The aim of this fact sheet is to help Queensland nonprofit groups understand if an incorporated association or a company limited by guarantee is likely to be the best incorporated body for them.
These are not the only forms of incorporation available for not-for-profit groups. Please read the related fact sheet: Which incorporated legal structure should we choose? for a summary of legal structure options for not-for-profit groups. However, for many not-for-profit groups the choice is between incorporating as an association or as a company limited by guarantee.
Deciding on the most appropriate legal structure is a very important issue and your group should seek legal advice about its specific circumstances. This fact sheet provides a general overview of the law and will help you understand the issues you may need to discuss with a lawyer or adviser.
An incorporated association is a type of incorporated legal structure made under the Queensland Associations Incorporation Act 1981 (Qld). A company limited by guarantee is another type of incorporated legal structure made under the Commonwealth Corporations Act 2001 (Cth). Both are suitable legal structures for not-for-profit groups.
While there is debate among lawyers about the importance of some of these issues, we think there are three main overall issues to consider when deciding whether an incorporated association or a company limited by guarantee would be the best structure for your not-for-profit organisation:
- Where will the group operate or carry out its objects or activities?
- Does the group have access to expertise for ongoing compliance with relevant laws?
- Will the group have money to pay initial and ongoing fees, plus meet compliance costs?
Each of these factors will be explained in more detail below. There are also a number of other factors and differences between the two structures which, depending on the circumstances of your group or its aims and activities, may be important for your particular group’s decision.
Issue 1: Where will the group ‘operate’ or ‘carry out activities’?
It is important to think about where your group plans to operate, both when it starts and in the future.
Where can a company limited by guarantee operate?
A company limited by guarantee is incorporated under the Commonwealth Corporations Act and can, by registering once, carry out its activities anywhere in Australia.
Where can a Queensland association operate?
The law relating to incorporated associations is State-based law and each State and Territory in Australia has its own laws about the incorporation of associations.
A group incorporated as an association under the Queensland Associations Incorporation Act 1981 can operate anywhere in Queensland.
If a Queensland incorporated association wants to operate outside Queensland, it will need to take certain further steps to ‘register’ for this purpose (that is, in addition to registering under the Queensland Associations Incorporation Act).
The law is not completely clear about what constitutes ‘operating’ in another State. It seems clear that holding one-off or occasional activities in another State (such as holding a conference) would not count as ‘operating’, but carrying on more regular or substantial activities might.
If your group incorporates as an association in Queensland, but wants to operate (undertake more than one-off or occasional activities) outside Queensland, there are three options available to enable it to do so legally. We mention each of them in brief below, but if this is relevant to your organisation you should seek legal advice about which option is most suitable for the group.
Option 1: register the under the Corporations Act
Queensland incorporated associations can register with Australian Securities and Investments Commission (ASIC) as a ‘Registered Australian Body’.
Under this option, your incorporated association is ‘recognised’ by the Commonwealth government and can therefore operate in any State or Territory in Australia.
Once registered in this way you must keep information about office holders and the organisation’s registered office updated with ASIC as well as with the Office of Fair Trading, Queensland. The organisation will be issued with an ARBN (Australian Registered Body Number) which must be displayed after its name and certain other details on all its public documents – eg. Helping People Inc Limited liability (Qld) A1234567A, ARBN 123 456 789. The office holders will also need to understand and comply with the provisions of the Corporations Act in respect of directors’ duties (including the insolvent trading provisions) which impose quite significant penalties for breaches.
Option 2: convert to a company limited by guarantee structure
At any time, your group can ‘convert’ or ‘migrate’ from an incorporated association into a company limited by guarantee.
Although this option is available, it has some legal and administrative requirements and can be costly. Transferring from an incorporated association to a company does not affect the identity of the organisation, and any contracts or agreements that the association had (including employment contracts) will continue to have effect after the transfer. However, the Australian Taxation Office will require the company to re-apply for tax and other concessions it may have received as an incorporated association. If the organisation’s objects and purposes (as stated in the company’s constitution) have not changed from those stated in the association’s rules, this change in legal structure should not, of itself, change the organisation’s eligibility for the concessions.
Option 3: incorporate separately as an association under the equivalent association legislation in each State or Territory in which it operates
Your group can set up separate incorporated associations in each State or Territory it wishes to operate in.
This may be appropriate if there are distinct groups involved in each State and Territory, but for one group this can be very difficult to administer (especially if there are more than two separate associations required). Each incorporated association will be a separate legal entity and will need to comply with the requirements of that State or Territory’s legislation (including a separate committee of management, finances, reporting etc.). This can be difficult to manage and you may end up having to comply with 8 different State and Territory laws and report to 8 different regulators!
Summary Issue 1: Where will the group operate or carry out its activities?
Our group will operate solely in Queensland.
You can operate in Queensland as either an incorporated association or a company limited by guarantee. In general, if your group only plans to operate locally then, subject to the other factors discussed in this fact sheet, an incorporated association may be the most appropriate structure. This is often so for groups which are likely to remain fairly small as the ongoing costs can be less (eg. there is no requirement under the Queensland Associations Incorporation Act for an annual audit of the organisation’s accounts).
Our group will initially operate in Queensland – whether we expand interstate will depend on how we go!
It may be advisable to plan for success – if your group plans to expand its operations interstate or nationally (even if it is in five to ten years time) it could be worth starting out as a company limited by guarantee. To do so, your group will need to have the capacity to comply with the requirements of the Corporations Act. However, if this is possible it may save your group the potential legal difficulties and time required to transfer to a new legal structure.
Alternatively, if your group will initially operate only in Queensland, has limited funding and resources and does not think it can comply with the requirements of the Corporations Act yet, it may be more realistic to initially incorporate as an association. If, a few years down the track, your incorporated association has more funding and wants to expand to operate nationally, your group can register with ASIC as a Registered Australian Body (see Option 1 set out above) or convert to a company limited by guarantee (see Option 2 set out above). Please note that both of these options have associated costs and your group may require legal assistance.
Our group will operate nationally
If your group intends to operate nationally (or in several States), a company limited by guarantee is likely to be the best option. This is because as a company you can operate nationally and only have to comply with one set of laws (ie. the Corporations Act).
Our group will operate / carry out activities overseas
You should seek legal advice if your group intends to operate overseas. In particular you should seek advice about the laws that regulate Australian organisations that operate overseas and the laws of the country your group intends to work in.
Issue 2: What expertise for ongoing compliance does the group have?
Whether your group decides to establish as an incorporated association or a company limited by guarantee, the people running the organisation will need to take the time to understand the compliance requirements for each regime. There is a difference in the amount of time and expertise that is required to understand and comply with the laws that govern incorporated associations and those that govern companies.
Generally speaking, the regime for incorporated associations under the Queensland Associations Incorporation Act is simpler and more straightforward than the regime for companies under the Commonwealth Corporations Act.
Queensland’s Associations Incorporation Act was specifically designed to provide a simple and inexpensive means of incorporating not-for-profit groups. It is likely that, with help from resources that explain the Associations Incorporation Act (ideally supported by a good operations manual), most people would be able to assist in the running of an effective association without specialist skills or training.
In contrast, the Corporations Act is a much more complex, lengthy piece of legislation that governs both for-profit companies, as well as not-for-profit companies limited by guarantee. Because the penalties (‘late fees’) for companies limited by guarantee are high (see further below for more about fees), it is crucial that a group which is going to incorporate as a company limited by guarantee understand and comply with the law and the timeframes for lodging various documents with ASIC.
Some people suggest that a group wanting to incorporate as a company limited by guarantee needs to have an experienced company secretary. At a minimum, your group will need help from a person who has a good understanding of running a company structure, or access to professional legal or accounting advice. There are some basic fact sheets and resources available on the ASIC website.
Issue 3: Will the organisation have the money to pay fees?
The amount of money your group has, in order to pay both the initial and ongoing fees, may be a factor in determining whether an association or company is the best structure for your group. Your group will need to be realistic about the resources it has (or is going to have), and how organised it is going to be in respect of keeping information up-to-date and paying fees on time.
In general, incorporating as a company limited by guarantee is more expensive than as an association. However this statement requires some clarification.
Initial application fee
The initial application fee for incorporation as a company is more expensive (see table below for fee comparison). However, there are significant reductions in initial fees for some types of not-forprofit companies which meet the requirements of a ‘special purpose company’.
Recent changes to the Corporations Act now means that small companies that is those which have less than $250000 annual revenue and do not have deductible gift recipient (DGR) status, no longer have to have financial statements audited.
For companies with less than $1million annual revenue and/or DGR status financial statements can be reviewed rather than audited and for companies with annual revenue of $1million or more with or without DGR status audited financial statements are required.
For Queensland associations, only ‘prescribed’ associations – with current assets or total revenue of more than $100,000 – are required to have audited accounts. The range of people qualified under the Queensland Associations Incorporation Act to conduct such an audit is broader than for a company limited by guarantee (you may need to consider this in some country areas as the peak accounting bodies report there is a shortage of registered company auditors in some of these areas).
Also, remember that associations (even those which are not ‘prescribed’ under the Act) may be required to have audited accounts because of another requirement (e.g. in a funding agreement with government, or because the members/committee of management believe it is good practice).
As an independent audit may cost between $2,000 and $20,000+ depending on the size of your group, the requirement for audited accounts needs to be considered carefully.
Penalties and late fees
The ‘late fees’ for not complying with requirements (to lodge documents or pay fees etc.) are higher for a company than for an association.
ASIC, the regulator of companies, imposes penalties for late reporting and is rigorous in its collection of late fees and rarely waives them. If your group is late lodging required documents, ASIC late fees can quickly accumulate ($270 per month) and can be crippling. To date, the Office of Fair Trading (the regulator of incorporated associations) has lesser penalty fees.
A comparison of the main fees payable by each structure is set out on the next page. Fees listed are for the 2010/2011 year and are subject to indexation.
Beware: If you choose to be a company, your organisation will be regulated by ASIC, a body that is systematic in imposing late fines and is inflexible in relation to waiving fines. If you forget or are late or did not realise that you had to file documents or notify ASIC of certain changes, ASIC late fees can quickly accumulate ($278 per month) and can be crippling. The Office of Fair Trading, the regulator for associations is known to be less rigorous in imposing late fees.
2015/1016 incorporation and ongoing fees
|Type of fee||Queensland incorporated association||Commonwealth company limited by guarantee|
|Initial application for incorporation||$142.95||$463|
|Requirement for audited financial statement (approx. $2,000 to $20,000+ per year)||None – unless the association has current assets or revenue of more than $100,000, owns or leases land or is required to do so by other legislation||
For small companies which have less than $250000 annual revenue and do not have deductible gift recipient (DGR) status no audit is required.
For companies with less than $1million annual revenue and/or DGR status financial statements can be reviewed rather than audited and for companies with annual revenue of $1million or more with or without DGR status audited financial.
|Annual fee whenlodging financial statement||$49.95||$1,029; or
$41 (approx.) for ‘special purpose companies’ which are formed for ‘charitable purposes’, have non-profit and non-distribution clauses in their constitution and certain rules relating to directors.
|Late fees when lodging annual statement||None||$75 first month
$312 for each subsequent month
|Lodge details of changes to information (e.g. address, names of officers)||None||None (but note late fees below)|
|Failure to lodge changes of details
within required period
(i.e. address, names of officers)
|None||$75 first month late
$312 for each subsequent month
Other factors for your group to consider
The issues discussed above (‘where’ your group is going to operate; the skills or expertise available to your group; its financial capacity; and whether it will undertake substantial trading activities with the public) are four of the main factors for groups to consider when choosing the right legal structure.
However, there are also some other potentially important factors that may impact on your group’s decision whether to incorporate as an association or company. The table below lists a number of factors which may be relevant, and in some instance possibly of great importance, to your group’s aims, activities or circumstances.
|Speed of incorporation||
In general, ASIC often approves an application for incorporation of a company within 24-48 hours of paperwork being filed.
In contrast, the Office of Trading can take up to two months to approve an application for incorporation of an association, particularly where the organisation submits its own rules, rather than using the Office of Fair Trading model rules.
|Flexibility of rules or
The Queensland Associations Incorporation Act prescribes many different topics that associations must have in their rules and is quite rigorous when looking at rules submitted by newly incorporating associations. Changes to the rules do not take effect until approved by the Office of Fair Trading.
In contrast the Corporations Act provides for much more flexibility in a company’s constitution and ASIC is far less likely to reject a proposed constitution. Subsequent changes to the constitution can take effect from the date passed by the members.
|Directors duties||The duties and liability of board members, and the fines and penalties imposed, are potentially more onerous under the Corporations Act than for committee of management and office bearers of an association under the Associations Incorporation Act. But remember the common law (ie. judgemade) duties and liabilities of these office bearers are probably the same.|
|Number of members||
Groups wanting to incorporate as a company limited by guarantee only need to have one member. This may suit people wanting to set up a not-for-profit organisation where they retain a high degree of control or, where the organisation is to be a subsidiary of another organisation.
In contrast, Queensland incorporated associations are required by law to have a minimum of seven members. In general, members will have voting rights and be able to call meetings and exercise some control in the organisation (for example, to remove committee of management members).
|Rights of members||The laws that apply to (public) companies require that members of the organisation be allowed to appoint a member or non-member as a proxy (a person to vote at meetings on their behalf). Also a small percentage of members are able to force a members meeting to be called. There are no similar mandatory requirements for Queensland incorporated associations. For associations, the rights of members to vote and call meetings is generally decided by the group and written into the rules of the association.|
|Availability of information about the organisation to the public||
In a company, the names, date and place of birth of the directors need to be provided to ASIC and these details are available to the public (for a small fee). Further, a company is required to keep a register containing the details of members of the organisation, and is required to make this available to all members for free, and to the public for a fee.
For an incorporated association, only the details of the Public Officer need to be provided to the Office of Fair Trading (which is then available to the public for a fee). An association must keep a register of members’ details. However access to the register of members is a matter for the members of the organisation to agree on in the rules.
|Flexibility for amalgamation||
The Queensland Associations Incorporation Act makes provision for one incorporated association to amalgamate with another, with all of the assets, liabilities and staff automatically transferred across to the amalgamated association without the need for winding up or termination of employment.
The Corporations Act does not have a similar provision for amalgamation and therefore usually requires that either one or both companies must end their existence (with the possibility of termination of employment etc.) and then incorporate a new company.
As highlighted in this fact sheet, a number of factors will influence a group’s decision about whether to become an incorporated association or a company limited by guarantee. There is no quick and easy answer for any ‘kind’ of group. In the end, it may be a process of weighing the various factors to determine which structure best suits the activities, circumstances and resources of your particular group.
If in doubt, we urge you to seek legal advice from an advisor with experience of not-for-profit groups. Spending some time (and, if necessary, money) getting professional advice on legal structure issues before you incorporate is a worthwhile investment in the long-term viability of your newly-forming organisation. Choosing the right legal structure can save your group considerable time, money and possibly legal and administrative headaches further down the track!
This fact sheet is based on material produced by the Not for Profit Law Information Hub. We acknowledge their support in allowing us to adapt their material for Queensland community organisations. This fact sheet may be used for personal use, or non-commercial use within not-for-profit organisations. However, this does not constitute legal advice. If you or your organisation has a specific legal issue, you should seek legal advice before making a decision about what to do.