Not-for-profit organisations, such as sporting clubs, religious organisations and private schools, may operate under a number of different structures. It is important that not-for-profit organisations understand these structures and their associated benefits and drawbacks in order to choose a structure which best suit its needs. The most commonly used not-for-profit structures are set out below.
An incorporated association is an association registered under the Associations Incorporation Act 1981 (Vic) or equivalent legislation in other states.
In general terms, an incorporated association is governed by 'rules of association' and managed by a committee of management which determines the affairs of the incorporated association subject to the relevant legislation and rules of association.
The members of an incorporated association have limited liability, such that they are not liable for the debts or liabilities of the incorporated association.
The main advantages of operating as an incorporated association are:
- It is relatively easy and inexpensive
- Less onerous office-holder duties and financial reporting requirements apply than do for a company limited by guarantee
However, the main disadvantages of operating as an incorporated association are:
- It is recognised in the state of its incorporation and may be subject to further registration and compliance requirements if it wishes to trade nationally
- It must have at least five members
- Succession difficulties may arise in membership
A company limited by guarantee is a body corporate registered under the Corporations Act 2001 (Cth).
In general terms, a company limited by guarantee is governed by a company constitution which sets out a number of matters, including the structure, function and objectives of the company. It is controlled by directors who determine the affairs of the company subject to the Corporations Act, company constitution and general law.
A company limited by guarantee does not have a share capital and therefore does not have any means of distributing profits to its members. The liability of each member is limited to a guaranteed amount, which is often a nominal amount.
The main advantages of operating as a company limited by guarantee are:
- It may have only one member
- It has a higher status in public perception than an incorporated association
- It is recognised nationally
- It has the ability to borrow on a commercial basis in circumstances where an incorporated association may not
However, the main disadvantages of operating as a company limited by guarantee are:
- More onerous regulatory requirements apply than do for an incorporated association - A company limited by guarantee must prepare detailed financial reports and directors’ reports and obtain auditing and auditors’ reports. However, most not-for-profit organisations have to prepare these reports in any event and such accounting is inherent in a properly run company.
- More onerous office-holder duties apply than do for an incorporated association - Directors of a company limited by guarantee are subject to directors’ duties under the Corporations Act. However, the general law and public expectation operate such that office-holders of an incorporated association are also expected to act with a high degree of care and skill.
For further information, please contact Damien Wurzel please contact Damien Wurzel on +61 3 9608 2288 or d.wurzel@cornwalls.com.au
