The Associations Incorporation Act – WA provides for the incorporation of associations, for the regulation of the affairs of incorporated associations, to repeal the Associations Incorporation Act 1987 and for connected purposes. It allows associations, such as community, recreation, sporting and not-for-profit clubs and societies, to incorporate as legal bodies and limit the liability of members for lawful activities.
The Department of Commerce, and in particular the Commissioner for Consumer Protection, has the responsibility to administer the Act and Regulations on behalf of the government.
To be incorporated To become incorporated Section 4 of the Associations Incorporation Act 1987 requires the following requirements to be met:
- The group must have at least 6 members;
- Be not-for-profit; and
Formed for one or more of the following purposes:
- Religious, educational, charitable or benevolent purposes;
- Promoting or encouraging literature, science or the arts;
- Sport, recreation or amusement purposes;
- Establishing, carrying on or improving a community, social or cultural centre or promoting the interests of a local community;
- Political purposes; or
- Any other purposes approved by the Commissioner.
Why become Incorporated?
Incorporation of a club provides a legal identity for that club, separate from that of the members, which relieves the members of the committee and the club from liability for authorised acts of the club. This is one of the foremost protection devices available to clubs.
The major features of becoming incorporated are:
- The association acquires the powers of a body corporate with perpetual succession and a common seal;
- The association may sue or be sued;
- The association may enter into contracts and acquire, hold and dispose of property;
- members or officers of the association are generally not liable to contribute towards the payment of debts or liabilities of the association;
- The name of the association concludes with the word “Incorporated” or the abbreviation “Inc.” as part of its name; and
- If members or office bearers of the association incurred liabilities or obligations on behalf of the association prior to incorporation, those liabilities and obligations can be exercised against the incorporated association.
Many social, sporting and community groups can incorporate under the Associations Incorporation Act. The Act provides a cheap, simple way of establishing a legal entity that has the capacity to function in its own right. Please note Associations Incorporation legislation is governed at the state rather than federal level, therefore requirements vary between states.
Department of Commerce is the organisation responsible for incorporated associations in WA. The Department of Commerce website has an excellent range of fact sheets and other information to assist groups with incorporation issues. For further information regarding requirements of, and applications for incorporation, contact:
Why you wouldn’t become Incorporated?
You should give these disadvantages of incorporation serious consideration prior to starting the incorporation process:
Burden Compliance with statutory and accounting requirements places a significant burden on clubs, both in terms of staffing, cost and time.
Costs of Incorporation
There are fees associated with the initial club incorporation, and ongoing operations.
Loss of Flexibility
The separate legal entity status of incorporation also means that the club finances are separate from the individual’s, therefore the individual cannot “borrow” money from the accounts of the corporation.
In summary this doesn’t mean that you can run your club as you like, but you can be more flexible about what is to be done and how to do it. The problem is if anything goes wrong it’s possible that committee members may be held personally liable. In the case the club doesn’t have enough money to cover the debts/costs, individuals may be held liable. Furthermore, most foundations and government departments will only fund incorporated organisations.
- The club acquires the powers of a body corporate with perpetual succession
- The club can sue (or be sued) and enter into contracts
- The liability of the members (including the office bearers) of a club is limited. The members will, generally, not be liable personally for either the debts or liabilities of the club during its operation or the expenses of its winding up (that is, its ending)
- Provides some legal and financial protection for the management committee of the club who otherwise might be liable for damages and contractual obligations arising from the activities of the club
- Clarifies and formalises the aims and objectives of the club
- Sets out regulations about how the club shall operate. These regulations are designed to ensure that the club operates fairly, responsibly and accountably to its members. They also protect against dishonesty and manage matters such as conflict of interest.
- Being incorporated also requires that some information is regularly made available to the regulating body and to the public about the affairs and operations of the club
- Increased status and professionalism of the club
- Ability to prevent other person’s from using club’s name
- Club can apply for government funding
- The club exists as a separate legal entity, regardless of changes of membership
- Clubs can accept gifts and bequests
- Cheap to incorporate
- Few formalities and a low compliance load
- Allows some incorporated bodies to enjoy tax advantages
Considering the benefits incorporation provides within this Act, the cost for incorporation is a worthwhile investment. Once incorporated, there are some regular compliance tasks required such as the keeping of records, holding of elections and submitting of returns.
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Incorporation whether as an incorporated association or as a company limited by guarantee requires regular and ongoing compliance with Government regulation. There is a cost in fulfilling each of the requirements in both time and money. Incorporation also means being open to public scrutiny. Matters to consider prior to looking at incorporating are:
- Being prepared to forgo total privacy of the club’s financial matters and accept that there will be public scrutiny of the club’s activities
- Being prepared to follow the regulations as set down by government. This may not give you the total flexibility that your club has now
- Weigh up the risk associated with being incorporated against the benefits of incorporation
- Most incorporated clubs will be required to have compulsory public liability insurance
- Proper membership records and minutes must be kept
Roles and Responsibilities for Club
Committee members of associations are required to take all reasonable steps to ensure that their association complies with all of these obligations.
- Annual General Meeting
• A newly incorporated association must hold its first AGM within 18 months after incorporation. • The management committee must convene an AGM every calendar year within four months of the end of the association’s financial year.
• Members must be given notice of all meetings in accordance with the rules.
• Chairpersons need to be familiar with the important meeting procedures, for example quorum requirements, rules of debate, voting procedures and minute taking. These could be set out in the rules of association.
• Annual accounts must be presented to members at each Annual General Meeting.
Unlike incorporated association’s legislation in most other Australian states, there is no requirement in Western Australia for associations to lodge accounts and financial statements on a regular basis. The Commissioner for Consumer Protection can require accounts to be lodged in individual cases, but this is only done in extraordinary circumstances.There are only two things incorporated associations must do to comply with the accounting requirements of the Act:
• Keep true and accurate accounting records that explain the financial transactions and the financial position of the association in a manner that can be conveniently and properly audited. • Submit accounts at each AGM, showing the financial position of the association at the end of the immediately preceding financial year.The Act requires that associations maintain an up-to-date register of members, which must include each member’s name and residential or postal address. Importantly, the Act also provides each member with the right to inspect the register, and to make a copy of any part of its contents. A member does not, however, have a right to remove the register from the association’s possession.Associations are required to maintain an up-to-date record of the names and residential or postal addresses of:
• All office bearers
• All committee members
• Those members who are authorised to use the common seal
• Any persons who are appointed or act as trustees for the association
Every association must have a set of rules, often known as a ‘Constitution’, and the way in which an association operates is largely governed by its rules. The Act requires that the rules of an association must be maintained in an up-to-date condition. In order to keep them current, the rules can be amended by a special resolution of the members.The Act also requires that a copy of the rules be held by Consumer Protection as the “official” version of the association’s rules. The rules of an association as lodged with Consumer Protection (including any amendments lodged) are the only effective rules of the association. It is important that Consumer Protection is notified of any amendment to the rules within one month of the date of the meeting where the special resolution was passed. If there is a dispute to which an amendment to the rules is relevant, and Consumer Protection has not been notified, then it may not be possible to rely on the amendment to resolve the dispute.As with the members’ register and record of office holders, an association’s rules must be accessible to all its members and members can copy or take an extract from the rules, although members cannot remove the rules for that purpose. However, many associations provide their members with a personal copy of the rules as a matter of policy. Provided that the cost is not prohibitive, it is a good practice that can assist with the smooth running and effective management of the association.
- Special Resolutions
There are two occasions when the Act requires something more than a simple majority vote to pass a resolution. These occasions are a vote to amend the rules (or to change the name or objects) of the association, and a vote to wind it up. Either of these requires what is termed a special resolution, which needs a majority of 75% to pass. To clarify, this means 75% of the members who are eligible to vote and actually do so in person (or by proxy or postal vote) at the meeting. It does not mean 75% of the total membership of the association.Details of the special resolution must be lodged with Consumer Protection for it to have legal effect.
Even if there is no intention to run a business, an association will generally need people who can sign on behalf of the association, set up accounts, sign cheques, etc. Often these people are members of the management committee. Sometimes the authorised signatories and signing procedures are nominated in the rules of the association. If the rules do not cover this, the association needs to resolve who the signatories are and the requirements for signing documents and cheques.Generally, some combination of 3-4 signatures is agreed to provide financial and security safeguards. The necessary paperwork can then be set up with the bank or credit union. Decisions regarding accounts and signatures should be properly resolved and recorded in the minutes. Resolutions are dealt with in:
Rights and Responsibilities of Members
- The specific responsibilities that apply to committee members have been outlined below. However, all members have significant rights and responsibilities.
- Members agree to be bound by the rules of the association unless those rules are inconsistent with the Act or some other legal obligation. The rules of an incorporated association as agreed by members set out the purposes of the association referred to as “objects” in the Act, and the basis on which the association is to be run. In some circumstances members (and others) may be able to take civil action against committee members or the association if it fails to comply with its rules. Conduct of the Association
- As incorporated associations traditionally have been regarded as essentially community based organisations they are largely independent of government intervention. Therefore members in particular have a crucial role in ensuring that their association conducts itself in a way that is acceptable to them. If members fail to be active in ensuring their association is run in a fair, democratic and financially accountable manner, they may end up with an association they no longer wish to be associated with. False or misleading statements
- It is the responsibility of all members to ensure that all documents lodged with Consumer Protection under the Act or presented to meetings of members are accurate. If a person knowingly lodges a document that is false or misleading they commit an offence that can result in criminal prosecution and is subject to a maximum fine of $500.
The Act sets out some other important rights for members. Members cannot give up these rights by simply agreeing to association rules which are inconsistent with these.
1. Records Inspect and copy the association’s register of members. Inspect and copy the association’s list of office bearers. Inspect and copy the association’s rules.
2. Meetings Attend the annual general meeting. Have financial accounts showing the financial position of the association submitted to them at the annual general meeting.
3. Special Resolutions Have proper notice of, and to attend, any general meeting at which it is proposed to alter the association’s rules.Have proper notice of, and to attend, any general meeting at which it is proposed to wind up the association.
The Act also requires an association to make sure that the following records are kept:
- An up-to-date version of the rules
- Accounting records that correctly record and explain the financial transactions and position of the association in such a manner that allows true and fair accounts to be prepared
- Every disclosure of interest made by a committee member (to be recorded in the minutes of the meeting at which the disclosure was made)
It is also important to note the following key points:
- There are a number of different types of records that an association will need to keep.
- Record keeping systems will vary from one association to another, depending on the type of association, its activities and size.
- Records that are not active are archived and are generally kept for 7 years.
- Records can be stored off site by companies that specialise in document storage, management and retrieval.
http://www.dsr.wa.gov.au/assets/files/Clubhouse/12_Establishing_your_club_constitution.pdf http://www.commerce.wa.gov.au/ConsumerProtection/Content/Business/Associations/index.htm http://www.commerce.wa.gov.au/associationsguide/PDF/Publications/Inc_Guide.pdf