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Company Limited by Guarantee Malaysia

Updated: Feb 10

Company Limited by Guarantee (CLBG)

Type of Objects Formed by CLBG

According to Section 45 of the Companies Act 2016 (CA 2016) and Paragraph 5 of the Guidelines on Company Limited by Guarantee (GCLBG), a CLBG in Malaysia can only be formed with specific objects in mind. These objects fall into two categories:

Category 1: Predefined Objects

  • Providing recreation or amusement

  • Promoting commerce and industry

  • Promoting art

  • Promoting science

  • Promoting religion

  • Promoting charity

  • Promoting pension or superannuation schemes

Category 2: "Other Objects Useful for the Community or Country"

This category offers more flexibility but requires the chosen object to be demonstrably beneficial to the community or country, such as:

  • Environment

  • Health

  • Education

  • Research

  • Social development

  • Sports

It's important to note that:

  • The chosen object(s) must be clearly defined and outlined in the CLBG's constitution. This document forms the foundation of the organization and will be scrutinized by the authorities during the incorporation process.

  • Activities undertaken by the CLBG must align with its stated objects. Operating outside these defined purposes could lead to legal complications.

If you're considering forming a CLBG in Malaysia, it's crucial to carefully choose an object that adheres to these regulations and accurately reflects your organization's intended purpose. It's also recommended to consult with legal professionals to ensure compliance and smooth incorporation.

General Prohibitions

In addition to the restrictions on the objects a CLBG can pursue, there are also limitations on how the company and its resources can be used. Here are some key points to remember:

Political Activity:

  • CLBGs are strictly prohibited from engaging in any form of political activity. This includes:

  • Supporting or opposing any political party or candidate

  • Lobbying for changes in government policies

  • Participating in political demonstrations or protests

  • Using company funds or resources for political purposes

  • There is some leeway for activities like educating the public on policy issues or promoting civic engagement, but these activities must be non-partisan and objective.

Unlawful Activity:

  • It is illegal for a CLBG or its members/directors to use the company or its resources for any unlawful activity. This includes:

  • Fraudulent or deceptive practices

  • Money laundering

  • Theft or embezzlement

  • Violation of environmental regulations

  • Infringement of intellectual property rights

  • Directors have a legal duty to prevent the company from engaging in unlawful activities and are personally liable for any breaches of this duty.

Consequences of Non-Compliance:

  • If a CLBG is found to be engaging in prohibited activities, it can face serious consequences, including:

  • Fines and penalties

  • Deregistration as a CLBG

  • Personal liability for directors involved

It's important for CLBGs to be aware of these restrictions and operate within the legal framework. 

No Paid Up Capital

CLBGs and Paid-Up Capital:

  • Unlike companies limited by shares, CLBGs do not have shareholders or share capital. Members of a CLBG guarantee a specific amount of money they would contribute in case the CLBG needs to wind up, but this is not considered paid-up capital.

  • This distinction stems from the nature of CLBGs, which focus on non-profit activities and achieving their stated objectives rather than generating profit for shareholders.

RM1 Million Initial Fund:

  • While CLBGs don't have paid-up capital, they must maintain a minimum initial fund of RM1 million in cash to omit the word "Berhad" or "Bhd" from their name.

  • This requirement serves several purposes:

  • Demonstrates financial stability and the ability to operate effectively.

  • Provides a buffer for initial expenses and unforeseen circumstances.

  • Offers some assurance to stakeholders and the public about the CLBG's seriousness and capability.

  • It's important to note that the RM1 million fund needs to be readily available in cash and pledged by potential contributors within six months of incorporation.

Key Takeaways:

  • CLBGs operate differently from companies with shares and don't have paid-up capital.

  • The RM1 million initial fund requirement is specific to omitting "Berhad" or "Bhd" and not a general capital requirement.

  • This condition ensures financial stability and seriousness for CLBGs wishing to operate under a more prestigious name.

CLBG cannot Run other Activities or Objects not Listed in Section 45 of CA 2016

A CLBG's activities and objects must align with those specified under Section 45(1) of the CA 2016 and Paragraph 5 of the GCLBG. 

As we discussed earlier, these allowed activities encompass:

  • Predefined Objects: Providing recreation, promoting commerce, art, science, religion, charity, pension schemes, etc.

  • "Other Objects Useful for the Community or Country": Focusing on areas like environment, health, education, research, social development, or sports.

It's crucial for CLBGs to stay within these boundaries to ensure:

  • Compliance with regulations: Operating outside the allowed scope could lead to legal repercussions, including fines, deregistration, and personal liability for directors.

  • Alignment with purpose: Pursuing activities not aligned with the stated objects goes against the CLBG's non-profit and community-oriented nature.

  • Transparency and trust: Clearly defined and adhered-to objects build trust with stakeholders and the public.

Use of the RM1 Million Fund

The RM1 million initial fund for a CLBG in Malaysia serves a specific purpose and has designated usage restrictions. Here's a breakdown:

Purpose of the RM1 Million Fund:

  • Demonstrate financial stability: This large initial fund signifies the CLBG's seriousness and capacity to operate effectively, especially when operating without the "Berhad" or "Bhd" designation.

  • Provide a buffer for initial expenses: Establishing a CLBG involves administrative costs, legal fees, and other startup expenses. The fund helps cover these initial needs.

  • Support operational activities: As the CLBG pursues its stated objects, the fund can be used for ongoing expenses related to programs, projects, and other initiatives that align with its mission.

Restrictions on Usage:

  • Exclusively for promoting the CLBG's objects: The fund cannot be used for personal gain, investments, or activities outside the CLBG's stated objectives. It serves the specific purpose of advancing the organization's mission and benefitting the community.

  • Transparent management and accountability: The CLBG must maintain proper financial records and demonstrate responsible use of the fund. This accountability ensures transparency and helps maintain public trust.

Consequences of Misuse:

  • Legal repercussions: Misusing the fund, such as diverting it for unauthorized purposes, could lead to legal action and penalties.

  • Loss of public trust: Improper fund management can damage the CLBG's reputation and erode public confidence, hindering its ability to attract future contributions and partnerships.

Additional Information:

  • While the initial fund needs to be in cash, the CLBG can invest it in low-risk instruments to preserve its value and generate some income, as long as the profits are used for its objects.

  • The CLBG's constitution and financial policies should clearly outline the allowed uses of the initial fund and how financial accountability will be maintained.

CLBG License Not Needing Renewal Every Year

While it's true that CLBGs, unlike some business licenses, don't have a specific annual renewal process, there are still important requirements and deadlines to be aware of:

Annual Reporting:

  • CLBGs must submit an annual return to the Companies Commission of Malaysia (SSM) within 30 days of their annual general meeting (AGM). This return includes financial statements and other information about the organization's activities.

  • This annual reporting is mandatory and failing to comply can result in penalties.

Compliance with CA 2016 and GCLBG:

  • CLBGs must continuously operate within the regulations outlined in the Companies Act 2016 (CA 2016) and the Guidelines on Company Limited by Guarantee (GCLBG). This includes adhering to their stated objects, maintaining proper financial records, and conducting activities in a transparent and responsible manner.

  • Failing to comply with these regulations can have serious consequences, including fines, deregistration, and personal liability for directors.

Other Considerations:

  • Depending on the nature of the CLBG's activities, additional licenses or permits may be required from specific regulatory bodies. These licenses might have renewal requirements that apply.

  • Staying updated on any changes to relevant legislation and regulations is crucial for CLBGs to ensure ongoing compliance.

In summary, while a CLBG license in itself doesn't require annual renewal, fulfilling annual reporting obligations and abiding by ongoing compliance requirements are essential for the organization to maintain its legal status and operate effectively.

No Restriction on the Type of Contributor to the RM1 Million Fund

Here's a breakdown of the initial fund contributions for a CLBG in Malaysia:

Eligibility of Contributors:

  • Initial fund contributions for a CLBG can come from individuals or companies. There's no restriction on the type of contributor as long as the funds are legitimate and legal.

  • However, it's important to ensure transparency and ethical sourcing of the funds. Avoid contributions from sources with questionable backgrounds or intentions that could damage the CLBG's reputation.

Documentation Requirements:

  • Several documentation requirements exist for contributions to a CLBG's initial fund.

  • These requirements typically involve:

  • Contributor information: Name, address, contact details, and any relevant identification documents.

  • Contribution details: Amount contributed, date of contribution, and clear evidence of payment.

  • Written pledges: Contributors should pledge their promised contributions in writing.

  • Compliance declarations: Confirming the legality and legitimacy of the funds.

  • Additional documents: Depending on the contributor type or circumstances, further documentation might be required.

Compliance and Verification:

  • The CLBG has a responsibility to ensure proper documentation and verification of all contributions. This helps maintain transparency and avoid potential issues in the future.

Additional Notes:

  • The initial fund must be in cash at the time of application. Contributions in other forms might require specific approvals or procedures.

  • While there's no restriction on contributor type, it's recommended to carefully consider compatibility with the CLBG's mission and values when accepting contributions.


Additional Resources:

Consulting with legal professionals can help ensure compliance and avoid potential issues.

  • It's advisable to consult with legal or financial professionals to ensure compliance with all necessary documentation requirements and relevant regulations.


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