Migration of an Incorporated Association to a Company Limited by Guarantee

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Changes to the Associations Incorporation Act 1981 (Qld)

Incorporated Associations

Incorporated associations in Queensland are incorporated under the Associations Incorporation Act 1981 (Qld) (“AI Act”).  While incorporation under the AI Act provides some limited liability for the members and Committee Members, Committee Members may still be liable for insolvent trading, breaches of fiduciary obligations and operations outside the scope of incorporation.

In our experience incorporation under the AI Act is best suited for sporting clubs and other small associations and not large institutions or entities holding valuable assets.

The ease of incorporating as an incorporated association has resulted in a number of not-for-profit organisations and churches opting for this legal structure, despite the prescriptive operating and constitutional requirements.  However, it is becoming increasingly desirable for these entities to incorporate as companies limited by guarantee.

Companies Limited by Guarantee

Companies are incorporated under the Corporations Act 2001 (Cth) (“Corporations Act”).  The Corporations Act limits the liability of members to a nominal guarantee amount set out in the Constitution.

A company limited by guarantee is the legal structure preferred by the Federal Government for not-for-profit entities.  This structure is also more readily recognised and favoured with respect to entering into contracts, loan arrangements and cross-jurisdictional operations.  It also provides greater flexibility in the formation of group structures.

Migrating from an Incorporated Association to a company limited by guarantee in Queensland

Prior to 6 December 2011, an existing incorporated association seeking to convert to a company limited by guarantee would need to engage in the costly conversion process of:

–          establishing a new company limited by guarantee;

–          creating a Transfer Agreement to then lodge for an assessment of transfer (stamp) duty before transferring members and assets from the association to the company;

–          novating or assigning all material contracts by agreement; and

–          winding up the association under Part 10 of the AI Act.

However, on 29 November 2011, the Queensland Government passed amendments to the AI Act allowing a seamless migration of an incorporated association to a company limited by guarantee. These amendments commenced on 6 December 2011 under the Civil Proceedings Act 2011 No. 45 s 1, pt 32 div 1.

Pursuant to s 601BM(1)(a) of the Corporations Act, the process of migration by an incorporated association to a company limited by guarantee will not create a new legal entity.  If done carefully, this can have significant tax endorsement, material contract, capital gains tax, and transfer duty benefits.

The name of the migrated entity will normally remain the same, except for the addition of “Ltd” at the end.  Companies may apply to have “Ltd” removed, although specific attention will need to be given to some elements of the Constitution in this regard..

Would you like to migrate from an incorporated association to a company limited by guarantee? Contact us

We already have experience in assisting with the process of migration to a company limited by guarantee under equivalent legislation in other states, and are happy to assist incorporated associations in considering and undergoing migration to companies limited by guarantee. Contact our Business Development Officers and make an appointment with one of our Commercial lawyers today.

This article was written by Kathleen Watt & Andrew Lind.