The main types of community organisations are:
- unincorporated associations;
- A not-for-profit community organisation, such as a club, with a separate legal identity and a structure regulated by legislation.;
- companies limited by A binding promise made as reassurance that another person will carry out their legal obligations (e.g. paying a debt). The person making the promise is called a guarantor. If the person being guaranteed fails to pay, the guarantor becomes responsible for the debt.;
- Indigenous corporations;
There are advantages and disadvantages to each type of community organisation.
For more information and free resources (including a web-based decision-making tool to help you work out which legal structure best suits your group), see Not-for-profit Law’s website (www.nfplaw.org.au/gettingstarted).
Community organisations and COVID-19
Temporary regulatory changes have been implemented to assist community organisations to navigate the challenges imposed by the COVID-19 pandemic. For more information about these changes, see:
- www.oric.gov.au/COVID19 (Indigenous corporations).
1 Unincorporated associations
Groups are free to decide against registering a formal structure with the government. In the eyes of the law, such groups remain simply a collection of individuals; the law (generally) does not recognise the group as a separate entity. This might mean very little to the people in the group, as in their eyes they readily identify the existence of the group and its operation separate to the individuals who form it. However, it means that the unincorporated association’s office bearers or committee members are personally liable for the association’s obligations (although it is possible to reduce this risk if each of them obtains insurance).
Although unincorporated associations do not have formal legal structures, most groups choose a collective name and adopt rules that set out the association’s aims, membership qualifications, any subscription fees, management of meetings, financial matters, dissolution and A change made to a legal document or Act of parliament. of the rules.
The advantages of unincorporated associations are that their organisational structure is very flexible and usually the least costly and time consuming of the organisational structures.
The disadvantages of unincorporated associations are:
- the office bearers or committee members may be personally liable for the association’s debts (and actions in A civil wrong that causes harm, intentionally or otherwise. A person affected by a tort can take action in court to claim compensation for damage caused by the wrong, or an injunction to stop the wrong continuing.; for example, where a person is injured because of An act that breaches a duty to take reasonable care and results in loss or damage to another person. See also tort.) – this can be concerning for groups that run higher risk activities;
- there is no The fact that a company or organisation continues even if one or more of its members dies. Legal ownership of its property is not interrupted by death because everything is owned by the company or group as a whole. – unless a A type of property ownership or arrangement where one party, known as the trustee, holds property or money for the benefit of another party, referred to as the beneficiary. is established, all property acquired by the association belongs to the individual members and therefore, every time the members (or at least the office bearers) change, alterations may need to be made to documents relating to the association’s property (e.g. a A document that sets out an agreement between a landlord and a tenant for the renting out of property, or for the use of other personal property such as a car.);
- there can be some complexity when gifts or trusts in wills are made to unincorporated associations;
- the association generally cannot To take legal action in a civil case. or be sued;
- members may have difficulty enforcing the association’s rules when those rules are not being complied with; this is because courts have sometimes considered that the arrangement between members of an unincorporated association is private in nature and not one that a An independent body that hears legal claims brought by parties and decides between them. Serious cases are heard by a judge and jury, or just a judge. Less-serious cases are heard by a magistrate. should To make people obey a law or the terms of an agreement, using police powers or court orders.;
- members may not have clear contractual or proprietary rights in relation to the association (this can make obtaining insurance or leasing an office or meeting space difficult).
The rules of an unincorporated association may set out the duties of the office bearers or committee members (e.g. the duty to A written law made by parliament. Also called an ‘Act of parliament’, ‘statute’ or legislation. honestly in the best interests of the group and to manage any actual or potential conflicts of interest). For more information about these duties, see www.nfplaw.org.au/governance).
It is unclear to what extent these duties are imposed on the office bearers under the (1) The system of law developed by the English courts through precedent and adopted in ‘common law countries’ in the British Commonwealth (as opposed to Roman law (civil law) or ecclesiastical law). (2) The case law made by judges in that system. (3) Case law that is not part of the law of equity. (4) Historically, the rules of law common to all people in England, as distinct from local or customary laws.. In addition, unincorporated associations need to comply with other laws (see ‘Other laws’, below).
2 Incorporated associations
Overview of incorporated associations
There are over 40 000 incorporated associations in Victoria. Each Australian state has Statutory rules made by parliament or by bodies the parliament delegates power to, for example a local council or a registration authority. See delegated legislation; statute. governing incorporated associations.
Under the Associations Incorporation Reform Act 2012 (Vic) (‘Associations Act’), community organisations can formalise their association in a manner recognised by the law. This benefits the group, but also creates ongoing responsibilities.
The main advantages of incorporation are:
- The Legal responsibility, enforced by civil or criminal courts. of the association’s members (including the office bearers) is limited. This means that the members are only personally liable to a limited extent for the association’s debts or liabilities during its operation, or for the expenses of its winding-up. (For more information, see ‘Incorporated associations’, below.)
- The association can enter into contracts, sue or be sued, buy or sell property, raise or borrow money, and invest money in its own name. Importantly, the association can take out insurance and enter into funding agreements in its name.
- The association has perpetual succession. This means that the group continues to exist, and to be recognised by the law and the public, even when the group’s members change.
The Associations Act imposes certain obligations on incorporated associations, which are designed to protect the interests of members. These are not onerous but should be taken into account when a group is considering incorporating.
Incorporated associations: Fees
Incorporated associations must pay initial and ongoing filing fees. In summary:
- The fee for incorporation of a new association varies between $37.00 and $214.70 (from 1 July 2020) depending on whether the model rules are adopted or whether the association devises its own rules. If an incorporated association is being created from another registered body, the fee for incorporation varies between $59.20 and $237.
- The Associations Act requires certain information about the association’s operation to be reported yearly to the regulator of incorporated associations, Under the Australian Consumer Law, a person who buys goods or services for less than $40 000 or for personal or home use. Affairs Victoria (CAV). The main information is the annual statement. The cost of lodging the annual statement depends on the association’s annual revenue. As at 1 July 2020, the fees are:
- tier one (revenue less than $250 000): $59.20;
- tier two (revenue between $250 000 and $1 million): $118.50;
- tier three (revenue over $1 million): $237.00.
However, note that some Victorian incorporated associations that are registered with the ACNC as charities do not have to lodge an annual statement with CAV or pay the annual fee for the financial year that ended on 30 June 2018 and subsequent years. This exemption does not apply to charities that have been approved by the ACNC to have their financial details withheld from the ACNC register.
An incorporated association’s rules
As outlined in ‘Rules or constitution’, above, an association’s rules contain its purpose and internal processes. The rules are an instruction manual about how an association is to be run. In the Associations Act there is a list of matters that must be contained in the rules (e.g. a The steps that need to be followed by someone with a complaint against an organisation, for example an employer, government department or agency.).
Associations that do not require a complex membership structure may find it easier to adopt:
- the model rules (which are set out in schedule 4 of the Associations Incorporation Reform Regulations 2012 (Vic)); or
- Not-for-profit Law’s simple rules (available at www.nfplaw.org.au/constitution).
Both sets of rules contain all the matters required under the Associations Act.
Or, an association can use Not-for-profit Law’s ‘rules tool’ to create a customised set of rules.
An association’s rules can be changed when at least 75 per cent of the members voting at a general meeting approve passing a special resolution (members must have at least 21 days notice of a general meeting). A change to an association’s rules is effective once CAV has approved the alteration.
Incorporated associations: The legal duties of office bearers
The legal duties of office bearers, and the penalties for breaching them, are set out in the Associations Act.
Broadly, office bearers have a legal duty:
- to act in good faith and for a proper purpose;
- to act with reasonable care, diligence and skill;
- to not misuse information or their position;
- to disclose and manage conflicts of interest.
For more information about office bearers’ legal duties, see www.nfplaw.org.au/governance.
Given the benefits of incorporation – and that the incorporated association is a very common form of legal structure used by groups operating in Victoria – this form of organisational structure is discussed in more detail in ‘Incorporated associations’, below. More information about the process of incorporation and the administration of incorporated associations is available at www.nfplaw.org.au/legalstructure.
3 Companies limited by guarantee
Overview of companies limited by guarantee
Groups may incorporate under the Corporations Act 2001 (Cth) (‘Corporations Act’). A group may incorporate as either a company limited by shares, or as a company limited by guarantee. Only the latter is discussed here, as it is the most appropriate company structure (and the most common structure) for community organisations.
In a company limited by guarantee, the members guarantee to pay a fixed but nominal amount in the event that the company does not have enough money to pay all its debts when it is wound-up.
In general, a company’s internal management is governed by:
- the Corporations Act provisions that apply to that type of company (called ‘replaceable rules’);
- a constitution (or a memorandum and articles of association for a company formed before 1 July 1998 that has not adopted a constitution); or
- a combination of both.
A board of directors must be appointed, and the various requirements of the Corporations Act (especially in relation to meetings and the lodgment of accounts) must be observed.
Also, companies limited by guarantee have different auditing requirements depending on their size (or ‘tier’) and whether they are endorsed as a deductible gift recipient (DGR) for tax purposes. Broadly, the relevant tiers are:
- tier one: annual revenue less than $250 000 and with no DGR status;
- tier two: annual revenue between $250 000 and $1 million and with no DGR status, or less than $1 million with DGR status;
- tier three: annual revenue over $1 million (with or without DGR status).
For a company limited by guarantee that is also a registered charity, the annual report and most notices of changes to the organisation are given to the ACNC, rather than to the usual regulator of companies, the Australian Securities and Investments Commission (ASIC). The ACNC does not (1) A statement giving the details of a crime an accused person is claimed to have committed. (2) A personal property security. (3) A judge’s directions to a jury at the end of a case. fees.
For more information about ACNC reporting requirements, and the differences in reporting to ASIC, see www.acnc.gov.au.
Companies limited by guarantee: Fees
From 1 July 2020, the fee for incorporating a company limited by guarantee is $417. For companies limited by guarantee that are not registered as charities, there are other fees. These ongoing fees range from $51 to $1267, depending on the company’s size. For more information, see www.asic.gov.au.
Also, in 2018 the federal government introduced the ASIC industry funding model. This introduced an annual levy payable by ASIC-regulated entities, including companies limited by guarantee. However, registered charities are exempt from this levy.
Companies limited by guarantee: The legal duties of directors
Similar to office bearers in an incorporated assoc-iation, the directors (and, in some situations, other company office bearers) of companies limited by guarantee have legal duties they need to understand and comply with. The Corporations Act contains defences and penalties in relation to these legal duties.
For companies limited by guarantee that are registered charities, most of these duties are set out in ACNC governance standard 5, rather than in the Corporations Act.
Companies limited by guarantee: When this structure can be preferable
A company limited by guarantee can be a preferable option to an incorporated association or a co-operative if your group:
- thinks it might want to carry on business (regular activities) outside Victoria; or
- intends to be a large organisation.
For a comparison of an incorporated association and a company limited by guarantee, and tips about when to use which structure, see www.nfplaw.org.au/legalstructure.
4 Indigenous corporations
Overview of Indigenous corporations
Indigenous corporations incorporated under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (‘CATSI Act’) can be for-profit or not-for-profit. The structure of a not-for-profit Indigenous corporation is similar to the structure of a company limited by guarantee. The Indigenous corporation structure has been designed to take into account Indigenous customs and traditions.
Members of an Indigenous corporation may elect to have limited liability.
Indigenous corporations are regulated by a specialist regulator, the Office of the The officer in charge of the administrative section of a court, which is known as the registry. See also prothonotary. of Indigenous Corporations (ORIC), not ASIC. ORIC has additional regulatory powers to those of ASIC (e.g. the power to call meetings of members and to appoint special administrators).
Organisations that are incorporated as Indigenous corporations must have the words ‘Aboriginal corporation’, ‘Torres Strait Islander corporation’, ‘Aboriginal and Torres Strait Islander corporation’, ‘Torres Strait Islander and Aboriginal corporation’ or ‘Indigenous corporation’ in their name.
Indigenous corporations: Eligibility
To be eligible to register as an Indigenous corporation, organisations must satisfy the registration requirements set out in the CATSI Act.
Registered Indigenous corporations must have:
- at least five members (although it is possible to request an exemption on certain grounds; e.g. the corporation is a sole trader) who are 15 years old or older;
- at least 51 per cent of the members are Aboriginal or Torres Strait Islander (as defined);
- a ‘rule book’ (i.e. a constitution) that governs the corporation’s activities and complies with the CATSI Act.
Organisations that must be Indigenous corporations
Corporations managing or holding land under the The interests and rights of Indigenous Australians to their traditional land. This title is not the same as a certificate of title. It is a connection to land under traditional laws and customs that has not been interrupted by later settlement and permits use of the land for traditional purposes. Act 1993 (Cth) and the Native Title (Prescribed Bodies Corporate) Regulations 1999 (Cth) must incorporate as Indigenous corporations. Indigenous organisations receiving grants of more than $500 000 from the National Indigenous Australians Agency of the Australian Government must be incorporated under the CATSI Act.
Advantages of incorporating as an Indigenous corporation
The advantages of incorporating as an Indigenous corporation include:
- the corporation’s rules or constitution can take into account Indigenous customs and traditions;
- registering as an Indigenous corporation is free and there are no ongoing fees under the CATSI Act;
- corporations may be exempt from producing annual reports (especially corporations with a small revenue);
- Indigenous corporations deal with a specialist regulator (ORIC), rather than with ASIC.
Indigenous corporations: Reporting requirements
The reporting requirements of Indigenous corporations vary according to the corporation’s registered size:
- small corporation (with a consolidated gross operating income of less than $100 000): a general report only;
- small corporation (with a consolidated gross operating income of between $100 000 and $5 million): a general report, financial report and audit report (or, if eligible, a financial report based on reports to government funders);
- medium corporation (with a consolidated gross operating income of less than $5 million): a general report, financial report and audit report (or, if eligible, a financial report based on reports to government funders);
- large corporation (with a consolidated gross operating income of $5 million or more): a general report, financial report, audit report and directors’ report.
Indigenous corporations: The rights and duties of members
Broadly, members of an Indigenous corporation have the same rights and obligations as members of an incorporated association or company limited by guarantee. The CATSI Act sets out the duties and obligations of directors and other office bearers in an Indigenous corporation. These duties are consistent with those of a director of a company limited by guarantee (discussed above).
For more information about setting up an Indigenous corporation, see ORIC’s step-by-step guide (www.oric.gov.au/start-corporation/steps-register).
Overview of co-operatives
In 2014, the Co-operatives Act 1996 (Vic) (‘Co-operatives Act’) was replaced by the Co-operatives National Law (CNL), which was applied in Victoria by the Co-operatives National Law Application Act 2013 (Vic).
Co-operatives registered under the Co-operatives Act had their registration automatically transferred to the CNL. The CNL allows co-operatives to operate freely across state and territory borders, without requiring separate registration and reporting in each state or territory.
The CNL has been applied in all Australian states and territories, except for Queensland (as at 1 July 2020). This means that if co-operatives wish to operate in Queensland, they need to register under the Cooperatives Act 1997 (Qld).
Not all groups are eligible to register as a co-operative. The registrar of co-operatives has to be satisfied that the registration requirements have been met.
There are two forms of co-operatives.A distributing co-operative should be formed if members A document that sets out what a person wants to happen to their money and other property after they die. receive a share of any profit (during operation or winding-up) or a return on capital if the co-operative is winding-up.
A non-distributing co-operative (which may issue shares, not issue shares, or be guaranteed by the government) should be formed if any profit is going to be reinvested back into the co-operative, or if members receive only the original value of their shares on winding-up. Non-distributing co-operatives are not-for-profit organisations.
The obligations and The amount charged by a lawyer for legal work. Lawyers can only charge the amount agreed with the client in a costs agreement or the amount stated by a court in its rules. The party who loses a case usually has to pay all their own costs plus most of the costs reasonably incurred by the other side. See also indemnity costs. that apply to the registration of a co-operative are similar to those that apply to the registration of an incorporated association (i.e. $32.60 from 1 July 2020). The fee to apply for approval of a proposed name and rules varies between $81.50 and $370.30 (from 1 July 2020), depending on whether a non-distributing or a distributing co-operative is being established.
Co-operatives’ registration requirements
A co-operative must function in accordance with co-operative principles, which are focused on providing democratic member participation and control (one member, one vote).
If a proposed arrangement does not accord with the principles, CAV must be satisfied that there are special reasons why the co-operative should be registered. Current incorporated bodies may change to co-operatives if they meet the registration requirements.
Co-operatives’ financial reporting
Financial reporting for co-operatives is broken into two categories according to their size and fundraising activities: small and large co-operatives.
A small co-operative is a co-operative that, in a particular year, did not raise funds from the public issue of securities, and satisfies at least two of the following criteria:
- the consolidated revenue of the co-operative and the entities it controls (if any) is less than $8 million for the previous financial year;
- the value of the consolidated gross assets and the entities it controls (if any) is less than $4 million at the end of the previous financial year;
- the co-operative and the entities it controls (if any) had fewer than 30 employees at the end of the previous financial year.
Small co-operatives only need to submit a simplified annual report to CAV within five months of the end of a financial year, unless their rules require them to have their accounts audited.
All co-operatives that do not fall within the definition of a small co-operative are large co-operatives. Large co-operatives must have their financial statements audited in accordance with the Corporations Act and obtain an auditor’s report. These financial statements, the auditor’s report and annual report must be lodged with CAV within five months of the end of a financial year.
For more information about setting-up and running a co-operative, see www.consumer.vic.gov.au.