Funder by the Department of Human Services Auspiced by Our Community

Help Sheet

Legal structures

If you want legal status, you have a number of options - you can become

All of these forms have their advantages and disadvantages.

For smaller organisations, the choice is generally between company status and incorporation. Limited companies are highly regulated; incorporated associations are lightly regulated. Setting up a company is complicated and expensive; incorporating as an association is comparatively cheap and simple. Unless your organisation is very big indeed, or carries on a lot of business, your best option will probably be to become an incorporated association.

Incorporating is not the same thing as registering as a charity or getting entitlement to tax exemption or obtaining permission to raise funds from the public. All those have to be applied for separately.

Unincorporated associations

Six people sitting around a table saying "We must do something about this!" are in the eyes of the law an unincorporated association, which for most purposes means no more than just six or so individuals sitting around a table.

There's nothing illegal about being an unincorporated association, but it's not a legal entity - that is, nobody else need bother about addressing you as the Australian Doing Something About Problems Association (ADSAPA) rather than as Allan, Denis, Sam, Amy, Pauline, and Alison. If you're renting premises for your organisation, for example, you will have to make the lease in your own name, not the group's.

If you're a small organisation for simple purposes, you may be able to leave it at that. There's absolutely nothing to stop Allan, Denis, Sam, Amy, Terry, and Alison - or even Allan all by himself - from having ADSAPA letterheads printed and sending out press releases, reports, and urgent letters to parliamentarians (as long as they aren't libellous or seditious or otherwise suspect). In fact, if you want to organise a demonstration in a tearing hurry this might be the best you can do.

An unincorporated association isn't entirely without legal effect. If someone comes along at the demonstration and says "Here's a thousand dollars for ADSAPA," then Allan holds that money in trust for the purposes of ADSAPA and isn't allowed to use it to repaint his garage - the money must be used for the group. Other than this, however, there are very few legal responsibilities and very little supervision. You don't have to be organised in any particular way, or follow any particular procedures. You'll basically have the obligation to act as a trustee for the organisation's purposes, but you can be more flexible about what you do and how you do it.

The advantages of being an informal group are that you don't have to pay the costs associated with incorporation and you don't have to comply with many of the requirements or fill out the forms imposed on corporations.

The disadvantage is that if anything goes wrong - if the ADSATA office burns down, or if people fall over the mat and injure themselves and sue - it's possible that as the lessee and as a committee member you may be held personally liable. In that case, if there isn't enough money in the ADSAPA cashbox to cover the payout you may have to pay for it yourself.

There can also be difficulties with opening bank accounts, problems with insurance, and confusions about who owns what property. If you stop being a member of ADSAPA but your name is still on the contracts there may be difficulties transferring your responsibilities to the new members.

Furthermore, most foundations and most government departments will only fund organisations that have legal personality.

If you want to do anything very ambitious - anything that involves raising money from the public at large, for example, or applying for grants, or buying or selling property - then you'll want to gain official recognition. If your organisation has (for example) registered itself under the Associations Act and has a legal personality, and you're renting premises, then

If something does go badly wrong with your association, somebody is quite possibly going to be sued. The first step is to make sure that it isn't going to be any of you. The point about becoming a corporation (whether an incorporated association or a co-operative or a company) is that it creates something else that can be sued, and this has an effect in drawing fire away from members of the group as individuals. This protection isn't absolute, but it helps.

Co-operative Society

A co-operative is a legal entity based on sharing, democracy and delegation for the benefit of all its members.

Anyone can apply to be a member of a co-operative, but the directors assess the suitability of applicants. Members are expected to actively participate and share the responsibility of running the organisation to ensure its success. Members can nominate as directors and elect directors. Co-operatives are subject to Corporations Law and state legislation (e.g. the Victorian Co-operatives Act 1996).

Advantages

Disadvantages

Co-ops of different kinds don't necessarily have much in common, and in the Australian context, the only real definition of a co-operative is "any organisation that is incorporated as a co-operative under state or territory legislation".

If you wish to investigate the advantages of co-operative status then consult the brochures available on the Co-Operative Federation of Victoria site at www.australia.coop/publish/index.php.

This material deals specifically with Victorian procedures, although many of these are common Australia-wide, and there will be differences in the applicable requirements in other states. Consult the Federations in NSW, South Australia, and WA for details. If in doubt, consult the relevant State act.

Incorporated Associations

Incorporation is the cheapest and quickest way to become a legal entity.

For most organisations, the choice of structures is between company status and incorporation. Limited companies are highly regulated; incorporated associations are lightly regulated. Setting up a company is complicated and expensive; incorporating as an association is comparatively cheap and simple.

Unless your organisation is very big indeed, or carries on a lot of business, your best option will probably be to become an incorporated association.

Incorporation is a system of State Government or Territory registration that gives an association or community groups certain legal advantages in return for accepting certain legal responsibilities.

An incorporated association is a registered legal entity usually for recreational, cultural or charitable purposes with at least five members and all profits applied to the purposes of the association. It receives recognition as a legal entity separate from its members and offers some protection for office holders from any debts or liabilities incurred by the group as long as the association doesn't make a profit for its members.

Advantages

Disadvantages

Procedures for incorporation Victoria can be accessed by following this link.

Registration as a Registered Australian Body

If you're an association which is registered under a State law that's not recognised in other States - and all the state Associations Acts are of that nature - then you're probably a registrable Australian body.

If you're a registrable Australian body, and if you wish to carry on business in other States or Territories outside your home state, then technically you should be registered as a Registered Australian Body under Part 5B.2 of the Corporations Act 2001.

This isn't enforced, or even publicised, but if you want to be squeaky clean in all circumstances then look into it. The details of what's involved are on the ASIC site here. The formalities are much the same as for incorporation, and essentially involve you in sending to ASIC the same materials that you have to send to your state incorporation supervisor.

Not-for-profit companies

A company structure is one way to limit your liability to unforeseen contingencies.

A company is a registered legal entity with the right to do business in its own right: the proprietors are the shareholders (and usually also its directors and employees). Most not-for-profit companies are companies limited by guarantee.

A business may be conducted by a Company as an entity in its own right and comes into existence by incorporation under Companies legislation, which also regulates the running of the company and sets out the duties of its officers.

It's normal for a solicitor to prepare company documents and apply for incorporation. A company has a Memorandum setting out its powers and Articles of Association governing the carrying out of these powers. A Company has shareholders, who are the owners of the Company, and directors, who run the Company. Shareholders may also be directors and employees.

Companies and corporations can be structured in various ways to make them more relevant to the needs of community based groups. One example might be a not-for-profit public company structure. In such a structure, the legal and business benefits of a company are obtained. However, the stated purpose, as reflected in the memorandum and articles of association, might be community good rather than profit.

Financing might come largely through public subscription or membership. The liability of the shareholders is limited to the unpaid calls (if any) on their shares in the company. Personal liability of directors and employees may also arise out of an offence under the Corporations Act 2001 or negligence in the performance of their duties.

Advantages

Disadvantages

Some not-for-profits have to be companies. Several of the State Associations Incorporation Acts have given the Registrar of Incorporated Associations power to direct associations incorporated under the Act to instead register as companies limited by guarantee under the Corporations Act. In Victoria, at least, some associations have received such a direction.

Being a company doesn't stop you being a not-for-profit, or a charity, or a public benevolent institution. A not-for-profit company can still have tax-deductible status if it meets the other requirements of the tax office.

There are also a variety of legislative provisions which effectively require certain not-for-profit organisations to incorporate as companies, either to obtain grants or for licensing - for example, the Aged Care Act 1997 (Cth), the Aged or Disabled Persons Care Act 1954 (Cth) and the Registered Clubs Act 1976 (NSW).

Finally, in addition to companies registered as companies limited by guarantee, there is a significant group of companies limited by share that also fall within the general heading of not-for-profit companies. For example, it's increasingly common to find not-for-profit organisations that have trading subsidiaries. These are companies limited by shares that operate as "for-profit" subsidiaries of the not-for-profit parent organisation.

Trusts

A trust exists when one person (or persons, or organisations) holds particular property for the benefit of ascertainable people or purposes, in a manner permitted by the law. The trustees are the legal owners of the trust property (or trust corpus), but they are obliged to hold the property for the benefit of one or more individuals or organisations (the beneficiary), usually specified by the settlor. The trustees owe a fiduciary duty to the beneficiaries, who are the "beneficial" owners of the trust property. The idea came into English law at the time of the crusades, and has been continuously elaborated in the courts ever since until it's a maze of precedent and a minefield of difficulty.

The general law of trusts requires that the trust property must be certain, the identity of the trustee must be certain, and the beneficiary of the trust must be certain and of a kind permitted by the law. The types of trusts that are permitted by the law are trusts for persons, or for purposes that are charitable (in the most narrow of legal senses), or for a very limited set of non-charitable purposes (for the benefit of animals and monuments, for example).

You can set up a trust, or a trust may be presumed from your situation, or may be forced on you by law. Its activities may have tax implications, or may not. A trust can be expressed in writing, or it can be implied. There are no particular forms that must be used to create a trust, and there are thus no simple procedures to follow.

The law of trusts is fanatically complicated. It's impossible to compress it into a few lines, or a few pages, and still have it mean anything to the uninitiated. If you want to set up a trust, or if you want to know what a trust binds you to do, or if you want to know the tax implications of a trust, you have really no choice but to seek out a lawyer.

Aboriginal Councils and Associations

When it comes to obtaining legal status, some aboriginal associations have an additional option to add to incorporation or company status.

Some Aboriginal associations are able to gain legal status under different rules under the Federal Government's Aboriginal Councils and Associations Act 1976.

An incorporation kit and further information is available from:

 

 

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