Rotary International District 3310 DISTRICT ASSEMBLY TOPIC: DISTRICT INCORPORATION Presented by: PDG David Tong District 3310 DISTRICT INCORPORATION • Why incorporate? • Which jurisdiction? • Which legal form? • Issues in structuring the corporation - key principles adopted - compliance with Rotary Code of Policies - M&A - registering branch in the other jurisdictions? • Tax issues • Transition issues? • Management structure WHY INCORPORATE? 1. District presently operating as non-legal, non- registered entity. Not sustainable. 2. Need to protect our assets. 3. Incorporation provides perpetual life, legal status & protection. 4. District unable to invest our assets in securities. 5. Request of our major donor, Crocodile International. 6. RI Board encourages districts to incorporate. WHICH JURISDICTION? 1. At 30/06/09 Country No. of clubs % No. of Members % Malaysia 40 62.5 893 54.0 Singapore 22 34.4 727 44.0 Brunei 2 3.1 33 2.0 Total 64 100 1653 100.0 2. Future? More scope for growth in Malaysia. Q: Incorporate in Singapore or Malaysia? Answer: Malaysia WHICH LEGAL FORM? Q: Should the corporation be a society or company limited by guarantee? Answer: Lawyer’s advice is that a Company limited by guarantee is the correct way forward. ISSUES IN STRUCTURING THE CORPORATION Key Principles adopted 1. Except for the change in legal form, no real change in the operation and management of District 3310. 2. Transition should be smooth and seamless. 3. Clubs will continue to function as before. 4. Rights and obligations of clubs in District 3310 and the relationship between them and with District and RI will stay the same as before. 5. No club in District will suffer an impairment of its rights when they become a member of the Company. 6. Obligation to pay its annual dues to RI and per capita levy to district (as before). 7. All assets, liabilities, rights and obligations of District 3310 will be assumed by the corporation. ISSUES IN STRUCTURING THE CORPORATION (cont’d) Key Principles adopted 8. Clubs will automatically become members of the corporation. 9. The M&A of the proposed corporation will align with the RI Manual of Procedures so that any future change in RI constitutional documents will not necessitate a change or revision of the M&A. 10.The liability of each member club will be limited to an amount not to exceed RM 100. 11.The Board of Directors of the corporation will decide on the management structure. 12.The DG will continue to be the highest officer of the corporation and shall be the Chairperson of the corporation. ISSUES IN STRUCTURING THE CORPORATION (cont’d) Compliance with Rotary Code of Policies RI Board has mandated: 1. Approval by two-thirds of clubs in the district required for incorporation in a vote at a district conference, or in a ballot-by-mail. Before seeking District’s and RI’s approval need to submit draft M&A to RI prior to presenting to the club. 2. Each club shall be entitled to one vote. 3. When a district in incorporated, the corporation and the former unincorporated district shall become one entity. 4. The incorporated district shall, in all respects, possess all of the powers, rights and privileges and shall perform all of the obligations and requirements of a district under the constitution, by-laws and policies of RI. ISSUES IN STRUCTURING THE CORPORATION (cont’d) Compliance with Rotary Code of Policies RI Board has mandated: 5. A district with clubs in more than one jurisdiction may incorporate in any of the jurisdictions and shall take steps to register in the other jurisdiction(s) as appropriate. 6. No district with clubs in more than one jurisdiction shall incorporate in a jurisdiction that would favour one club or Rotarian over another. ISSUES IN STRUCTURING THE CORPORATION (cont’d) Memorandum & Articles of Association 1. M&A has to comply with: - Companies Act, 1965 of Malaysia; and - Mandatory provisions of RI Board. 2. The key provisions mandated by RI Board as follows:- a) The corporation shall be a not-for-profit entity, and it shall pay no dividend and no part of its money, property or other assets shall be distributed to its members, directors, or officers. b) Where any provision of the corporate documents of the incorporated district is not in conformity with the constitution, bylaws, or policies of RI, the terms of the constitution, bylaws, or policies of RI shall prevail at all times. c) In any conflict with the Malaysian law, the Malaysian law will prevail. ISSUES IN STRUCTURING THE CORPORATION (cont’d) Memorandum & Articles of Association d) All Rotary clubs in the incorporated district shall be members of the incorporated entity. e) The initial membership of the district shall be the Rotary clubs in the district as of the time of the incorporation. The addition or removal of a club or clubs from a district pursuant to the RI bylaws shall immediately and automatically result in a corresponding change in the membership of the district corporation. f) Only Rotary clubs in the district may be members of the incorporated district. g) The board of directors and officers of the district corporation shall be limited to Rotarians who are members of clubs in the district. ISSUES IN STRUCTURING THE CORPORATION (cont’d) Memorandum & Articles of Association h) The directors of the district corporation shall include the current district governor, the district governor-elect, and the most recent past district governor who has served in that district, and such other Rotarians, if any, as may be determined by the district. i) The current district governor shall be the highest officer of the incorporated district and shall serve as chairman of the board of director. The district may elect such other officers as required by local law and as provided for in its corporate documents. ISSUES IN STRUCTURING THE CORPORATION (cont’d) Registering a branch in the other jurisdictions? 1. It is provided in the Rotary Code of Policies, section 17.020.3 that “a district with clubs in more than one jurisdiction may incorporate in any of the jurisdictions and shall take further steps to register in the other jurisdiction(s) as appropriate”. 2. In respect of District 3310, this seems to suggest that if we incorporate in Malaysia, we should take further steps to register a branch of the entity each in Singapore and Brunei. This may be necessary given the “doing business” provisions of the Singapore Companies Act. 3. It may not be possible to register Rotary in Brunei. We need to consult the Rotarians in Brunei on this matter. TAX ISSUES As at 30/06/09: District Fund (RM) District Accumulated Fund 577,241 District Crocodile Endowment Fund 361,537 District Disaster Fund 100,000 Avoidable Blindness Fund 8,680 Total (virtually all in cash) 1,047,458 Attributable to: % Malaysia 54.0 565,627 Singapore 44.0 460,882 Brunei 2.0 20,949 100.0 1,047,458 TAX ISSUES (cont’d) 1. One-time transfer of above capital reserves to the corporation and/or branch? Professional advice says not taxable. 2. Annual interest and investment income? Yes these are taxable. 3. Donations (Crocodile Foundation grants) received for use in a future year? If accounted for properly, not likely to be taxed. TRANSITION ISSUES 1. To decide date for starting up corporation and closing of existing District 3310. 2. DG to appoint a Transition Committee to project manage the transition issues to ensure smooth transitions. The tasks would include transfer of assets, setting up corporate governance framework, designing of letterheads, name cards for company directors and district officers, communication and public relations initiatives, etc. 3. The Transition Committee to be appointed to look into incorporating the corporation, setting up new bank accounts etc in readiness for the commencement of the operation of the corporation. MANAGEMENT STRUCTURE 1. Working with the Transition Committee, the District Governor and his inaugural board of directors to meet early to decide on the management structure of the corporation. 2. A draft template is being prepared to assist in this process. THANK YOU!
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