structure
Incorporated Trustee: Governed by a Board of Trustees and operates under a constitution, with trustees controlling management and finances.
Company Limited by Guarantee: Governed by a Board of Directors, with management regulated by CAMA and its Articles of Association.
Regulatory Compliance and Filing
Incorporated Trustee: Must file annual returns, including audited accounts (if applicable), and activity reports. Accountability is monitored in line with social objectives.
Company Limited by Guarantee: Has rigorous corporate compliance obligations, including annual returns, audited financial statements, board resolutions, and other secretarial duties similar to profit companies.
Membership and Control
Incorporated Trustee: Membership is tied to an association or societal group. Control is collective, with decisions made in meetings of members and trustees.
Company Limited by Guarantee: Membership is defined in the Articles. Members guarantee a set amount in case of winding up. They do not hold shares but influence control via meetings and resolutions.
Liability Protection
Company Limited by Guarantee: Member liability in liquidation is limited to the amount guaranteed in the Memorandum of Association.
Incorporated Trustee: Trustees are generally not personally liable for debts, but may become liable in cases of fraud or negligence.
Profit Making
Company Limited by Guarantee: Can engage in profit-making activities, but profits must be used to achieve the company’s objectives.
Incorporated Trustee: Cannot engage in profit-making; funding comes from gifts, grants, donations, and contributions.
Scope of Activities
While IT and CLG objects may overlap, certain activities are reserved exclusively for CLGs. Activities such as Art, Commerce, and Research can only be conducted by a CLG, and are outside the purview of an IT.
Conclusion
Both Incorporated Trustees and Companies Limited by Guarantee serve non-profit objectives but differ significantly in structure, formation, governance, and legal implications. Organizations must carefully assess their purpose, governance preferences, and regulatory requirements before choosing the most suitable legal form.
Each option offers unique advantages depending on the nature and goals of the organization.
Frequently Asked Questions
1. What’s the minimum and maximum number of trustees required to register an NGO?
Minimum is two (2), including the Chairman and Secretary. There is no maximum limit.
2. How many directors does a Company Limited by Guarantee need?
A minimum of two (2) directors at all times.
Do You Need an Expert in Setting Up Your IT or CLG?
Setting up a CLG or an IT requires expertise. With our years of experience in business setup, corporate law, and compliance, we make the process seamless so you can focus on managing your not-for-profit.
- Website: Contact us or www.tcorporatelegaladvisory.com
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Disclaimer:
This publication is for general guidance and does not constitute professional advice. For specific legal guidance, contact a professional advisor.
Written By:
Ogheneyoma E. Ibuje, LL.B, B.L, ACIS
Legal Associate, Tcorporate Legal Advisory