The most common legal structure for a not-for-profit group is the incorporated association. The merits include limited liability for members and the ability to buy or sell property and borrow money. Unincorporated associations are more flexible but liability is unlimited. A company limited by guarantee has higher compliance costs but can operate interstate. Co-operatives must fully conform to co-operative principles to be registered. Incorporated associations have obligations to the Registrar of Associations. A secretary must be appointed. Business activity may be conducted. An annual general meeting must be held. Minutes of meetings must be kept and financial reporting is mandatory. The Associations Incorporation Reform Act 2012 (Vic) has codified the duties of office holders and committee members. Tax must be paid on income unless tax-free status is granted or the association is a deductible gift recipient.

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Community organisations: Key terms

Last updated

1 July 2020

‘Not-for-profit’ organisations

‘Not-for-profit’ and ‘non-profit’ are terms used in relation to organisations in which any profit made must be used to benefit or further the aims of the organisation. These terms do not mean the organisation cannot make a profit (i.e. a surplus); all groups need to at least break even or make a small profit to remain solvent (i.e. viable).

Instead, ‘not-for-profit’ refers to a restriction on what the profit can be used for; namely, the profit cannot be distributed to certain people, including to the organisation’s members, directors, or their associates. In other words, the difference between a business (for profit) and a not-for-profit organisation is what happens with the profit they make.

More information is available from the Australian Taxation Office (ATO) (see www.ato.gov.au/Non-profit/Getting-started/Starting-an-NFP/).

‘Charities’

All charities have to be not-for-profit organisations, but not all not-for-profit organisations are charities. It has been estimated that there are around 600 000 not-for-profit groups in Australia. By contrast, there are approximately 57 000 charities registered with the Australian Charities and Not-for-profit Commission (ACNC).

‘Charity’ and ‘charitable purposes’ are defined in the Charities Act 2013 (Cth) (‘Charities Act’). These terms are also defined in state legislation, local government laws and in the common law.

It is important to know whether your group is eligible to be registered as a charity with the ACNC. Registering with the ACNC can provide access to charity tax concessions and other benefits (see ‘Tax concessions’, below).

‘Rules’ or ‘constitution’

A not-for-profit organisation’s rules (sometimes called a ‘constitution’) govern the internal affairs of the organisation. This is a written document covering how the organisation operates – including an organisation’s purpose, membership, meetings, governance, use of funds and winding-up. Some legal structures, like incorporated associations, have minimum legislative requirements that must be dealt with in an organisation’s rules.

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