This is the first of a series of legal updates that Kott Gunning Lawyers will produce throughout 2016 on the key features and reforms under the Associations Incorporation Act 2015 (WA).
The Associations Incorporation Act 2015 (WA) (Act) repeals and replaces the Associations Incorporation Act 1987 (WA). It is anticipated that the Act will come into operation on 1 July 2016.
The Act will continue to provide a framework of regulation for not-for-profit organisations, such as sport and recreation clubs, societies, and community groups in Western Australia.
This is the most significant reform of the associations incorporation law since the current Act was enacted in 1987. The aim is to bring associations in line with contemporary good governance principles and expectations.
The key reforms of the Act
The key reforms include:
- A three tier system of financial reporting designed to minimise the reporting burden on smaller associations, while recognising that larger associations should be accountable for the significant resources under their control.
- Formalisation of the duties of committee members and officers (such as the CEO) which already exist under the common law, and reflect those applicable to directors and officers of corporations.
- A dispute resolution system that requires each association to have an internal dispute resolution process. Unresolved disputes between members and an incorporated association may be heard by the State Administrative Tribunal.
- New measures to better protect the privacy of association members, and limits on how contact information provided by members can be used.
- Removal of the restriction on an association trading, provided that all profits from such activities are used to further the association’s objects or purposes, and that individual members do not profit from such activities.
- A transition period of three years to allow associations to update their rules/constitution, failing which the Model Rules apply.
- A process for the appointment of a statutory manager to administer the affairs of an association, when an association is not functioning effectively.
- A simplified and streamlined process for associations to resolve their affairs and either wind up the association or cancel their incorporation.
Associations will have three years to make their rules consistent with the Model Rules, but the remaining requirements and obligations under the Act apply immediately the Act comes into operation.
Work is currently underway to update the Model Rules, which will be included in the new Regulations.
Removal of the permitted trading test
The new Act no longer includes the ‘permitted trading’ test. This recognises the growth in trading activity in the not-for-profit sector, due largely to the pressures to be financially self-sustainable and the growing reliance by the government on the not-for-profit sector for the delivery of community services.
This will not mean that commercial businesses may become incorporated under the Act. The essential element of a not-for-profit organisation is a prohibition on securing pecuniary profit for its members. This prohibition remains in the Act.
Eligibility for incorporation under the Act
An association must have at least six members with full voting rights.
An association is eligible for incorporation if it is formed for and carries on one or more of the purposes specified in section 4, being religious, educational, charitable, benevolence, literature, science, arts, medical, sport, recreation, amusement, community orientated activity, conservation, politics, or any purpose approved by the Commissioner.
Section 5(1) of the Act excludes an association formed or carried on for the purpose of securing pecuniary profit for its members, which the association is deemed to do if:
- it carries on any activity for the purpose of securing pecuniary profit for its members; or
- it has capital that is divided into shares or stock held by its members; or
- it holds property in which its members have a disposable interest, whether directly or in the form of shares or stock in the capital of the association or otherwise; or
- it is an association, or belongs to a class of associations, that is prescribed for the purpose of this subsection.
- An association is not ineligible for incorporation only because the association itself is empowered to make a profit, or it is established for the protection or regulation of some trade or business, or any member of the association derives remuneration paid in good faith.
Application for Incorporation
An application to the Commissioner for incorporation must be in an approved form and accompanied by a set of proposed rules or a statement to the effect that the association has adopted the Model Rules.
The application must also provide the name of the association, its objects or purposes, the quorum for a general meeting, and the period for the first financial year.
The Commissioner can require that the association give public notice of the application.
Certificate of Incorporation
The Commissioner must issue a certificate of incorporation if satisfied that the:
- association is eligible under the Act;
- rules of the association comply with the Act; and
- name of the association is appropriate.
The Commissioner must not incorporate an association if it is more appropriate for the association to be incorporated under some other law or the incorporation would be against the public interest.
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All incorporated associations in Western Australia will need to develop an understanding of the requirements under the new Act, and ensure that their rules, internal governance, and record keeping practices comply with the new requirements.
The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.