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Making the switch – Part 2: 8 steps to becoming a Company Limited by Guarantee

As seen in the December January edition of Clubs Queensland's Club Insight magazine. 

In the last edition of Club Insight I looked at some of the pros and cons of switching your club from an Incorporated Association (“Association”) registered under the Associations Incorporation Act 1981 (Qld) (“AI Act”), to a Company Limited by Guarantee (“CLG”) registered under the Corporations Act 2001 (Cth) (“Corporations Act”). In this edition, I provide a step by step guide to making that switch, should you decide that a CLG is the best fit for your club.

Broadly, the process involves eight steps as follows:

  1. Decision: In consultation with your lawyer and financial advisors, your board or management committee will weigh up the pros and cons of a CLG (including those factors in my previous article) to assess what is best for your club. You may find it helpful to get in touch with other Clubs Queensland members who have recently made the switch, to gauge their experiences. Once you have considered all of these factors, you can make an informed decision about whether to stay as an Association or change to a CLG.

  2. Information session: While not compulsory, I recommend holding an information session with your members to explain the management committee’s reasons for deciding to switch to a CLG. You may wish to ask your lawyer or advisors to come to this meeting to answer questions from your members. I recommend this step not only so that your members feel involved in the decision, but also because it will help to gain the support needed to pass a special resolution to confirm the change further down the track (see step 4 below).

  3. Prepare Constitution: Your club will need a new Constitution with rules that satisfy the special requirements of the Corporations Act, as opposed to the AI Act. Your lawyer can help to prepare this document.

  4. Special resolution: The decision to convert to a CLG and to approve the new Constitution prepared in accordance with step 3 above must be approved by a special resolution of your club’s voting members at a general meeting. A general meeting can be convened in accordance with your club’s Rules or Constitution – i.e. The current Rules or Constitution approved by the Office of Fair Trading (OFT), not the proposed new Constitution that you prepare in step 3.

    Generally this will require at least 14 days’ notice of the meeting to be given to the members of the club who are entitled to vote at meetings. Sometimes, more notice may be required. The notice should also include the following items of business:

    - a vote on the proposed new name for the club, including the word “Limited” or “Ltd” as is the convention for CLGs, and excluding the word “Incorporated” or “Inc” which marks out an Association;
    - a copy of the proposed new Constitution that you prepared for step 3; and
    - authority for members of the club’s management committee to complete the application to obtain approval from the OFT in accordance with step 5.

    The special resolution must be passed by at least 75% of the voting members of the club to succeed.
  5. Obtain approval: Apply to the OFT for authority to transfer to a CLG. Your club president should complete a statutory declaration as part of the application, and you will also need to return the original certificate of incorporation that was issued to your club upon its registration as an Association.

  6. Incorporate & register: After receiving approval from the OFT, apply to the Australian Securities and Investments Commission (ASIC) to incorporate your club as a CLG. Among other things, you will need to provide a copy of your club’s current (OFT-approved) Constitution, a copy of the new Constitution approved by your members in accordance with step 4, written consent from those committee/ board members who will act as directors of the CLG, and a copy of the OFT’s consent to your application.

    Once ASIC approves your application, they will issue a certificate confirming your club’s registration as a CLG.

  7. Notify stakeholders: Suppliers and other creditors, members, advisors, and other relevant parties should all be informed once your conversion to a CLG is complete. If your club holds a liquor and/ or gaming licence then you should also inform the Office of Liquor and Gaming Regulation (OLGR) about the change.

  8. First AGM after the switch: Section 601BR of the Corporations Act requires that your club must hold its first AGM after registration as a CLG, in the same calendar year as its registration took place. As such, it may be advisable to make your application to ASIC (for the purposes of step 6) toward the beginning of the calendar year, so that there is sufficient time for you to hold your AGM after ASIC approves your club’s registration as a CLG.

Legal effect

Section 601BM of the Corporations Act confirms that when an Association converts to a CLG, this does not create a new legal entity. Accordingly, while the name of the entity may change, the switch does not impact the club’s ownership of any property, and does not impact the club’s rights and obligations under any leases, contracts, employment agreements or other arrangements to which the club was party before the switch, all of which will continue to be enforceable.

Conclusion

There are many factors to consider when deciding to switch from an Association to a CLG structure, and the Mullins team has extensive experience helping clubs weigh up those factors to determine the most appropriate structure to suit their circumstances. If you do decide to switch, we can implement the above steps to effect the smooth transition to a CLG, including preparing a new Constitution for your entity and making the appropriate applications to the OFT, ASIC, and OLGR. Please contact me on 3224 0353 for an obligation-free discussion if you would like to know more about making the switch.

Article written by Matt Bradford (Partner) and Glen Rolley (Associate).

"The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication."