Contents
- What is an incorporated association?
- Eligibility criteria for incorporation
- Key steps for incorporating an association
- Powers of an incorporated association
- Mandatory provisions in the association’s rules
- Key responsibilities of the management committee
- Business requirements for incorporated associations
- Records requirements for incorporated associations
- Tax concessions for not for profit organisations
- PAYG withholding obligations for incorporated associations
- Addressing disputes in incorporated associations
- Options for winding up incorporated associations
What is an incorporated association?
This article discusses key issues regarding incorporated associations in Australia. It is important to note that although state or territory incorporated associations legislation is mostly similar, there are some variations and you should consult with a legal practitioner to clarify the legal requirements in your particular state or territory.
An incorporated association in Australia is an organisation that has obtained legal recognition under state or territory laws. This recognition grants the association a distinct legal identity, separate from its individual members.
One key way to identify such an organisation is by the inclusion of the word ‘Incorporated’ or the abbreviation ‘Inc’ in its name.
When an association incorporates, it gains the ability to conduct various activities in its own name, such as owning property, borrowing money, and entering into contracts.
Each incorporated association is established with a specific purpose or objective, which is detailed in its rules, often referred to as the constitution. These rules provide a structured framework for how the association is to be operated and managed by its members.
Typically, incorporated associations are created for purposes such as recreation, culture, or charity. Any profits it generates are reinvested into the organisation’s activities rather than distributed to individual members.
In essence, an incorporated association is a legally recognized entity that exists to pursue specific goals while operating within a defined legal framework.
See our unincorporated association article for information about unincorporated associations.
Eligibility criteria for incorporation
In order to be eligible for incorporation, an organisation needs to meet specific requirements. These requirements are designed to ensure that the organisation operates in a manner consistent with the purposes outlined in the Act.
Minimum membership
Firstly, the organisation must have a minimum of six members who possess voting rights within the organisation. This minimum member requirement is put in place to ensure a certain level of collective decision making within the organisation.
Not for profit
Additionally, it’s essential for the organisation to adhere to a not for profit approach.
This means that the organisation should not distribute any of its funds or profits to its individual members. Instead, any income or resources generated should be reinvested into the pursuit of the organisation’s stated objectives and purposes.
Approved purposes
The organisation must be formed with specific purposes that align with the objectives outlined in the Act. These purposes include:
- Religious, educational, charitable, or benevolent activities, highlighting the organisation’s commitment to social and community welfare
- Promotion of literature, science, or the arts, fostering cultural and intellectual development
- Providing medical treatment, attention, or advocacy for individuals with particular physical, mental, or intellectual disabilities or conditions, emphasizing care and support for vulnerable populations
- Engagement in activities related to sports, recreation, or amusement, contributing to physical well being and entertainment
- Establishment, operation, or improvement of community, social, or cultural centers, or advocacy for the interests of local communities, promoting community cohesion and development
- Conservation of resources or preservation of environmental, historical, or cultural heritage within the State, demonstrating commitment to environmental and cultural stewardship
- Promotion of the interests of students or staff of educational institutions, supporting educational initiatives and the academic community
- Pursuit of political purposes, indicating advocacy for specific political or social causes.
- Promotion of common interests among individuals engaged or interested in a particular business, trade, or industry, fostering professional and industry related collaboration
- Any other purpose that has received approval from the Commissioner for Consumer Protection, allowing for flexibility in the types of organisations that can seek incorporation
Key steps for incorporating an association
Incorporating an association involves several key steps to establish it as a legal entity. Here’s a step by step breakdown of the process:
Agreement to incorporate
Before proceeding with incorporation, the association’s members must collectively agree to this decision. It’s essential to understand that incorporation comes with specific legal responsibilities, including record keeping, holding annual meetings, and financial reporting. To initiate the process, members should:
- Appoint one or more members responsible for preparing and submitting the application.
- Select an appropriate name for the association.
- Clearly define the objectives and purposes of the association.
- Draft a set of rules that will govern how the association operates.
Choose a suitable name and ensure eligibility
Selecting a suitable name for the association is crucial. The chosen name should accurately reflect the association’s goals and purposes. It’s important to note that the Commissioner for Consumer Protection can reject a proposed name for various reasons, including if it:
- Is being used by another entity.
- Is considered offensive or inappropriate.
- Might mislead the public.
- Could be easily confused with an existing corporate or business name.
Certain words, like foundation or royal, have restrictions on their use and can only be used in specific circumstances. It’s advisable to have alternative name options in case the first choice is not available.
Develop a set of rules (constitution)
An essential aspect of incorporation is establishing a set of rules, often referred to as the constitution, to govern how the association operates.
These rules must address specific matters outlined in Schedule 1 of the Act. To ensure clarity and prevent misunderstandings, it’s important to write these rules in plain and straightforward language.
There are no strict requirements regarding the length or complexity of the rules. In addition to covering Schedule 1 requirements, the association can include additional rules relevant to its activities.
Applying Model Rules
Alternatively, associations that prefer not to create their own rules can adopt the model rules provided by the Associations Incorporations Regulations. These model rules include all the necessary requirements outlined in the Act and provide a suitable governance framework.
If the association chooses to use the model rules, they only need to provide the following additional information to the Commissioner:
- Association’s name
- Objectives or purposes of the association
- Quorum requirements for general meetings and committee meetings
- Duration of the association’s first financial year
It’s important to note that any modifications made to the model rules (except for the specified matters) will mean that the association is no longer considered to be using the model rules.
Submit the application
The final step is to submit the application for incorporation.
If the association is using its own rules, these rules must be attached to the application. Additionally, the applicant needs to complete a table identifying the Schedule 1 matters within the rules.
Once all the required information is provided and uploaded, payment can be securely made by credit card through the online system.
Certificate of incorporation
The approval of the application by the Commissioner for Consumer Protection depends on certain conditions being met:
- The association must be eligible for incorporation, meeting the specific criteria set out in the law.
- The rules (or constitution) of the association must align with the requirements outlined in the Act..
- The chosen name of the association must comply with legal standards as specified in the Act.
Once these conditions are satisfied, the Commissioner will proceed to incorporate the association officially.
This involves issuing a certificate of incorporation, which includes essential details such as the name of the incorporated association, the date of incorporation, and the unique Incorporated Association Reference Number (IARN). The IARN serves as a distinctive identifier for the incorporated association, confirming its legal status.
Powers of an incorporated association
An incorporated association is granted a set of powers that enable it to effectively work towards its objectives and purposes. These powers encompass a wide range of actions and activities, including:
Property Transactions: The association can buy, own, manage, and sell both real property (like land) and personal property (such as goods or shares). This means it can acquire assets it needs and dispose of them when necessary.
Banking Operations: It can establish and operate bank accounts, allowing it to handle financial transactions and securely manage its funds.
Investment: The association has the authority to invest its money, potentially generating returns or furthering its goals through sound financial management.
Borrowing: When required, the association can borrow money, with flexibility in setting terms and conditions, enabling it to manage its finances effectively.
Appointment of Agents: The association can appoint representatives to conduct business on its behalf, delegating specific tasks or responsibilities.
Contractual Agreements: It’s empowered to enter into various contracts that it deems necessary or beneficial to achieve its objectives.
Moreover, an incorporated association isn’t limited solely to these specific powers. It has the freedom to engage in nearly any lawful activity that is considered necessary or convenient for the pursuit of its stated goals and purposes.
This broad range of authority provides the association with the flexibility to adapt and take appropriate actions while operating within the bounds of the law.
Mandatory provisions in the association’s rules
The management body within an association is typically referred to as the committee. However, it can also be known by other names such as the board, council, governing body, or as specified in the association’s rules.
The association’s rules (constitution) need to clearly outline the committee’s powers and the functions it is authorized to carry out.
The rules (constitution) of the association must include specific provisions regarding the following matters:
Election or Appointment: Procedures for the election or appointment of committee members.
Terms of Office: The duration of committee members’ terms in office.
Vacancies: The process for how a committee member’s office becomes vacant and how these vacancies will be filled.
Quorum and Meeting Procedures: Requirements for the minimum number of committee members needed to conduct meetings (quorum) and the procedures to be followed during committee meetings.
Meeting Records: Guidelines for creating and maintaining records of committee meetings.
If the association’s rules do not adequately cover these matters, the relevant clauses from the prescribed model rules are considered applicable until necessary action is taken to amend and improve the association’s rules.
Key responsibilities of the management committee
The management committee plays a central role in the functioning of an incorporated association. Here’s a breakdown of the key responsibilities and points to consider:
Overall Management: The primary duty of the management committee is to oversee and manage the affairs of the incorporated association. This includes making decisions, setting policies, and ensuring the organisation operates in accordance with the law.
Legal Compliance: The committee must ensure that the association complies with the requirements of the relevant legislation (the Act), its own rules (constitution), and any other legal obligations that apply to the association.
Duty of Care: Each individual member of the committee has a duty to act honestly, in good faith, and in the best interests of the association. They must exercise reasonable care, skill, and diligence in carrying out their responsibilities.
Business requirements for incorporated associations
Registering a business name
When it comes to operating a business, there are important considerations related to registering a business name:
Purpose of Business Name Registration: A registered business name serves as a trading name under which both individuals and organisations can conduct their business activities.
An incorporated association does not necessarily need to register a separate business name if it exclusively operates under its legal and incorporated name.
Registering a Different Business Name: If the association intends to trade using a name that differs from its incorporated name or even a shortened version of it, registering this as a business name becomes necessary.
Multiple Registered Business Names: An association has the flexibility to register multiple business names if it conducts business under several distinct names. This allows for diversity in branding and marketing.
Online Registration: Business name registration is a straightforward process and can be completed conveniently online through the Australian Securities and Investments Commission (ASIC).
Operating interstate
Incorporated associations have certain limitations regarding the geographic scope of their operations:
- By default, incorporated associations are typically restricted to conducting business solely within the state where they are registered.
- If an association intends to expand its operations across state borders or on a national scale, it may need to pursue registration as a registered Australian body through ASIC. This involves specific processes and legal requirements.
Bank signatories
Managing bank accounts and signatories is crucial for financial operations:
Association Bank Account: An incorporated association has the option to open a bank account in its own legal name.
Authorized Signatories: Individuals who can sign on behalf of the association are usually members of the management committee. Multiple signatories may be designated to enhance financial security.
The necessary paperwork for establishing the bank account and specifying authorized signatories can be arranged directly with the chosen bank or credit union.
Decision Making and Documentation: Decisions related to the bank account and signatory approvals should be formalized through resolutions and recorded in the association’s official meeting minutes. This documentation ensures transparency and clarity in financial matters.
Records requirements for incorporated associations
The Act mandates that every incorporated club or association must maintain specific records, including:
- Member Register: An up to date list of all members.
- Rules (Constitution): An up to date copy of the association’s rules, often referred to as the constitution.
- List of Office Holders: An up to date list of the names and addresses of individuals holding office positions within the association as per its rules.
- Accounting Records: Records that accurately record and explain the financial transactions and financial position of the association.
- Disclosure of Interest: Documentation of any disclosure of interest made by a committee member during meetings, recorded in the minutes.
Other records to be maintained include:
- Certificate of Incorporation
- Financial Records
- Minutes: Meeting minutes serve as official records and should be maintained for all meetings, including the annual general meeting (AGM) and management committee meetings. Minutes should clearly state the decisions made, responsible parties, implementation timelines, review processes, and notification procedures.
- Annual Report: Many associations prepare an annual report summarizing achievements, statistics, financial reports, and other highlights of the past year. It is often presented to members at the AGM and may serve as a public relations tool or a requirement for certain funding agreements.
- Employment Records: Associations may maintain employment related records, including recruitment records, performance reviews, grievance documentation, training records, and correspondence related to employment conditions.
- Safety Records: Health and safety records should be kept separately and may include complaints, incidents, risk assessments, training details, safety committee minutes, and relevant resolutions.
- Insurance Records: Copies of all insurance policies should be securely stored, and any changes to policies should be promptly updated. Associations must notify insurers of events such as accidents, theft, or fire and keep records of notifications and correspondence.
- Service Delivery Records: Some associations maintain service delivery records, which can include statistic sheets, case files, or employee reports. These records serve various purposes, including acknowledging achievements, minimizing professional negligence risks, meeting industry requirements, and facilitating evaluations and planning. Funding arrangements may also dictate specific record keeping and reporting requirements.
Tax concessions for not for profit organisations
Various tax concessions are available to not for profit organisations, including charities, public benevolent institutions, and incorporated associations. These concessions aim to provide financial benefits and include:
- Income Tax Exemption: Not for profit organisations are exempt from paying income tax.
- Fringe Benefits Tax (FBT) Rebates: Rebates are offered to reduce the amount of fringe benefits tax payable.
- Goods and Services Tax (GST) Concessions: Certain GST concessions are available to eligible not for profit entities.
Not for profit status
To qualify for these tax concessions, an organisation must have not for profit status, meaning it does not operate for the financial gain of its members. Incorporated associations are inherently not for profit organisations by legal definition, making many of them eligible for one or more tax concessions.
Charities
A charity is an organisation that serves charitable purposes that provide public benefits. To be recognized as a charity by the law and thus qualify for charity tax concessions, an organisation must meet specific criteria, including:
- Being not for profit in nature.
- Operating for the benefit of the public or for the relief of poverty.
- Having a purpose that aligns with the legal definition of charitable purposes.
- Being registered with the Australian Charities and Not for Profits Commission (ACNC).
Charitable purposes
Under Australian taxation law, charitable purposes include various categories, including:
- Relief of Poverty: Providing benefits to individuals in a particular class to alleviate poverty.
- Advancement of Education: Activities focused on enhancing educational opportunities.
- Advancement of Religion: Religious purposes that benefit the community.
- Advancing Social or Public Welfare: Initiatives that promote social well being and public welfare.
- Other Beneficial Community Purposes: Additional purposes that contribute to the community’s welfare, such as animal protection, health promotion, aged care, and the preservation of cultural and historical sites.
It’s essential to note that sporting, recreational, social, political, or promotional purposes do not fall under the category of charitable purposes for tax concessions.
PAYG withholding obligations for incorporated associations
Incorporated associations are obligated to withhold a portion of an employee’s salary and remit it to the tax officials. This responsibility is known as PAYG (Pay As You Go) withholding obligations.
The amount to be withheld is determined by the employee’s earnings and the information they have furnished in their Tax File Number Declaration.
An important point to note here is that these withholding obligations remain applicable to incorporated associations, even if they are exempt from income tax obligations. In other words, incorporated associations must comply with PAYG withholding requirements, regardless of their income tax status.
Addressing disputes in incorporated associations
An incorporated association can encounter concerns or grievances from various sources:
- Internal Sources: These may include members of the association and employees, covering issues such as individual member conduct, committee functioning, association operations, membership, and rule compliance.
- External Sources: External clients or organisations may also raise grievances, especially when the association provides services to the public. These concerns can pertain to the quality or extent of services offered.
Incorporated associations have rules that outline their operational and managerial framework, representing a binding agreement between the association and its members.
Members and the committee jointly bear the responsibility of ensuring compliance with these rules. Disputes arising from rule interpretation or application should ideally be resolved internally through the association’s dispute resolution processes.
Examples of matters handled internally include member admissions or expulsions, membership renewals, conduct of committee meetings, and inspection of records not covered by legal requirements.
Most associations can effectively resolve disputes internally, and a well publicised and straightforward dispute resolution process is often the key to successful outcomes.
The primary purpose of such a process is to outline the steps for addressing grievances or disputes fairly and promptly, potentially avoiding more severe measures like calling general meetings or suspending/expelling members.
Developing an accessible dispute resolution process can save time, effort, and expenses.
Certain disputes may be subject to procedures defined in employment agreements, awards, or contracts, either alongside or instead of a dispute resolution procedure.
Incorporated Association Rules
The Act mandates that an association’s rules incorporate a procedure for handling disputes related to the rules. The specifics of the procedure are decided by the committee and members, but it should ensure fairness and impartiality.
At a minimum, it is advisable for the rules to include procedures that:
- Notify the member or association of the complaint, including the issues involved and any supporting materials.
- Invite the member or association to respond to the issues, possibly through written submissions or speaking at a relevant meeting.
- Inform the respondent of the complaint’s outcome and any ensuing consequences or penalties.
- Explain the respondent’s rights to appeal the outcome and the process for doing so.
Options for winding up incorporated associations
Incorporated associations have several avenues for cancelling or winding up their incorporation:
Voluntary Cancellation: An association can voluntarily apply for cancellation.
Voluntary Winding Up: It may choose voluntary winding up.
Court Ordered Winding Up: In specific situations, the Supreme Court may order the winding up of the association.
When an incorporated association is cancelled and possesses surplus property, it must create and submit a distribution plan to the Commissioner for approval. This plan outlines how the surplus property will be distributed among the relevant parties.
Furthermore, associations have the opportunity to transition to a different form of incorporated structure. These alternatives include registering as a company, becoming an Aboriginal or Torres Strait Islander corporation, or transforming into a cooperative.
This article is general information only and does not provide advice to address your personal circumstances. To make an informed decision you should contact an appropriately qualified professional.