10 Facts About ‘Company Limited by Guarantee’ Simplified for You

Yesterday (6 May), while you transferring 50% of your salary into your Bubble Tea Fund, Singapore Press Holdings announced it would be transferring its declining media business to a non-profit entity.

This means that all its magazines, books, and newspapers – including The Straits Times – will be taken over by a newly incorporated wholly-owned subsidiary, SPH Media Holdings Pte Ltd (SPH Media).

All its relevant subsidiaries, related intellectual property, and information technology assets will also be moved to the new entity.

SPH Media will then be transferred to a not-for-profit entity for a nominal sum.

Those who read the announcement understood everything up until SPH added that the new non-profit entity will be a public company limited by guarantee, or CLG. 

Well, if you have no idea what a CLG is and have been scratching your head for the last 24 hours, you’ve come to the right place. 

With just 10 facts, Goody Feed will tell you everything you need to know about these mysterious CLGs:

They are Used to Carry Out Non-profit Activities

A CLG is set up by a company that wants to carry out non-profit-making activities, according to Singapore Legal Advice.

Companies that run under this model can seek funding from public and private sources, as well as from the government.

They Are Often Set Up to Start Charities

Most companies set up CLGs to start an organisation that engages in charity work.

Charitable purposes can include:

• Relief of poverty
• Advancement of education
• Advancement of religion
• Other purposes beneficial to the community such as promotion of health and advancement of animal welfare

They Still Have a Corporate Status & Must Be Registered with ACRA

Even though they’re non-profit entities, CLGs still have a corporate status and have to be registered with the Accounting and Corporate Regulatory Authority (Acra) like other business entities.

This means that they too will be governed by the Companies Act.

Since they’re businesses entities, CLGs are liable to pay corporate tax, but may qualify for tax deductions or exemptions, depending on the type of income the CLG earns.

A CLG with charity status will be granted full tax exemption on its income.

They Do Not Have Shareholders

In case you don’t know, there are many types of business entities in Singapore.

The most common and most preferred type of business entity here is the Private Limited Company. You probably first heard this phrase when watching Phua Chu Kang Pte Ltd.

In this business entity, shares are held privately and not made available to the public.

Conversely, a Company Limited by Shares (CLS) may offer shares to the public and has more than 50 shareholders.

A CLG differs from a CLS in that it doesn’t have share capital – the money a company raises by issuing stock.

Instead of shareholders, a CLG has members. Each CLG must have at least one member who can be the sole guarantor.

Unlike a CLS which pays out profits and dividends to their respective shareholders, a CLG will instead retain profits in the company or use them for some other relevant purpose.

Members of the Entity Will Pay a Fixed Sum if the Company is Wound Up

One reason a company may shift to a CLG is so it’s no longer subject to expectations from shareholders of profitability and regular dividends.

Companies may choose this model when their revenue is declining.

Its members who act as guarantors agree to pay a nominal amount in the event the company is wound up.

It’s a Separate Legal Entity

Upon incorporation, a CLG is considered to have a separate legal entity and is distinct from its members.

This means that a CLG may sue or be sued in its own name, and the members of the CLG will be protected from any liabilities incurred by the company.

We Already Have a Few CLGs in Singapore, Including NUS

The term CLG may be new to many, but quite a few well-known organisations here utilise this model, many of whom promote the arts.

According to ST, some CLGS here includes the National University of Singapore, Temasek Foundation, and The Esplanade Co.

SPH Will Be Singapore First Media CLG

While we have many CLGs in Singapore, if SPH’s proposed restructuring goes through, its new breakaway entity will be Singapore’s first media CLG.

However, the move needs to be approved by SPH’s shareholders in order to go through. Otherwise, SPH will have to abandon its restructuring plans and continue with its current business model.

Some Famous Global News Organisations Use This Model

SPH Media won’t be the first news organisation to use the CLG model, of course.

Some famous global news organisations are CLGs, such as The Guardian – a news outlet from the UK – and the Tampa Bay Times in the US, which is owned by the Poynter Institute for Media Studies, a non-profit journalism school.

Running Under a CLG Model Could Make Media Companies More Susceptible to Influence

While shifting its media business to a CLG allows it to seek funding from the government, the public, and private organisations, this may make it more susceptible to influence.

As Dr Liew Kai Khuin, an independent media and culture researcher, told TODAY, the pressure to receive constant financial support could make it bend to the will of the benefactors.

This is unlike a commercial model, which depends on a wide range of advertisers for revenue.

It seems that SPH Media will have no trouble getting financial backing, however, as the Ministry of Communications and Information said it supports SPH’s proposal and is prepared to provide funds in the future.

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