SPH to hive off media business: What is a 'company limited by guarantee'?

SPH chief executive officer Ng Yat Chung (left) and chairman Lee Boon Yang at a press conference, on May 6, 2021. ST PHOTO: GAVIN FOO

SINGAPORE - Singapore Press Holdings (SPH), which publishes The Straits Times and Lianhe Zaobao, said on Thursday (May 6) it intends to transfer its media business to a not-for-profit company as part of a strategic review of its various businesses.

The restructuring entails transferring all the media-related businesses, including relevant subsidiaries, employees, News Centre and Print Centre along with their respective leaseholds, and all related intellectual property and information technology assets, to a newly incorporated wholly-owned subsidiary, SPH Media Holdings Pte Ltd (SPH Media).

Under the restructuring proposal, SPH Media will eventually be transferred to a not-for-profit entity for a nominal sum. This will be a newly formed public company limited by guarantee, or CLG.

Here's a look at what a CLG is, and some examples of such companies:

A CLG is usually formed to carry out non-profit-making activities that have some public or national interest, such as arts promotion.

It has members instead of shareholders who agree to pay a fixed sum in case the company is wound up, according to the Accounting and Corporate Regulatory Authority (Acra). In comparison, a company limited by shares has shareholders and may raise capital by offering shares or debentures to the public.

That said, CLGs have a corporate status and have to be registered with Acra like other business entities and be governed by the Companies Act. CLGs are liable to pay corporate tax and may qualify for tax deductions or exemptions.

A number of news organisations globally operate on such a model through media trusts and foundations. They include The Guardian in Britain, which has been controlled by the Scott Trust since 1936.

Germany's largest media conglomerate Bertelsmann is owned by a foundation, while the Philadelphia Inquirer in the United States is owned by the Lenfest Institute.

CLGs are prohibited from paying dividends and profits to its members, according to SingaporeLegalAdvice.com. It means any profits will be ploughed back into the company. The structure is thus unsuitable for for-profit organisations where members usually seek returns on investments via payouts like dividends.

Upon incorporation, the CLG is considered to have a separate legal entity and is distinct from its members, added the legal portal. This means the company may sue or be sued in its own name, and its members will be protected from any liabilities it incurs.

Some CLGs may obtain charity status, which would exempt them from tax. But CLGs are not the same as charitable trusts, which are not separate legal entities, and members will thus be held fully liable.

Some notable CLGs here are the National University of Singapore, Temasek Foundation and The Esplanade Co - a CLG with charity and Institution of a Public Character status.

Join ST's WhatsApp Channel and get the latest news and must-reads.