Types of community organisations
Types of community organisations
The main types of community organisations are:
- unincorporated associations;
- incorporated associations;
- companies limited by guarantee;
- Indigenous corporations; and
- co-operatives. 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/free-resources/getting-started).
1 Unincorporated associations
Groups are free to decide against registering a formal structure. 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 holders 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 amendment 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 holders or committee members may be personally liable for the association’s debts (and actions in tort; for example, where a person is injured because of negligence) – this can be concerning for groups that run higher risk activities;
- there is no perpetual succession – unless a trust is established, all property acquired by the association belongs to the individual members and therefore, every time the members (or at least the office holders) change, alterations may need to be made to documents relating to the association’s property (e.g. a lease);
- there can be some complexity when gifts or trusts in wills are made to unincorporated associations;
- the association generally cannot sue 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 court should enforce; and
- 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 holders or committee members (e.g. the duty to act 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 holders or committee members under the common law. In addition, unincorporated associations need to comply with other laws (see ‘Other Laws’, below).
2 Incorporated associations
Overview of incorporated associations There are over 38,000 incorporated associations in Victoria. Each Australian state and territory has legislation 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 liability of the association’s members (including the office holders) 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 (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 is $79.50 or $477.00 (from 1 July 2023 to 30 June 2024) depending on whether the model rules are adopted or whether the association devises its own rules. If an incorporated association is being migrated from another registered body, the fee for incorporation is $127.20 (model rules) or $524.70 (own rules).
- The Associations Act requires certain information about the association’s operation to be reported yearly to the regulator of incorporated associations, Consumer Affairs Victoria (CAV). The main information is the annual statement. The cost of lodging the annual statement depends on the association’s total annual revenue. From 1 July 2023 to 30 June 2024, the tiers, revenue thresholds and fees for lodging the annual statement are: – tier one (total annual revenue of less than $250,000): $47.70; – tier two (total annual revenue of between $250,000 and $1 million): $95.40; and – tier three (total annual revenue of more than $1 million): $190.80. From 1 July 2024, the tiers and revenue thresholds for financial reporting will be revised to align with the ACNC’s financial reporting thresholds for small, medium and large charities. Where an association’s financial year starts on or after 1 July 2024, its tier will be determined by the new revenue thresholds. From 1 July 2024, the new tiers and revenue thresholds will be:
- tier one: total annual revenue of less than $500,000;
- tier two: total annual revenue of between $500,000 and $3 million; and
- tier three: total annual revenue of more than $3 million. However, note that Victorian incorporated associations that are registered as charities with the ACNC do not need to lodge an annual statement with CAV or pay the annual statement lodgement fee, provided that they continue to lodge an annual information statement with the ACNC for each financial year and follow the ACNC’s regulatory requirements. This exemption does not apply to charities that have been approved by the ACNC to withhold their financial details or finance reports from the ACNC register, or that form part of an approved reporting group.
An incorporated association’s rules
As outlined in ‘Rules or constitution’, above, an association’s rules contain its purpose and its 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 grievance procedure). 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 2023 (Vic)); or
- use Not-for-profit Law’s ‘Rules Tool’ to create a customised set of rules (available at https://apps. nfplaw.org.au/vic-rules-tool). Both sets of rules will contain all the matters required under the Associations Act. 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. The notice must say that a special resolution is intended to be passed and the wording of the resolution must be set out in the notice. A change to an association’s rules is effective once CAV has approved the alteration. Associations registered as charities with the ACNC will then need to provide the ACNC with a copy of the amended rules via the Charities Portal (within 60 days for small charities and within 28 days for medium and large charities).
Incorporated associations: the legal duties of office holders
The legal duties of office holders, and the penalties for breaching them, are set out in the Associations Act. An office holder includes: - a member of the committee;
- the secretary;
- a person, including an employee of the association, who makes, or participates in making, decisions that affect the whole, or a substantial part, of the operations of the association;
- a person who has the capacity to significantly affect the association’s financial standing; and
- a person in accordance with whose instructions or wishes the committee of the association are accustomed to act (but excluding a person who gives advice to the association in the proper performance of functions attaching to the person’s professional capacity or to the person’s business relationship with committee members or with the association). Broadly, office holders 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; and
- to disclose and manage conflicts of interest. For more information about office holders’ legal duties, see www.nfplaw.org.au/free-resources/who- runs-the-organisation/responsibilities-of-the-board- and-committee-members. The incorporated association is a very common form of legal structure used by groups operating in Victoria, which 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/free-resources/ getting-started/legal-structure.
3 Companies limited by guarantee
Overview of companies limited by guarantee Groups may incorporate under the Corporations Act 2001 (Cth) (‘Corporations Act’). Under this 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 company limited by guarantee must have a minimum of one member, three directors and a company secretary. It is possible for a person to hold more than one of these roles. A company limited by guarantee must comply with various requirements of the Corporations Act (especially in relation to meetings and the lodgment of accounts). A company limited by guarantee will report to the Australian Securities and Investments Commission (ASIC). It will have different reporting requirements depending on its size (or ‘tier’) and whether it is endorsed as a deductible gift recipient (DGR) for tax purposes. Broadly, the relevant tiers are:
- tier one: small company limited by guarantee with annual revenue of less than $250,000, without DGR status;
- tier two: company limited by guarantee with annual revenue of less than $250,000 and with DGR status; or company limited by guarantee with annual revenue of more than $250,000 and less than $1 million, with or without DGR status; and
- tier three: company limited by guarantee with annual revenue of more than $1 million, with or without DGR status. Generally, if a company limited by guarantee is registered as a charity with the ACNC, it does not have to comply with several major obligations and requirements in the Corporations Act. Instead, these charities must comply with similar ACNC obligations and requirements (see ‘Charities’ reporting requirements’, below). For more information about ACNC reporting requirements, and the differences in reporting to ASIC, see www.acnc.gov.au/for-charities/manage- your-charity/other-regulators/companies-limited- guarantee.
Companies limited by guarantee: fees
From 1 July 2023, the fee for incorporating a company limited by guarantee is $474. Companies limited by guarantee that are not registered as charities must pay other fees, including ASIC’s annual review fees. These fees range from $59 to $1440, depending on the company’s size and whether the company is registered as a not-for-profit special purpose company. For more information, see: - www.asic.g ov.au/for-business/r unning-a- company/annual-statements;
- www.asic.gov.au/for-business/registering-a- company/steps-to-register-a-company/special- purpose-companies; and
- www/asic.gov.au/for-business/payments-fees- and-invoices/asic-fees/fees-for-commonly- lodged-documents/annual-review. The federal government has introduced the ASIC industry funding model. This introduced an annual levy payable by ASIC-regulated entities, including companies limited by guarantee (see www.asic.gov. au). Charities registered with the ACNC are exempt from this levy.
Companies limited by guarantee: the legal duties of directors
Similar to office holders in an incorporated association, the directors (and, in some situations, other company office holders) 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 (see www.acnc.gov. au), 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 on being 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/free- resources/getting-started/legal-structure.
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 Indigenous corporation structure has been designed to take into account Indigenous customs and traditions.
Members of an Indigenous corporation may elect to have limited or no liability.
Indigenous corporations are regulated by a specialist regulator, the Office of the Registrar 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 follow ing registration requirements as set out in the CATSI Act:
- the corporation must have at least five members (although an exemption can be granted on certain grounds; e.g. where the corporation is a sole trader) who are at least 15 years of age;
- if the corporation has five or more members, at least 51 per cent of members must be Aboriginal or Torres Strait Islander persons;
- if the corporation has fewer than five members but more than one member, all of the members or all but one of the members must be Aboriginal or Torres Strait Islander persons;
- if the corporation has only one member, that member must be an Aboriginal or Torres Strait Islander person; and
- the corporation must have 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 Native Title Act 1993 (Cth) and the Native Title (Prescribed Bodies Corporate) Regulations 1999 (Cth) must incorporate as Indigenous corporations. Indigenous organisations receiving grants of $500,000 (GST exclusive) or more in any single financial year from funding administered by 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);
- corporations can access free advice and support from ORIC; and
- Indigenous corporations deal with a specialist regulator (ORIC), rather than with ASIC.
Indigenous corporations: reporting requirements
The reporting requirements for Indigenous corporations vary according to the corporation’s income, assets and its number of employees in a financial year: - small corporation (must have at least two of the following: a consolidated gross operating income of less than $100,000, consolidated gross assets valued at less than $100,000 and fewer than five employees): a general report only;
- small corporation (with a consolidated gross operating income of between $100,000 and $5 million): a general report, a financial report and an audit report (or a general report and a financial report based on reports to government funders, if eligible);
- medium corporation (must have at least two of the following: a consolidated gross operating income of between $100,000 and $5 million, consolidated gross assets valued between $100,000 and $2.5 million and between five and 24 employees): a general report, a financial report and an audit report (or, a general report and a financial report based on reports to government funders, if eligible); and
- large corporation (must have at least two of the following: a consolidated gross operating income of $5 million or more, consolidated gross assets valued at $2.5 million or more and more than 24 employees): 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 holders 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).
5 Co-operatives
Overview of co-operatives Co-operatives are administered under the Co‑op eratives National Law (CNL), which was applied in Victoria by the Co-operatives National Law Application Act 2013 (Vic). The CNL has been applied in all Australian states and territories.
The CNL allows co-operatives to operate freely across state and territory borders, without requiring separate registration and reporting in each state or territory.
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 will 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 or may not issue shares) 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 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. $35.00 from 1 July 2023 to 30 June 2024). The fee to apply for approval of a proposed name and rules varies between $87.50 and $397.60 (from 1 July 2023 to 30 June 2024), depending on whether a non-distributing or a distributing co-operative is being established. Co-operatives’ registration requirements The name of a co-operative must include the word ‘Co-operative’ and end with ‘Limited’. Acceptable abbreviations include ‘Co-op’, ‘Ltd’ and ‘&’. Any other abbreviation must be approved by the Registrar.
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, the Registrar 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 satisfies at least two of the following criteria:
- the consolidated revenue of the co-operative and the entities it controls (if any) was less than $8 million for the previous financial year;
- the value of the consolidated gross assets of the co-operative and the entities it controls (if any) was 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. A small co-operative must, in a particular year, also have:
- no securities issued to non-members (other than securities issued to former members on the cancellation of their membership); or
- not issued shares to more than 20 members in a financial year; or, if it has done this, the amount raised by issuing those shares does not exceed $2 million. Small co-operatives must lodge a simplified annual report with CAV (unless their rules require them to have their accounts audited, or an audit is requested by its members or the Registrar) within 28 days of the AGM. 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. Large co-operatives must lodge an annual report, the financial report, the annual director’s report and the auditor’s report with CAV within 28 days of the AGM. The co-operative must hold its first AGM within 18 months of registration. Subsequent AGMs must be held within five months of the end of the co-operative’s financial year (specified in its rules), or at a time approved by the Registrar. For more information about setting up and running a co-operative, see www.consumer.vic.gov. au/licensing-and-registration/co-operatives. The Business Council of Co-operatives and Mutuals is Australia’s peak body for co-operatives and mutuals and has useful free information on its website (see www.bccm.coop).