COMMUNITY ORGANISATIONS

Often people may choose to form a group to pursue a common goal.

Choosing a structure

Principally, the choice of structure for any community organisation should balance two key matters: the personal liability of each member of the group; and the operational costs of the structure chosen.

The four main types of community organisations that can be established are:

incorporated associations;
unincorporated associations;
companies limited by guarantee; and
co-operatives.

Incorporated associations

Incorporation under the Associations Incorporation Act 1981 (Vic) (“the Associations Act”) is a very common option for community groups as it establishes a legal entity separate from that of the individual members.

The Victorian Government recently made a range of changes to the Associations Incorporation Act 1981 (Vic). All associations incorporated in Victoria under this Act will be affected. Some of these changes apply from 8/4/2009, while others do not come into effect until a later date (probably 1/12/2009).A summary of the changes is found on the Consumer Affairs Victoria website at www.consumer.vic.gov.au.

The advantages of incorporation include:

the liability of the members of the association is limited. The members will generally not be personally liable for either the debts or liabilities of the association;
the association can enter into contracts, sue or be sued, buy or sell property, raise or borrow money, as well as invest money in its own name; and
the association has perpetual succession. This means that property acquired by the association remains with the association regardless of changes in its membership.

The disadvantages of incorporation include:

a fee is payable upon registration;
the Associations Act requires certain information concerning the operation of the association to be reported to the Registrar of Incorporated Associations and there are costs involved in reporting this information;
the structure of an association is more rigid: many changes can only be achieved with the approval of the Registrar; and
activities are limited to the State of incorporation.

Further details relating to the process of incorporation and the administration of incorporated associations are provided in the “Incorporated Associations” Fact Sheet.

Unincorporated associations

Unincorporated associations are, in the eyes of the law, a collection of individuals and the law will (generally) not recognise the group as a separate legal entity. Despite the fact that there is little formal structure required of unincorporated associations, most groups will, as a minimum, need to choose a collective name and adopt Rules of Association that will set out such things as: the objects of the association, membership qualifications, subscription fees, management of meetings, financial matters, dissolution and amendment of the Rules.

The advantages of unincorporated associations include:

the structure is very flexible; and
it is the least costly and time consuming structure.

The disadvantages of unincorporated associations include:

the liability of members is unlimited, although liability can to some extent be limited by indemnification (insurance);
there is no perpetual succession. All property acquired by the association belongs to the individual members; and
members of the association may not have clear contractual or proprietary rights in relation to the association.

Companies limited by guarantee

Groups may incorporate under the provisions of the Corporations Act 2001 (Cth) ("the Corporations Act"). The most common form of incorporation for community organizations is a company limited by guarantee. This means that the members guarantee to pay a fixed but nominal amount in the event of the liquidation of the company.

The advantages of a company limited by guarantee include:

all the advantages of an incorporated association; and
the ability to carry on business outside Victoria.

The disadvantages of a company limited by guarantee include:

it is more expensive to register; and
compliance with the requirements of the Corporations Act is more expensive and onerous than compliance with the Associations Act.

Co-operatives

Co-operatives are a useful structure for groups that have a common service motivation and pool money for the members' mutual benefit. There are two forms of co-operatives: trading and non-trading. A trading co-operative should be formed if members will receive a share of any surplus funds or a return on capital if the co-operative is wound up. A non-trading co-operative should be formed if any surplus is not distributed through shares, or if members would receive only the original value of their shares on a winding up. Only a non-trading co-operative would be considered a non-profit organisation.

If the registration requirements are met, groups may be able to register as a co-operative under the Co-operatives Act 1996 (Vic).

The advantages of registration as a co-operative include:

the co-operative has a separate legal identity from its members;
it may sue and be sued;
it may acquire, lease, hold, sell and dispose of property;
it may form unit trust or partnerships and enter into joint ventures; and
if it is a trading co-operative, its members may make a profit.

The disadvantages of registration as a co-operative include:

the co-operative must function in accordance with the co-operative principles, which relate to issues such as the openness of membership, democratic control, independence, education and concern for the community; and
a fee is payable upon registration ($137.80 as at 1 July 2007).

To form a co-operative, contact the Registrar of Co-operatives (at Consumer Affairs Victoria) for an application form and Model Rules.

Other issues

Taxation

Community organisations, unless specifically exempted, will generally be required to pay tax on income and money received from people who are not members. As a general rule, organisations should apply for an Australian Business Number (ABN) which is an identifying number for all Australian enterprises (the definition of "enterprise" is very broad and encompasses businesses as well as most community organisations). You should also obtain professional advice in relation to the goods and services tax (GST) generally, as well as in relation to specific questions on issues such as whether your organisation should register for GST, the effect of GST on funding sources and the best way of maintaining cash flow for your organisation in the light of GST remittance obligations. The Tax Office provides useful general information, including publications on GST and fringe benefits tax (FBT). SEE the 'Contacts' portion of this Fact Sheet.

Organisations may be eligible for other exemptions or discounts on such items as local government rates, telecommunications and utilities. Enquiries should be made directly to the service provider.

Fund-raising

Community organisations may obtain funds in a variety of ways. It is important to remember that permits or licences will be required for such activities as door-knocks, lotteries or raffles, art unions, street collections, fetes, stalls and selling alcohol. Generally, information will be available at local council offices. Community groups may also apply for grants from government, private citizens, charitable trusts, industry or others. Possessing tax-deductible status can be important to many grant providers and groups should be aware that GST will generally apply to all sponsorship and funding arrangements.