Converting an Incorporated Association into a Company Limited by Guarantee

16 September 2013 | Written by Gavin Hanrahan | Business, Commercial Litigation

In New South Wales many not-for-profit organisations have traditionally operated using an incorporated association as the preferred business structure.

However, incorporated associations are generally constituted for the purpose of engaging in small-scale non-commercial activities. Consequently, as the commercial operations of an incorporated association grows into medium and large scale operations, so generally does its interest in converting to a company limited by guarantee.

The process of converting from an incorporated association into a company limited by guarantee is not as daunting as one might think, but does require a degree of planning and compliance with the relevant corporate laws.

Typically the process would involve the following three general steps:

Step 1

The management committee of the incorporated Association resolves to convert to a company limited by guarantee, subject to member approval by way of special resolution.

Step 2

The members pass a special resolution to effect the conversion to a public company limited by guarantee, and if a new Constitution is required, to adopt the new Constitution and any change in name of the Association.

Step 3

Approval was obtained from the state and federal bodies, namely the Department of Fair Trading and ASIC.

Below we’ve set out a comparison of some of the key features of an incorporated association and a company limited by guarantee.

Incorporated Association	Company Limited by Guarantee
Is a body corporate incorporated under the NSW Associations Incorporation legislation.	Is a public company incorporated under the Commonwealth’s Corporations legislation.
Name
It’s name must include at its end either the word Incorporated or the abbreviation Inc.	Its name must include at its end either the word Limited or the abbreviation Ltd. That is unless ASIC recognises the company as being a special purpose company. A not-for-profit company set up for charitable purposes only, and with a constitution which provides that the company: will apply its income in promoting a charitable purpose is prohibited from making distributions to its members and paying fees to its directors; and requires its directors to approve all other payments the company makes to them, should be recognised by ASIC as a special purpose company.
Area of Operation
Can only operate (whatever that means) in NSW.	Can operate and carry out its activities anywhere in Australia.
Establishment Costs & Constitution
Establishing an incorporated association can cost as little as a few hundred dollars, if the Association chooses to adopt the Model Constitution. In addition there may be financial auditing and associated fees. The Association may adopt the Model Constitution a copy of which can be found here or draft their own constitution that complies with the Associations Incorporation Legislation.	A company limited by guarantee is likely to cost more to set up and to meet ongoing compliance with the Corporations Legislation. The Company is not required to have a constitution and in lieu may rely on the replaceable rules in the Corporations Legislation, or a combination of both.
Legal Identity
An incorporated association has its own legal identity, separate from its members, and: has all the powers of a body corporate; is capable of suing and being sued in its own name; and has power to acquire and dispose of property, including land.	A company limited by has its own legal identity, separate from its members, and: has all the powers of a body corporate; is capable of suing and being sued in its own name; and has power to acquire and dispose of property, including land.
Members & Offices
An incorporated association requires at least five members, who must satisfy any criteria for membership set of the Association’s constitution. At least three members are required to establish a Committee, who are at least 18 years and ordinarily resident in Australia. The Committee must appoint a public officer who does have to be a member.	A company limited by guarantee must have at least one member, who must satisfy any criteria for membership set of the Company’s constitution. The Company must have at least three directors. The directors do not need to be members but must be at least 18 years, and at least two directors must be ordinarily resident in Australia. The Company must have at least one secretary who is ordinarily resident in Australia. A company secretary must be at least 18 years.
AGMs
The AGM is to be held within six months of the end of the Association’s financial year.	The AGM is to be held with five months of the end of the Company’s financial year.