A not-for-profit organisation is a legal entity organised and operated for social benefit. Their primary goal is to serve the public good or support a particular cause, such as education, healthcare, social justice, or environmental conservation. These organisations can be registered in different forms. This article explores the difference between registering a not-for-profit organisation as a public benefit organisation (PBO), versus a Company Limited by Guarantee (CLG).  

Public Benefit Organisation (PBO) 

A PBO is defined as a group of individuals or organizations, that is autonomous, non-partisan, non-profit-making and is engaged in public benefit activities. A Public Benefit Activity is an activity that supports or promotes public benefit by enhancing or promoting the economic, environmental, social or cultural development or protecting the environment or advocating on issues of general public interest or the interest or well-being of the general public.  

Prior to May 2024, Non-Governmental Organisations were registered as NGO’s under the NGO coordination Act. In May 2024, the PBO Act repealed the NGO Coordination Act. This means that every NGO that had been registered under the repealed law shall now need to register as a PBO under the PBO Act. All NGO’s are required to register as PBOs within a year from the commencement date, being May 2025.  

Company Limited by Guarantee (CLG) 

A company limited by guarantee is a legal entity that does not have any shareholding and is owned by Guarantor’s. As this type of company does not have shareholders or share capital, it is typically established by individuals who act as guarantors, committing to contribute a nominal amount in the event that the company is wound up. Examples of organizations that would register as a CLG include leisure/sports clubs, a charity and community projects.  

Differences between PBO’s and CLG’s  

PBO 

Registration of PBO’s is governed by the Public Benefit Organizations Act, 2013 (PBO Act), replacing the NGO Coordination Act, 1990, as of May 2024. The registration requires a constitution, details of founders, and objectives of the public benefit activities. International PBO’s need an authorized agent and must ensure a third of directors are Kenyan citizens and residents. Although the PBO Act has commenced, implementing regulations are pending, therefore PBOs are temporarily registered through the NGO Board. 

CLG 

A CLG is registered under the Companies Act, 2015. This registration process involves submitting proposed company names, articles of association, and directors’ details. Additionally, the National Intelligence Service (NIS) vets all applications, which can extend registration up to 12 months. Unlike PBO’s, CLG’s do not have a direct public benefit requirement, but they must operate on a not-for-profit basis. 

PBO 

PBO’s are regulated by the PBO Authority (or NGO Board until regulations are fully implemented). The PBO Authority can investigate compliance with public benefit requirements and intervene in cases of misconduct. PBOs must file annual reports on their activities, finances, and governance structure to maintain transparency. 

CLG  

A CLG is regulated by the Registrar of Companies and must comply with corporate governance requirements under the Companies Act, 2015. They are also required to file annual returns and financial statements.  

PBO 

PBO’s registered under the PBO Act may qualify for tax exemptions, especially if they are engaged in charitable activities. They may also be exempt from import duties for equipment or goods needed for their activities. These benefits are conditional on receiving certification from the Kenya Revenue Authority (KRA). 

CLG 

While CLG’s are not automatically tax-exempt, they may apply for tax exemption with the KRA if they meet criteria for charitable status under the Income Tax Act. However, the exemption process for CLG’s is often more rigorous and less assured than for PBO’s. 

PBO 

PBO’s are required to have a board with a minimum of one-third Kenyan residents. The board oversees all activities, ensuring adherence to the organization's mission of public benefit. Board members are also expected to meet governance standards as prescribed by the PBO Act, with regular audits and compliance checks. 

CLG 

CLG’s must have a minimum of one director; however, the governance structure depends on the Company and is less rigidly regulated compared to PBO’s. CLG’s have flexibility in appointing board members but are expected to follow corporate governance principles, ensuring the company’s objectives align with their founding guarantee commitments. 

PBO 

A PBO’s purpose is explicitly to operate for the public benefit, which restricts the types of activities it can engage in. It must focus on social or charitable work that aligns with approved public benefit categories (e.g., environmental conservation, education). 

CLG 

While CLG’s also operate on a not-for-profit basis, they have flexibility in setting objectives, provided these do not generate profits for members. CLG’s can engage in a broader scope of activities, making them suitable for social clubs and community projects.  

PBO 

Upon dissolution, any remaining assets of a PBO must be transferred to another PBO with similar objectives, ensuring continued public benefit. The PBO Act mandates that assets cannot be distributed to founders or members. 

CLG 

In a CLG, the winding-up process is governed by the Insolvency Act, which provides for voluntary wind up or through a high court order.   

PBO 

PBO’s are often eligible for grants and donations from international and local donors, provided they meet donor requirements for public benefit and transparency. Many donors specifically prefer PBOs due to stricter compliance and the public benefit mandate. 

CLG 

CLG’s can also receive funding, but certain grants and charitable funds may be restricted to organizations with clear public benefit objectives, which could limit CLGs' access to some funding. 

PBO 

PBO’s must submit annual reports on activities, finances, and periodic audits.  

CLG 

Registering as a CLG requires vetting by the National Intelligence Service (NIS). Additionally, CLG’s are required to submit annual returns. CLG’s must also adhere to follow corporate governance principles including audits and record-keeping requirements. 

PBO 

The Act provides government incentives as one of the advantages PBO’s obtain upon registration. PBO’s may have access to special grants, subsidies, or benefits for social impact initiatives.  

CLG 

While CLG’s also qualify as not-for-profit organizations, there is no provision for access to government incentives available to PBOs. This however does not hinder these organisations from applying for government incentives.  

Conclusion 

Choosing between a PBO and a CLG depends on your organization’s specific goals, funding needs, and operational focus. PBO’s are ideal for organizations with a clear public benefit mission, benefiting from tax exemptions, regulatory support, and eligibility for funding and grants. CLG’s offer flexibility in objectives and governance, which can be beneficial for community groups or organizations that require more freedom in setting their goals, though they may face a more rigorous tax exemption process and fewer government incentives. 

At CM SME Club, we can support you in selecting the appropriate legal structure for your non-profit and support your journey towards compliance. Contact us at law@cmsmeclub.com to learn more. 

By: Rosario Kamuti