Companies Limited by Guarantee
Posted on October 06, 2017
Many charities and other not-for-profit organisations are incorporated under the Associations Incorporations Act 1985 of South Australia or under an equivalent Act of another State. We are now seeing a number of such organisations who wish to convert to a company limited by guarantee (CLG).
There are a number of reasons that may drive an organisation to such a conversion, including:
- access to some government grants that are only available to companies;
- improved governance;
- growth of the organisation, particularly across State borders;
- flexibility, and
- a desire to change the public perception.
A CLG is an Australian public company registered under the Corporations Act 2001 of the Commonwealth and so upon registration it can operate anywhere in Australia. CLGs are used extensively for charitable and not-for-profit organisations. They are particularly suitable for this because they can have members (not shareholders) who agree to guarantee a nominal amount (usually $10) to the company if required.
Should an incorporated association wish to convert to a CLG, there is a procedure available under the Associations Incorporation Act 1985 that enables the whole undertaking of the organisation to be transferred to a newly registered CLG. The assets of the organisation become the assets of the CLG and the rights and liabilities of the organisation become rights and liabilities of the CLG. The transfer of assets to the CLG is exempt from stamp duty. From the date of the transfer the incorporated association is dissolved. Such a conversion does not create a new legal entity or affect the organisation’s assets, rights and obligations.
There are quite a few other technical steps that need to be taken, as well as many practical measures, such as notifying the many parties with which the organisation has dealt.
Lynch Meyer can advise and assist organisations interested in converting to a CLG, or in establishing a new incorporated association or CLG. We can provide constitutions, apply for registration and tax concessions and advise on governance matters.
