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A Labuan company may be set up as a company limited by guarantee under the Labuan Companies Act 1990 (“LCA”). Based on definition in the LCA, “company limited by guarantee” means a company formed on the principle of having the liability of its members limited by its memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of it being wound up.
The LCA requires the engagement of services of a Labuan IBFC registered trust company to act as its incorporation agent. For your information, Kensington Trust Labuan Limited (“KTLL”) is a licensed trust company in Labuan.
Companies limited by guarantee are typically used for trade associations, charitable bodies, professional and learned societies, community projects, religious bodies, incorporated clubs and other non-profit groups that require corporate status. Most guarantee companies are set up for non-profit making purposes. It may be used for commercial undertakings or trading but of very rare occurrence. It is common practice for guarantee companies to retain their profits within the company in order to reinvest in its operations or use them for some other purpose rather than distribute the profits to their members.
- Separate Legal Entity
It is a legal entity separate from the members. As a legal entity, the company has rights and obligations like a natural person. A company may sue and be sued in its own name, enter into contracts in its own right and own property in its own name.
- No share capital
A CLBG cannot have shares or share capital. A member of a CLBG is not required to pay any capital while the company is a going concern. Members of the guarantee company control it, in the same way as shareholders control a company limited by shares, but they do not have any shares or other security in the company which they can sell or transfer.
- Limited liability
A CLBG is formed on the principle of having the liability of its members limited by the Memorandum of Association to the amount that the members undertake to contribute to the assets of the company in the event of its winding up. Therefore, upon liquidation of a CLBG, a member’s maximum liability to creditors of the CLBG is that amount which it has agreed to guarantee.
- Memorandum & Articles (M&A)
The M&A constitutes a contract between the company and each member and between the members themselves as well. The objects of a CLBG will be set out in the Memorandum of Association. Name of members and their guaranteed amount will be stated in the CLBG’s Memorandum of Association. The guaranteed amount can be in any foreign currencies except Malaysian Ringgit.
In a CLBG, there are no shareholders, but the company must have minimum one (1) member, either corporate or individual.
Just as in a company limited by shares, it is possible to have different classes of members in a guarantee company. For example, there may be voting members, non-voting members or members who have restricted rights in some other way.
A CLBG must have at least one (1) director. The director may hold executive position and given powers of management in accordance with the Articles of Association of the company. The Board may, if deem necessary, sets up sub-committees and delegate powers to them.
- Company Secretary and Registered Office
It is mandatory for a CLBG to appoint a resident secretary who must be a Trust Officer of a trust company OR a Labuan / Malaysian domestic company wholly-owned by the Labuan trust company. The company must have a registered office in Labuan and it is the principal office of a trust company in Labuan.
- No participation in profits
If it is a non-profit company, the M&A would usually provide that all the income of the CLBG shall be applied solely towards the promotion of the objects of the CLBG, and that no portion shall be paid or transferred directly or indirectly by way of dividends or bonus or by way of profit to its members. In addition, the M&A may also provide that on the winding up or dissolution of the CLBG, any property left after satisfaction of all debts will not be distributed to the members of the CLBG, but to some institutions having similar objects as the CLBG or to a registered charity.
- Other statutory requirements
- Annual General Meeting.
- Maintain proper accounting records and mandatory to prepare accounts of the Company.
- Audit is optional. However, you may wish to consider audit for transparency reason especially for non-profit organisation.
- Annual tax return needs to be filed with the Malaysian Director General of Inland Revenue by 31 March of that year of assessment. Normally, an extension of time for filing is allowed by the Inland Revenue.
- Reservation of company’s name
Name search will be conducted for the Labuan CLBG with the Labuan Financial Services Authority (“Labuan FSA”) and result will be available within 24 hours from application time. If approved, the name shall be reserved for a period of three (3) months from approval.
If the proposed name is similar to that of a related or associated corporation, a written consent letter has to be obtained from the said corporation. A sample of such consent letter will be provided upon request.
Once a name is reserved, KTLL will prepare the incorporation documents which comprise of the Memorandum and Articles of Association of the proposed company and consent in writing to be appointed as director(s) of the company (“Incorporation Documents”). The M&A would require customisation to meet the intended purpose and objects of the CLBG.
KTLL is obligatory to take reasonable steps and conduct customer due diligence when establishing business relationship with any customer. Upon satisfaction of our customer due diligence exercise and receipt of our Application Form, due diligence supporting documents, duly signed Incorporation Documents and payment of our invoice, KTLL will submit the documents to the Registrar together with payment of the relevant registration fee.
Upon lodgement of complete documentation and payment of fees as well as clearance from the due-diligence process conducted by the Labuan FSA, a Labuan company can be approved for incorporation or registration within 24 hours from lodgement. A certificate of incorporation of a company will be issued by the Authority in due course.
Labuan Business Activity Tax Act 1990 (“LBATA”) governs the imposition, assessment and collection of tax on a Labuan business activity carried on by a Labuan entity in, from or through Labuan. Only Labuan entities carrying on a Labuan business activity are chargeable to tax under the LBATA. Labuan entities that carry on a non-Labuan business activity are subject to the provisions of the Malaysian Income Tax Act, 1967 (ITA).
“Labuan business activity” means:
- a Labuan trading or a Labuan non-trading activity carried out by a Labuan entity;
- activities carried on in, from or through Labuan;
- business currency other than Malaysian currency;
- activities carried out with non-resident or with another Labuan entity
“Labuan non-trading activity” means an activity relating to the holding of investments in securities, stock, shares, loans, deposits or any other properties by a Labuan entity on its own behalf. Such activity is not subject to tax under LBATA.
“Labuan trading activity” includes banking, insurance, trading, management, licensing, shipping operations or any other activity which is not a Labuan non-trading activity. The Labuan entity shall pay either 3% of net profits as per audited accounts OR RM20,000/- upon election annually.
Labuan entity carrying on both Labuan trading and non-trading activities will be deemed to be carrying on Labuan trading activities. Hence, it will have the same tax treatment as those undertaking Labuan trading activity mentioned above.
The information in this document is not advice of any kind but general information only and should not be relied on as legal advice. Kensington Trust Group recommends seeking professional advice on legal or tax issues affecting you before relying on it. While Kensington Trust Group tries to ensure that the content of this document is accurate, adequate or complete, it does not represent or warrant, express or implied, its accuracy, correctness, completeness or use of any of the information. Kensington Trust Group does not assume legal liability for any loss suffered as a result of or in relation to the use of this document. To the extent permitted by law, Kensington Trust Group excludes any liability for negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this document.