Overview

Congratulations on wanting to make a difference! Establishing a community organisation is a challenge but very rewarding. Before you start setting up meetings and pouring all of your energy into this project here are few ideas and tips about getting started.

Your group might be just a few people who work together to help meet the needs of their community. You don’t have to be a formal organisation to be a community group but you might want to find out if it could help your group to grow even larger and work better.

Setting up as a formal organisation involves some preparation and may change the way you work as a group, so the first thing to consider is whether it might be better to become part of another organisation or continue to work as a community group.

Are there other groups doing what we do already?

In Australia there are over 600,000 community groups and organisations so there may already be someone doing the same sort of work as your group. If there is an organisation doing similar work, you could discuss with them if your group could become members and continue your work with their help. This would give you all the benefits of being part of a larger organisation that might have more experience and resources to help your community.

Before talking to other organisations, you will need to have a clear idea about the aims and objectives or purpose of your own group. Understanding why you are working together and what you want to achieve will make it easier to decide if another organisation is already meeting these needs.

You might decide not to join another organisation but some of the people that you talk to may be able to give you advice if you do decide to become a formal organisation.

To find out about other groups:

1. Check what is happening in your local area with your local council, state or federal member of parliament
2. check with the relevant state authority the Office of Fair Trading or the relevant government department for the area in which you wish to set up the organisation
3. Speak to relevant peak bodies that cover your area of interest
4. Search the internet
5. Once you have decided that you really do want to establish a new community organisation to address the issue then it would be a good idea to undertake research into who is affected, what help is required and what can be done to help.
6. Get others involved

By now you have communicated with a number of people about a need for a new organisation and no doubt have found others who want to get involved. The best way to keep up momentum is to start having regular meetings. At the meetings you can:

• Invite people to share their ideas and contribute to the vision
• Invite experts or professionals
• Invite the public.

Form a work group

The purpose of this group is to set up the new organisation. Ideally the group consists of about five to seven people to share the workload but at the same time keep decision-making quick and less formal. If the work group includes someone who is affected by the issue their experience and connections can be invaluable.

Define who you are and what you do

Your mission and what you want to achieve should be at the top of your mind from the start. If you have crystallised your thoughts about the group’s purpose it will make it easier to decide the structure of your group and whether or not to incorporate.

Other useful resources can be found on the Our Community website and Not-for-profit Law.

Choose a name

If you are considering becoming incorporated there are some legal requirements around names you can’t use and requirements about what needs to be included in the name so that the public is aware of what type of organisation it is dealing with.

You should also check the names registers to make sure that the name is not already taken. You can do a national names index search through ASIC or the Office of Fair Trading.

It may also be wise to check that the name you are thinking of has not already been protected for example as a trademark. You don’t want an international corporate giant suing your organisation for breach of intellectual property. For more information visit IP Australia.

Your group is up and running with a name, clear aims and enthusiastic members. The next decision is whether your group is going to operate on a formal or informal basis.

Do we need to become a formal organisation?

A community group that is not a formal organisation is also known as an unincorporated association. As an unincorporated association, you can organise your activities largely as you like and will have few legal responsibilities.

Although you might have fewer legal responsibilities as a group there are more things that individual group members might be responsible for personally. For example, if your group wants to rent an office, someone in the group will need to be personally responsible for signing the lease. If the group is unable to pay the rent for some reason, then the person whose name is on the lease may have to pay. If the group wants to open a bank account or take out insurance or buy property, it will be members of the group who may be liable for any debts or may even be sued.

A community group that is an unincorporated association may also have difficulty applying for or receiving grants from the government or other organisations. However, a group that does become a formal organisation or incorporates will have legal status that is separate to the individual members. This means that members of your group may have more legal protection if there are problems. It also means that you will have a number of legal responsibilities.

Finding out more about becoming incorporated

There are a lot of other things that your group will need to consider before becoming incorporated, including how it might change the way that your group does its work. To understand all the requirements of becoming incorporated, it will help if there are members of your group with English language proficiency and book-keeping skills.

To find out more about becoming incorporated, there is further information provided below and in the following sections. It might also be helpful to talk to other community organisations about their experiences.

Before your group makes any decisions about whether to become incorporated, you might want to ask for advice from a solicitor and/or an accountant.

Further resources

• Office of Fair Trading
• Our Community
• Caxton Legal Centre
• Australian Taxation Office
• Office of the Registrar of Indigenous Corporations (ORIC)

What does not-for-profit mean?

In a not-for-profit organisation, the profits are not paid to the individual members of the organisation while the organisation is in operation or when it ends. Instead, any profit that the organisation makes must be used to further the purposes of the organisation. That is, the profits are re-invested into the organisation, to continue to pay for its activities and functions.

In fact, it might be a good idea for a not-for-profit organisation to aim to have a small profit each year, to be able to pay for unexpected expenses or to start new programs. Not-for-profit organisations can also:

• employ people and pay them reasonable salaries;
• make money by charging members of the public for services;
• make money by selling or leasing property; and
• invest money in shares and receive dividends.

It is what the organisation does with the profit, rather than the fact it might have made a profit, which makes the organisation not-for-profit. For example, in a not-for-profit organisation, any of the profits that the organisation makes, from the sale of services or property, must be used to carry out the organisation’s purpose and must not be distributed to members or any other individuals.

What is a for-profit organisation and how is this different?

In a for-profit organisation (such as a business), the profit may be distributed to the organisation’s owners, or to individuals members or shareholders. In a for-profit organisation, people who are involved in the organisation are entitled to receive a personal benefit from the profits of the organisation (such as a dividend, or money when they sell their shares, or a payment directly from the profit). It can be a little confusing as some of these for-profit organisations operate in the community sector (for example, in childcare and aged care).

Different laws for not-for-profits

It is important to know the difference because there are different laws that apply to for-profit and not-for-profit organisations. Many of these laws treat not-for-profits favourably – on the basis that the organisation hasn’t been set up by people to make a personal profit, and that the resources of the organisation will be put back in to helping the community. For example:

• legal structure: if your organisation wants to incorporate, there are particular legal structures that are only available to not-for-profit organisations (such as an incorporated association)
• tax laws: the tax laws offer a number of tax exemptions, concessions or benefits to eligible not-for-profit organisations (although being not-for-profit is only one of a number of requirements)
• funding: some government grant programs and many private philanthropic bodies are set up only to fund not-for-profit organisations
• fundraising: some laws only allow not-for-profit organisations like charities and community groups to apply for registration to conduct certain fundraising activities (like minor gaming activities).

Queensland laws relating to incorporated associations

The Associations Incorporation Act 1981 (Qld) provides a simple legal structure for associations that are not formed for the purpose of providing financial gain to members. Financial gain is extensively defined in section 4 of the Act.

Disclaimer

This information is based on material produced by the Not-for-Profit Law website. We acknowledge their support in allowing us to adapt their material for Queensland community organisations. This information may be used for personal use, or non-commercial use within not-for-profit organisations. However, this does not constitute legal advice. If you or your organisation has a specific legal issue, you should seek legal advice before making a decision about what to do.

Should we incorporate?

You have decided to set up a group and are now clear on what your mission, objectives, membership and activities are. The next decision to make is whether your group is going to operate on a Not-for-profit or for-profit basis. This is important because there are different legal structures for for-profit and not-for-profit organisations and different laws apply to each. Some laws refer to legal structures (such as incorporated associations) not being formed for financial gain of the members or pecuniary gain of members.

What is incorporation?

Incorporation is a voluntary means of creating a legal identity. Through incorporation the association becomes in the eyes of the law a legal body which allows the group to:

• Continue to exist regardless of the change to the membership;
• Take legal action in its own name and also allows others to sue the association rather than individual members
• Buy, sell and own property
• Borrow money
• Enter into contracts
• Apply for government grants
• Accept gifts and legacies under a Will
• Limits the liability of members

Do we have to incorporate?

Incorporation is not obligatory or compulsory. Many unincorporated groups and clubs operate in the community and function very well. But there are risks and disadvantages to remaining unincorporated.

Pros and cons of incorporation

Advantages

Generally, once the group starts to accumulate money and assets and starts to become active in the community, it should seriously consider incorporating in a way that separates the individual person (member) from the entity. The benefits of incorporating your association include:

• Simplifies and clarifies the management and ownership of the money and other assets of the body. Bank accounts are held in the name of the association. Assets are purchased and owned by the association. The association can enter into contracts.
• Provides some legal and financial protection for the management committee of the association who otherwise might be liable for damages and contractual obligations arising from the activities of the association. Without incorporation, a group has no separate legal existence. Incorporation protects committee members from most personal liability but leaves them with the responsibility to act honestly and prudently.
• Clarifies and formalises the objectives of the association. To become incorporated, associations need to state clearly the purposes for which they are being formed. The purposes, frequently known as the objects of the association, are fixed in the rules of the association (also known as the constitution). The regulating body must be advised of any changes.
• Sets out regulations about how the association shall operate. These regulations are designed to ensure that the association operates fairly, responsibly and accountably to its members. They also protect against dishonesty and manage matters such as conflict of interest. Being incorporated also requires that some information is regularly made available to the regulating body and to the public about the affairs and operations of the association.
• Allows organisations to apply for a much wider range of public and private funding. Many government and philanthropic organisations make it a basic requirement that applicants for funding are incorporated.
• Allows some incorporated bodies to enjoy tax advantages. Considering the benefits incorporation provides within this Act, the cost for incorporation is a worthwhile investment.

Once incorporated, there are some regular compliance tasks required such as the keeping of records, holding of elections and submitting of returns.

Disadvantages

Incorporation whether as an incorporated association or as a company limited by guarantee requires regular and ongoing compliance with government regulation. There is a cost in fulfilling each of the requirements in both time and money. Incorporation also means being open to publicly scrutiny. Matters to consider prior to looking at incorporating are:

• Being prepared to forgo total privacy of the association’s financial matters and accept that there will be public scrutiny of the association’s activities
• Being prepared to follow the regulations as set down by government. This may not give you the total flexibility that your group has now
• Weigh up the risk associated with being incorporated against the benefits of incorporation
• Most incorporated associations will be required to have compulsory public liability insurance
• Membership records and minutes must be kept

Checklist for whether or not to incorporate

The Caxton Street Incorporated Association Manual set out the following rough checklist which you may find helpful.

If you answer ‘yes’ or ‘not applicable’ or ‘does not matter’ to the following questions an incorporated association may be appropriate. If you answer no, consideration ought to be given to whether an incorporated association is really the most appropriate structure for your organisation.

• Do your committee members require limited liability as far as the possible debts and liabilities of the association are concerned?
• Does your association need to borrow money from a financial institution?
• Does your association intend to buy or lease land?
• Does your association intend to enter into contracts to buy property (other than land) or services?
• Could your association be left a gift under a will?
• Will your association be given grants by a government department or local council?
• Can your association function along democratic lines? Will it make any difference to the public or members of the association if the word ‘inc’ or ‘incorporated’ must form part of its name?
• Can your association (if over $100,000 in revenue or assets) afford to have its accounts prepared and audited properly each year or find volunteers to do this task?
• Does your committee meet at least once in every four months in the year?
• Can your association afford the incorporation fees?
• Can your association afford the premiums for public liability insurance if the association owns or leases land?
• Will the association’s members be willing not to receive any distributions of money from the association?
• Has your association at least three committee members and at least 7 members?
• Will all the committee members be adults?
• Do the members of the association mind if their annual report and financial statements are made public?
• Will the association exist for the foreseeable future?
• Is the association prepared to keep accurate minutes of its decisions and a register of members?
• Is the income and property of the association to be used solely in promotion of its objects?
• Will your association conduct art unions, raffles or bingo?

What are the obligations of being incorporated?

While there are benefits to incorporation (for example limited liability) being an incorporated group also comes with obligations. These include:

• Have to have a name (which generally must have the words ‘incorporated’ or ‘inc’ or ‘limited’ or ‘Ltd’ after it);
• Have to have a written constitution or set of rules that the group agrees to operate by;
• Having to pay registration fees and annual fees to government
• Having to keep the public register which includes the name and address of the contact person up to date
• Have to hold meetings and keep certain records.

NB: The requirements for initial incorporation and the ongoing obligations and reporting requirements vary depending on the type of incorporated legal structure your group chooses.

Setting up an incorporated association in Queensland

In Queensland, the process of setting up an incorporated association is set out in the Associations Incorporation Act 1981 (Qld). This Act also sets out what your organisation must do to maintain its status as an incorporated organisation.

The government body responsible for administering the Associations Incorporation Act is the Office of Fair Trading Queensland. To become an incorporated association you must apply to the Registrar of Incorporated Associations.

While setting up an incorporated association is relatively simple process, there are a few important decisions that your organisation will need to make (and may need to get advice about). In particular, the wording of your organisation’s objectives and rules needs to be chosen carefully so that your organisation can apply for tax concessions, fundraising registration and other benefits in the future. It is worth getting these documents right at the start, as it can be time-consuming and difficult to change them later on.

Legislation

• Queensland Associations Incorporation Act 1981
• Queensland Associations Incorporation regulation
• Australian Securities and Investments Commission
• Queensland Co-operatives legislation
• Corporations Act 2001
• Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act)

Company limited by guarantee

Although we often think of a company as being a business, a company limited by guarantee is a special form of public company that can be used by not-for-profit groups. It is a legal structure created by Commonwealth law (the Corporations Act 2001), and is available for use by groups throughout Australia. It uses a company structure with directors, but has members instead of shareholders. Some of the provisions of the Corporations Act 2001 (e.g. directors duties and penalties) that apply to for-profit companies also apply to companies limited by guarantee.

The government body responsible for regulating companies limited by guarantee is the Australian Securities and Investments Commission (ASIC).

This following information is intended as a guide only, and is not legal advice. We acknowledge the work and information of Not-for-profit Law that promotes law in the public interest and assist not-for-profits with information sheets on legal matters.

If you or your organisation has a specific legal issue, you should seek legal advice before making a decision about what to do.

What is a company limited by guarantee?

A company limited by guarantee is a public company which is formed for purposes beneficial to the community and which prohibits payment of dividends to its members. See information on what is a special purpose company above.

A company limited by guarantee needs to comply with the laws in the Corporations Act that apply to public companies. Companies limited by guarantee must include the words ‘Limited’ or ‘Ltd’ after their name (unless they are eligible for an exemption from this requirement).

Limited by guarantee means that the members guarantee to pay a fixed but small amount of money in the event of the liquidation of the company. The members agree in writing (known as a guarantee) to pay a nominal amount (usually $20 – $100) to the property of the company. If the company is wound up, the liability of the members is limited to the nominal amount that they have guaranteed.

Advantages of a company limited by guarantee include:

• creating a legal entity separate from its members
• all the other advantages of an incorporated association and
• the ability to carry-on business outside of Queensland as a company’s registration is recognised Australia-wide.

Disadvantages of a company limited by guarantee include:

• it’s more expensive to register than an incorporated association
• compliance with the requirements of the Corporations Act is more expensive and onerous than compliance with the Associations Act.

What are companies limited by guarantee most commonly used for?

A company limited by guarantee may be a suitable structure for not-for-profit organisations wanting to operate nationally or in more than one state or Territory and which have the resources to comply with the Act. Often larger not-for-profits, including those that only operate in one state, will use this structure. Some legislation requires this structure for certain types of organisations (e.g. registered housing and aged care providers).

A company limited by guarantee is also suitable for a wholly owned subsidiary organisation, as it can be set up with just one member.

How do we set up a company limited by guarantee?

Information about how to register a company can be found on the ASIC website. It is recommended that your organisation seek professional help from a lawyer, accountant, qualified company secretary or some other professional with experience setting up not-for-profit companies.

Initially, your organisation may also need someone with experience to advise you on the requirements for running a company limited by guarantee. This is not only because the law in this area is quite detailed, but also because the penalties that ASIC imposes for non-compliance with the law are quite significant.

It is worth getting some professional advice at the start, on issues such as:

• the drafting of a constitution with
  • an objects clause, non-profit and winding up clause and relevant funding clauses that will comply with the requirements for taxation and other concessions available to not-for-profit companies
  • provisions about the eligibility, election and removal or directors
  • provisions about voting rights and proxies
• Information and applicability of the Corporations Act provisions known as ‘replaceable rules’ which can be used to govern a company instead of a constitution.
• whether your company is able to apply for an exemption from having to have the word ‘Limited’ in its name. (Note to apply for this exemption you must have a constitution).

What names can be chosen

You can only choose a company name that is not already registered to a company or business. Also there is a list of words that you cannot use without special approval. You can search the National Names Index on the ASIC website. This index lists all Australian company and business names. You can also use our Identical Names Checkfacility to check whether your proposed name is identical to another name already registered. A search of company and business names can also be carried out at any ASIC Service Centre.

Useful resources

Corporations Act 2001 – This is the legislation that governs the setting up and running of a company limited by guarantee (as well as other types of companies)

The Australian Securities and Investments Commission (ASIC): information about setting up can be found in the ‘For Companies section’ although much of this information has been written for different types of companies (like private, for-profit companies).

• Setting up a company limited by guarantee
• Setting up a company limited by guarantee as a special purpose company
• Register an incorporated association under the Corporations Act
• Registering a company.

Charity registration

Your organisation may wish to register as a charity with the Australian Charities and Not-for-profits Commission (ACNC). This will allow you to be listed on the ACNC register, apply for some funding and grants and receive charity tax concessions. Find out more about registering as a charity

Deductible gift recipient (DGR) status

Most organisations will need to register as a charity in order to qualify for deductible gift recipient status. Becoming a deductible gift recipient will allow your funders to claim tax concessions for their donations, and some donors will only grant money to organisations with DGR status. Find out more about applying for DGR status.

Further information

Resources, information, and templates to support you with administration in your organisation:

• Community Door: Administration