Do you run an incorporated association and are looking to restructure into a company structure? Let us explore what you need to consider and do to make that happen.
Restructuring any not-for-profit organisation depends upon the organisation type, whether it is an incorporation and what the motivator is for the restructure. When it comes to transitioning incorporated associations to a company, all states and territories have their own set of processes for this transfer. As associations are regulated by states and territories and companies are regulated under the federal Corporations Act 2001 there are a few hoops to jump through to make this happen.
When we speak about changing to a company, we are referring to the change to a company limited by guarantee. Unlike private share-based companies, companies limited by guarantee have no mechanism for buying out members and few constitutions actually allow transfer of membership.
There are a couple of factors worth considering when deciding to change to a company, such as the associations obligations when it comes to:
- capital gains tax, transfer or stamp duty and other tax implications on the restructure
- current debts or liabilities
- current obligation to any employees or contractors, and
- positioning the overall organisation so it is ready for the restructure and change.
As a rule of thumb, most contracts or agreements the association entered into before the change of structure will continue to have effect.
The restructure is a multifaceted project and the team at Bolter highly recommends that associations obtain specialised legal and taxation advice to help, guide and advise on the process to follow a restructure into a company.
The process
In all states and territories in Australia, except South Australia, the process of changing to a company limited by guarantee requires a special resolution of the association which endorses the transfer. There also should be a special resolution covering the name of the company (usually simply replacing “Inc” with “Ltd”). Upon the establishment of the new company, the existing set of rules or constitution needs to be withdrawn and a new constitution needs to be adopted. Registering would be required with the relevant state or territory regulator. Once the clearance has been obtained, the registration may be transferred to ASIC using the appropriate form.
We have broken this process down a little further for you.
- Obtain legal and accounting advice
Don’t get too far down the track and hit a hurdle or get a nasty tax bill. Consult with your professional advisors on how a restructure will affect your organisation and the implications from a tax and regulatory perspective. This may save you time and money in the long run. - Call a general meeting and gain member approval of the restructure:
The management committee of an incorporated association must call a general meeting of its members, propose and pass a special resolution which resolves:- the conversion and transfer over to a company limited by guarantee
- adopt any new constitution, and
- approve any change to the associations name.
Typically a special resolution is passed by at least 75% of the organisation’s members present and entitled to vote.
- Apply for the transfer:
The next step is to apply for the association to be transferred. This involves your state or territory regulator (usually the Office of Fair Trading) and ASIC. - Approval and registration with ASIC
Once the clearance has been obtained, the registration may be transferred to ASIC using and lodging the appropriate form with ASIC.
The management committee must understand that any member that becomes a director of the company limited by guarantee will be required to comply with the Directors’ Duties imposed under the Corporations Act 2001. These duties are fundamental to a director’s tenure on a board of a company. If these duties are breached, then the director may be prosecuted by ASIC.
It is also important to note that there are still reporting and regulation requirements to be met. The management committee should look to familiarise themselves with these when considering the restructure. The process of transfer does look relatively straightforward, but it can present some struggles for an association along the way. It’s important to get the right advisors to help guide your through the process, and also advise you on any implications that might cost the association a mint to deal with. The team at Bolter can assist not-for-profits and are happy to guide your association through the process to becoming a company limited by guarantee.