Incorporated Association or Company Limited by Guarantee 9 July 2013

Feature

Incorporated Association

The Law

The law relating to incorporated associations is state based and each State and Territory has its own legislation. In South Australia, the law is the Associations Incorporations Act 1985 (SA). There are almost equivalent laws in other States and Territories.

The law relating to company(s) limited by guarantee is a federal Act known as the Corporations Act 2001 (Cth). So regardless of which state you are in, the law is the same.

What is it?

In South Australia an incorporated association is an association that has been incorporated under the Associations Incorporations Act 1985 (SA). For associations that operate outside of South Australia, there is corresponding associations’ incorporations legislation in the state or territory in which it operates for incorporation purposes. An incorporated association comprises a group of persons who have agreed to join together in the pursuit of one or more common objects or purposes such as social, religious, educational, charitable, artistic or scientific.

A company limited by guarantee is a type of public company that is established under the Corporations Act 2001 (Cth). It does not have shares.

If an association has been incorporated in South Australia it can operate freely in South Australia. If an association has been incorporated in South Australia and it wishes to operate or carry out its activities outside of South

A company limited by guarantee can trade

Where can the Organisation operate or carry out its activities?

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Company Limited by Guarantee

A company limited by guarantee is a structure that is commonly used to establish a not for profit organisation.

nationally.

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Australia, it has 2 options: 1. apply for an Australian Registered Body Number (ARBN) through the Australian Securities & Investment Commission (ASIC); or 2. set up a separate incorporated associations in each State or Territory that it wishes to operate. Minimum requirements for Officeholders and Members

Members: 3 to 5 members is an ideal starting point.

Members: 1 member

Office Holders: Director: Not applicable Secretary: Not applicable Committee Member(s): Yes Public Officer: Yes

Office Holders: Director: 3 Directors (2 resident in Australia) Secretary: 1 Secretary (resident in Australia) Public Officer: Yes

Liability of Members

An incorporated association is a legal entity, separate from its members. The liability of the members of an incorporated association is limited to the amount of any ‘unpaid’ subscription fee (i.e. membership fee).

The liability of any member is limited to the amount equal to the ‘guarantee amount’, which is normally a nominal amount. On the winding up of a company limited by guarantee, if there are inadequate funds to discharge the company’s liabilities, the members are liable to pay the ‘guarantee amount’.

Directors Duties (Officers Duties)

Duties of officeholders are set out in the Associations Incorporations Act 1985 (SA) and the constitution/governing rules of the incorporated association. If the incorporated association is registered as a charity with the ACNC the duties of officeholders are set out in the governance standards set out in the Australian Charities and Not-for-profits Commission Amendment Regulation 2013 (No. 1).

Unless the company limited by guarantee is registered as a charity with the ACNC, duties of directors are set out in the Corporations Act 2001. If the company is a charity registered with the ACNC the duties of directors under the Corporations Act 2001 do not apply but rather the duties are set out in the governance standards in the Australian Charities and Not-for-profits Commission Amendment Regulation 2013 (No. 1).

Control

An incorporated association should have at least 3 to 5 members who elect the committee of management and democratically control the incorporated association. In general, members of an incorporated association will have voting rights and be able to call meetings and exercise some basic

With a public company limited by guarantee greater control is possible through limiting the membership to the 1 member.

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control (for example to remove persons on the committee of management). If a higher degree of control is important then a company structure would provide you with more control. Financial Reporting Obligations

An incorporated association is only required to lodge a periodic return at Consumer and Business Services if its gross annual receipts amount to more than $500,000.

Companies limited by guarantee that are not registered as a charity with the ACNC have a 3 tier financial reporting framework: 1. Small company limited by guarantee (annual revenue less than $250,000 with no DGR status): Unless directed by ASIC, does not have to prepare financial reports or have it audited, prepare a director’s report or notify members of annual reports.

If the incorporated association is registered as a charity with the ACNC, it will have the following financial reporting obligations, depending on whether the incorporated association is a small, medium or large charity. The size of the charity is defined by gross annual revenue: 2. 1. Small charity (annual revenue is less than $250,000): is only required to submit an annual information statement but is not required to submit an annual financial report unless it chooses to. 2.

3.

Medium charity (annual revenue is $250,000 or more but less than $1 million): is required to submit an annual information statement and an annual financial report that has been reviewed or audited. Large charity (annual revenue of $1 million or more): is required to submit an annual information statement and an annual financial report that has been audited.

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3.

Medium company limited by guarantee (annual revenue between $250,000 and $1 million and no DGR status or annual revenue less than $1 million with DGR status): must prepare a financial report, can elect to have its financial report reviewed rather than audited, must prepare a directors report and must give annual reports to any member who elects to receive them. Large company limited by guarantee (annual revenue of $1 million or more with or without DGR status): must prepare a financial report and have it audited, must prepare a director’s report and must give annual reports to any member who elects to receive them.

If the company limited by guarantee is registered as a charity with the ACNC, it will have the following financial reporting obligations, depending on whether the company is a small, medium or large charity. The size of the charity is defined by gross annual revenue: 1. Small charity (annual revenue is less than $250,000): is only required to submit an annual information statement but are not

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required to submit an annual financial report unless it chooses to.

Obligation to report changes to Organisation

You must inform Consumer and Business Services of any alterations to the Constitution and changes to the personal details of your Public Officer. If the incorporated association is registered as a charity with the ACNC, any changes to your charity need to be notified to the ACNC. These changes include the legal name, the address for service, the governing rules and the details of responsible persons.

2.

Medium charity (annual revenue is $250,000 or more but less than $1 million): is required to submit an annual information statement and an annual financial report that has been reviewed or audited.

3.

Large charity (annual revenue of $1 million or more): is required to submit an annual information statement and an annual financial report that has been audited.

The company limited by guarantee needs to notify the Australian Taxation Office of the appointment of the Public Officer. ASIC must be notified of the following changes: 1. removal and appointment of officeholders; 2. address details of the company and its officeholders; 3. company name; and 4. alterations to the Constitution. If the company limited by guarantee is registered as a charity with the ACNC then you must notify the above changes to the ACNC rather than ASIC.

Incorporation Fees Incorporation is done through Consumer and and Ongoing Fees Business Services. Initial Incorporation Fee: $176 (payable to Consumer and Business Services) Annual Review Fee: Nil Periodic Return Lodgment Fee: $83.50 (payable to Consumer and Business Services) If your Organisation is a charity and wishes to register with the ACNC, there is no application fee to register.

Incorporation is done through ASIC. Initial Incorporation Fee: $366 (payable to ASIC) Annual Review Fee: $1113* (payable to ASIC) *This can be reduced to $44 if your Organisation is a ‘Special Purpose Company’. A Special Purpose Company is a company which is not-for-profit and has charitable purposes. Since the introduction of the ACNC on 3 December 2012, all companies limited by guarantee that are registered as a charity with the ACNC are not required to pay the ASIC annual review fee. If the company is not registered with the ACNC, but is a Special Purpose Company, then it continues to pay the reduced ASIC annual review fee of $44.00.

If the Company wishes to register as a charity with the ACNC there is no application fee. © Tri-meridian Corporate & Commercial Law

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Where can I go to find more information? More information can be found at the following web sites www.asic.gov.au and www.acnc.gov.au If you have a query in relation to your particular circumstances, please do not hesitate to call us on Ph. (08) 7120 9000

Disclaimer: This article is intended to be used as a guide only. It is not, and is not intended to be, advice on any specific matter. We do not accept responsibility for any acts or omissions resulting from reliance upon the content of this article. Before acting on the basis of any material in this article, we recommend that you consult your professional adviser. Liability limited by a scheme approved under the Professional Standards Legislation Tri-meridian Corporate & Commercial Law Level 7, 25 Franklin Street ADELAIDE SA 5000 - Phone: 08 7120 9000

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Fax: 08 7120 9099 - w w w . t ri - m e r i d i a n . c o m

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