Choosing the right structure for a not for profit organisation
05 Dec 2014
Selecting the appropriate structure for a not for profit can be a complicated process, particularly for an organisation that has a unique structure or focus. Whether you are looking to start a new organisation, or your existing organisation is facing significant growth or change, you may have questions about which structure will best support your operational requirements.
Generally, most not for profit organisations will commence operations as an incorporated association or a company limited by guarantee, these being the two most obvious choices. In this article we will outline the key characteristics of each of these structures and identify some factors to consider when choosing between the two.
Incorporated association or company limited by guarantee
An incorporated association is an association, society, body or other entity formed under the state or territory of registration’s incorporation of associations legislation.
A company limited by guarantee is a company formed under the Corporations Act 2001. “Limited by guarantee” refers to the principle that the potential liability of the company’s members is limited to the amount that the member has guaranteed to pay under the company’s memorandum of association, which is usually a nominal amount.
Incorporated association and company structures have some shared benefits. Incorporation under either arrangement will create a separate legal entity, allowing for perpetual succession and the ability for the organisation to:
- Enter into and perform contracts
- Acquire, hold and dispose of real property
- Sue and be sued in its own name.
Key factors to consider
When choosing an appropriate structure for a not for profit organisation, you should consider a number of factors including the size of the organisation, access to funds for start-up and administration costs, scope of geographical operation and expected avenues of fundraising. Income tax concessions are generally available to not for profit organisations regardless of its method of incorporation but subject to ensuring that the objects of the organisation comply with the ATOs strict requirements.
In the table below we have highlighted some further information to consider when comparing an association incorporated under Queensland laws and a company limited by guarantee. Requirements can differ depending on jurisdiction, so please contact us for specific information if your association operates somewhere outside of Queensland.
|Characteristic||Incorporated association (Qld)||Company limited by guarantee|
Not permitted to conduct business outside of its state of registration** Unless registered as a registered Australian body
|Entitled to operate in any part of Australia|
Level 1 (assets or revenue of more than $100,000) – audit by auditor or certified accountant
Level 2 (assets or revenue between $20,000 and $100,000) – financial statements must be verified by ‘approved person’ e.g. auditor or certified accountant*
Level 3 (assets or revenue of less than $20,000) – president or treasurer must verify financial statements** Level 1 or 2 associations may be subject to additional audit requirements under the Collections Act 1966, Gaming Machine Act 1991 or other laws.
Tier 1 (revenue of less than $250,000) – no external audit or review required (unless ASIC directs)
Tier 2 (revenue of less than $1m) – choice of review (by CPA, ICAA or IPA member) or auditTier 3 (revenue of $1m or more) – audit by registered company auditor
|Raising funds||Can raise funds by membership subscriptions, public donations, retained earnings and some government funding initiatives||Increased transparency and accountability requirements may open up access to more government funding initiatives and could result in higher level of credibility in the eyes of the public|
Registering as a ‘registered Australian body’
An association that is registered under a state law will generally be able to register with ASIC as a ‘registered Australian body’ under the Corporations Act 2001. Upon registration, the organisation will receive an Australian Registered Body Number (ARBN) and will be permitted to carry on business outside of its state of registration. We can advise you whether your association is eligible for an ARBN and assist you with the process of registration.
Transitioning to company status or starting a new organisation?
If your organisation started out as an incorporated association and is now experiencing growth, looking to expand outside of its state of incorporation or conducting increasingly significant business activities, you may wish to transition to a company structure. Queensland legislation provides a relatively cost effective mechanism for this transition and we can guide you through the process and requirements at each step.
If you are starting a new organisation or you think your association may be ready for a change, please contact Julie McStay at Hynes Legal.