Many not-for-profit organisations are registered as an incorporated association. An incorporated association is governed by the legislation of the State or Territory in which they are registered. However, the other most common structure for a not-for-profit entity is a public company limited by guarantee. Every organisation operates differently and should consider the most appropriate structure for its stakeholders and members.
We regularly consult with our not-for-profit clients on whether they should remain an incorporated association or transition to a public company limited by guarantee.
One of the most common reasons for transitioning from an incorporated association to a public company limited by guarantee is in the event that the organisation is operating interstate – or outside the jurisdiction in which they are registered. In some situations, incorporated associations may elect to become a Registered Australian Body, instead of changing their structure.
Some of the advantages of a company limited by guarantee include:
Members and stakeholders have confidence that a company structure provides strict, clear and transparent accountability mechanisms with respect to governance and accounting practices. The board and executive management of a company have strict statutory and fiduciary duties in relation to the management of the company’s affairs.
Indemnity for officers and auditors
The Corporations Act 2001 (Cth) allows companies to indemnify their officers and auditors in certain circumstances.
Stakeholders tend to view a company as having more robust financial and governance arrangements than an incorporated association, which goes directly to the reputation of the entity.
A company limited by guarantee is given more flexibility in the structure and composition of its membership and management, as well as in the language and content of its constitution when compared with what is allowed for an incorporated association.
Some of the disadvantages of transitioning to a public company limited by guarantee include:
Higher compliance costs
The regulatory costs for a company are higher when compared with an incorporated association.
Company officers may notice increased time, cost and effort in ensuring compliance with the obligations under a company structure. Failure to comply with these duties may have serious consequences, including the possibility of civil or criminal prosecution.
Requirements of the Constitution
The requirements in the Constitution of an incorporated association may make it difficult to work through the process of transitioning to a public company limited by guarantee.
Every incorporated association should consider their individual circumstances and whether the association structure still suits them.
For more information or assistance in this process, please contact our office.