Company vs Incorporated Association

  • Company vs Incorporated Association Square

Company vs Incorporated Association

Article by Geoff Wohlsen, one of our trainers in the Club Governance eLearning Program

Not-for-profits all over Qld and indeed Australia are often faced with the question as to whether the entity should be a company limited by guarantee or an incorporated association. The best entity for your organisation can’t be answered with any degree of certainty.

The definitions that I use in this article are:

  • CLG: Company Limited by Guarantee
  • IA: Incorporated Association
  • AGM: Annual General Meeting

The cookie cutter approach doesn’t work here. Consider the major differences and then make the decision as to what suits your organisation best.

Here are some guideposts;

  1. Directors elected by members: Under IA, committee members must be elected by members whereas under CLG, directors can be appointed but must be “confirmed” at the next AGM by members,
  2. Stand-in directors: There are no provisions for stand-in directors for IAs, but you could use the casual vacancy provisions to fill a vacancy. Under CLG, a director may appoint an alternate/stand-in to exercise some or all the director’s powers for a specified period – with the other directors’ approval (not clear if majority or unanimous),
  3. Dismissal / removal of directors: An IA may dismiss or remove a committee member privately in the board room without member approval if the Constitution allows for it and natural justice is afforded. But under CLG, s.203D – removal of director must go to members and there is a very detailed process for this,
  4. Payment of directors: This is allowed and is going to be a requirement to fully disclose to AGM and Annual Report (plus management). Under CLG, can pay directors and travel costs etc BUT must disclose payments to each director if requested by 5% of member or 100,
  5. Proxy voting: IAs aren’t required to have this but may offer it and outline the process in the Constitution. Constitution can exclude proxies and appointment of attorney. CLGs must provide for proxy voting but can control or limit the process through the Constitution,
  6. Appointment of attorneys: IAs aren’t required to have this but may offer it and outline the process in the Constitution. CLGs must provide for member to be able to appoint an attorney to act on behalf of member but can control or limit the process through the Constitution,
  7. Insolvency: For IAs, members (and committee) are not personally liable for the debts or liabilities of the club / association. From June 2021, committee members are guilt of an offence if they incur debt while insolvent or if they incur debts which result in insolvency. For CLGs, directors may be personally liable if they allow trading while insolvent and there are strict insolvency provisions,
  8. Appointment of Secretary: An IA must have a Secretary that is either elected (if a member) or appointed by the Committee. A CLG must also have a Company Secretary but the position must be an appointment of the Board,
  9. Voluntary Administration: From June 2020, IAs can now appoint a voluntary administrator. Prior to this it was generally felt that IAs could only be subjected to Liquidation,
  10. Reporting: The AI Act has recently been amended to include some very heavy reporting. From June 2021, the Annual Report and the AGM must report on individual remuneration and benefits given to each member of the management committee of the association, each senior staff member of the association, each relative of a those mentioned. This appears to be more onerous than for CLG,
  11. Material Personal Interest: The new amendments to the IA Act are quite onerous on any actual and perceived material personal interest, in terms of reporting to members at general meetings,
  12. Remuneration reporting: The new amendments to the IA Act appear to be quite onerous on reporting of remuneration and benefits,
  13. Compliance costs and special purpose reporting: For IAs the compliance is relatively low now but getting more onerous. If a CLG, you may be deemed a special purpose entity and can report on a lower level or more summarised level,
  14. Professionalism: IAs may be viewed in the commercial and banking sector as showing a low level of regulation and higher risk. CLGs are generally more highly regarded,

Specific Duties for Directors:

Now, the Associations Incorporation Act 1981 (Qld) has almost no explicit duties for committee members (eg to act with due care and diligence). From 30 June 2021, the AI Act incorporates similar sections that are in the Corps Law.

The new provisions in the AI Act do the following:

  1. While the duty most likely already existed, officers now must actively avoid situations where they have a material personal interest in matter related to the association and being considered by the management committee. They have strict duties to disclose and not to participate in voting or considerations in relation to that matter,
  2. Officers are explicitly required now to exercise care and diligence in exercising their powers and carrying out their duties,
  3. But Officers can rely on reasonable advice provided they diligently sort to understand and independently assess the information, and relied on the information in good faith,
  4. Officers are now explicitly expected and required to exercise powers and discharge duties in good faith, for a proper purpose and in the best interests of the association,
  5. Officers now are explicitly prevented from using their positions or information gained to benefit themselves, someone else or to cause detriment to the association.
  6. Grievance process: from June 2022, will need to have a grievance process spelt out in the Constitution. If not, the Model Rules process will apply. There is no such requirement in the Corps Law, but it should be developed as a matter of good policy.

There is training on risk management in our online learning platform at https://clubgovernance.com.au/elearning-platform to assist you and your Board.

Who Needs Club Governance Training?

In our opinion every club and Association across Australia need Club Governance Training.

Governing a Club, Charity or any Not-for-profit is a big responsibility, and it cannot be done by well-meaning volunteers who do not understand their role.

Club Governance Training will;

  1. Board Members will know their responsibilities.
  2. You’ll have more productive Board Meetings.
  3. Help improve your Club’s growth and sustainability.
  4. Your Club will be more legally compliant.

Club Governance has developed an online training program for all Board and Committee members to ensure they know how to do their job.

It is available in 15 modules of about 15 minutes each and covers all the necessary knowledge they must have, based on our 30+ years of assisting organisations like yours around Australia.