What is an unincorporated association?
An unincorporated association, also known as a voluntary association, represents a straightforward and common type of not for profit organisation in Australia. It’s essentially a group of individuals who come together with a shared goal or common interest.
What makes them distinct is that they haven’t gone through the formal process of incorporation, which means they don’t have a separate legal identity. As a result, their organisational name won’t include terms like Incorporated, Inc., Limited, or Ltd.
These unincorporated associations can be found across the not for profit sector in Australia, which includes a wide array of organisations varying in size and focus. This sector includes both large organisations with complex structures and smaller groups that are predominantly run by volunteers.
It’s worth noting that approximately one third of registered charities in Australia fall into the category of “very small” organisations. These very small charities typically operate without paid staff and manage budgets of less than $100,000.
So, they rely heavily on the dedication and contributions of volunteers to carry out their activities and fulfil their mission.
See our incorporated association article for information about incorporated associations.
Choosing an unincorporated association as your charity’s legal structure
The unincorporated association structure is a suitable choice for charitable organisations when they are small, simple groups with limited assets, engaged in low risk activities, and have no plans for formal incorporation.
This legal structure is often preferred by recently established small groups, including early stage start ups, due to its simplicity and adaptability.
Additionally, organisations like religious communities, animal welfare groups, and cultural entities may also opt for the unincorporated association structure, even though they have the option to select from various legal structures.
Establishing guidelines for unincorporated associations
Establishing an unincorporated association is a straightforward and cost effective process due to its minimal administrative and legal requirements in comparison to other organisational structures. For instance, they aren’t mandated to obtain an Australian Business Number (ABN).
However, many choose to obtain one, as it simplifies registration with the ACNC if they decide to grow and potentially change their legal structure.
The importance of rules and objectives
While not legally mandated, it is advisable for unincorporated associations to create a statement of objectives and some basic rules to govern their activities. This is especially important when the group intends to handle assets or finances at any point in the future.
Having clear rules, objectives, and meeting procedures serves several valuable purposes. It provides the group with a distinct sense of direction and purpose, governing the interactions among its members and helping prevent misunderstandings in the future.
Drafting Rules and Objectives
There are no formal legal requirements for drafting rules and objectives for unincorporated groups, but it is considered best practise to put them in writing.
Each member, including new ones, should receive a copy. A primary, up to date version of the document should be maintained by a key member of the core group, or it can be stored on a shared platform like a group intranet for easy access and regular updates as needed.
Key Elements to Include in Rules
Ideally, the rules should cover various essential aspects, including:
- The group’s primary purposes.
- Membership details, such as eligibility criteria and procedures for accepting and removing members.
- The appointment and replacement of key members responsible for governance and decision making.
- Guidelines for managing funds and holding assets.
- Conduct of meetings, specifying frequency, voting procedures, quorum requirements, and member rights.
- Delegation of authority and responsibilities among members.
- Procedures for resolving disputes among members.
- Guidelines for amending the rules in the future.
- Procedures for dissolving the group, including asset distribution.
It’s important to understand that regulations concerning the management of unincorporated groups may lack legal enforceability unless there is evident intent within the group to establish a legal connection among its members or if enforcing these regulations aligns with the public interest.
Ensuring clarity and agreement
To eliminate any uncertainty, the rules should explicitly state whether they are intended to be legally enforceable. Members should provide written agreement to abide by these rules.
New members should also be given a copy of the rules and express their agreement in writing. This documentation serves as evidence of the members’ intent and helps prevent disputes in the future, especially when the group deals with income or assets.
Charitable registration and purposes
If an unincorporated association decides to register as a charity, it becomes subject to the Charities Act of 2013.
This legislation offers a range of charitable purposes to select from, including the advancement of education, health, culture, religion, social welfare, human or animal rights, environmental protection, and the promotion of respect and tolerance among various groups in Australia.
Determining the fiscal year
Unincorporated associations must also establish their fiscal year, which conventionally spans from July 1st to June 30th each year. If an alternative period is chosen, the association will be required to undergo charity registration.
Deductible gift recipient (DGR) status
While not obligatory, unincorporated associations have the option to apply for Deductible Gift Recipient (DGR) status, which can offer certain benefits to members. It’s important to note that even as an unincorporated association, you are still subject to Australian tax laws, requiring annual income tax filing.
Registering an unincorporated association’s name
There is no mandatory requirement for unincorporated associations to register their name unless they are actively conducting business under that specific name. The responsibility for registering business names falls under the jurisdiction of the Australian Securities and Investments Commission (ASIC).
Moreover, registering a business name does not grant exclusive ownership of that name, but it can offer a level of protection against others using the same name in the future.
Moreover, registering a business name serves as a safeguard against another entity using the same name for their business in the future.
However, since unincorporated groups do not possess independent legal standing, one of the group’s members must take on the responsibility of registering the business name.
This member will take on the role of safeguarding the business name on behalf of the group. It is important to handle this arrangement with care, particularly if the member who registered the name later becomes disconnected or disassociated from the group.
Advantages of an unincorporated association
Unincorporated association offers several advantages that make them an appealing choice for certain organisations:
Ease of Establishment: Unincorporated associations are simple to set up. They are formed based on an agreement among members, and there is no need for additional steps such as formal registration.
Privacy: Unlike incorporated entities, unincorporated associations are not required to submit financial accounts and other information to regulatory bodies. This offers a level of privacy in terms of financial matters.
Simplified Operations: Unincorporated clubs typically face less bureaucracy in their day to day operations. Entities like brewers, banks, and suppliers are often comfortable dealing directly with association officers, streamlining transactions and interactions.
Lower Compliance Costs: Unincorporated associations tend to have lower compliance costs compared to their incorporated counterparts. They are not burdened with the same level of regulatory and reporting requirements, which can translate to cost savings.
These advantages make unincorporated associations an attractive option for organisations seeking a simple and cost effective way to operate while maintaining a certain degree of privacy and flexibility.
What are the challenges of remaining unincorporated?
When a group decides to stay unincorporated, it means the group doesn’t have its own legal status. This decision comes with several possible problems and practical challenges that you should be aware of. Here, we’ll delve into these challenges in more detail:
Personal liability of members
Because an unincorporated association doesn’t have a separate legal identity from its individual members, it can’t be sued as a distinct entity if it incurs debts or liabilities. Instead, each member of the group could potentially be personally responsible for the group’s financial obligations or debts that arise from its actions.
This is an important point to understand, especially for key decision makers or members who are named in contracts.
Difficulty in entering contracts
Unincorporated associations face hurdles when it comes to entering into contracts or agreements using the group’s name.
Such agreements require the participation of all group members or the involvement of an individual member who acts on behalf of the unincorporated group. When an individual member signs on behalf of the group, that member assumes responsibility and liability for fulfilling the group’s obligations under the agreement.
Furthermore, the unincorporated group does not possess the legal authority to compel the other party involved in the agreement to fulfil their obligations.
In such cases, the group relies on the individual member who entered into the agreement to initiate legal action if it becomes necessary.
Property ownership and leasing
Another challenge appears when owning or leasing property in the group’s name. Instead, property interests must be held by an individual member who represents the unincorporated group.
Limited legal rights
Unincorporated associations also face limitations regarding their legal rights. They cannot initiate legal actions, sue, or be sued in the group’s name.
In cases involving disputes related to the unincorporated association, individual members may find themselves subject to legal actions because the association itself lacks the legal standing to be sued.
Handling gifts and benefits
Receiving gifts or benefits intended for the entire group is another problem. The group cannot directly receive goods or gifts in its name. Instead, an individual member may receive such gifts on behalf of the unincorporated association but must do so in a trustee capacity. This means that the member must use these goods for the benefit of the unincorporated association, advancing its purposes.
These challenges highlight the potential complexities associated with remaining unincorporated. It’s essential to carefully consider these factors and their implications, as they can have legal and practical consequences for both the group and its individual members.
Potential ACNC compliance issues for unincorporated associations
Unincorporated associations can be more susceptible to violations of the Australian Charities and Not for profits Commission (ACNC) obligations. These compliance concerns often arise due to the way these associations are managed.
Here are some potential risks that unincorporated associations, and possibly other charities, might face:
- Inexperienced Responsible People: Unincorporated associations may appoint Responsible People, individuals responsible for overseeing the organisation, who might not fully grasp their roles and responsibilities.
- Appointment of Disqualified Responsible People: Sometimes, individuals chosen as Responsible People may be disqualified, such as due to bankruptcy, which can lead to compliance issues.
- Lack of Research and Clarity: Associations may not thoroughly research and select Responsible People, leading to confusion about their roles and responsibilities.
- Outdated Contact Information: Failing to keep the ACNC Charity Register updated with accurate contact details can result in compliance lapses.
- Over Reliance on a Single Individual: In some instances, only one person within the association may actively participate in managing the charity. This can create governance and compliance challenges.
- Commingling of Funds: Associations may unintentionally mix charity funds with the personal finances of Responsible People, potentially causing legal and financial complications.
These risks underscore the significance of effective governance, understanding of responsibilities, and adherence to ACNC guidelines for all charitable organisations, including unincorporated associations.
Addressing these potential issues proactively is vital to ensure compliance with ACNC obligations and to maintain the organisation’s charitable status.
Unincorporated association ACNC and legal requirements
It’s important for unincorporated associations to ensure compliance with ACNC and other legal obligations to protect their status and maintain public trust. Here are the key steps:
Complying with ACNC act duties
The ACNC Act mandates that charities fulfil specific duties. These include staying eligible for registration, providing information in a timely manner, and adhering to ACNC Governance Standards.
Compliance with these duties is essential to gain and maintain public trust.
Establishing good governance
Governance encompasses the processes, activities, and relationships within a charity to ensure effective and proper operation. This includes decision making procedures, defining roles and responsibilities of individuals within the charity (including the management committee), and ensuring the charity’s mission remains the central focus.
ACNC requires a minimum standard of governance outlined in the Governance Standards. Adherence to these standards is important for protection.
Ensuring appropriate responsible people
As per rulings, it is important that charities take reasonable steps to confirm that their Responsible People are not disqualified from managing a corporation or charity.
Governance rules also mandates that Responsible People understand and follow certain duties, such as acting with care and diligence, acting in the charity’s best interests, and avoiding conflicts of interest. Ensuring that Responsible People are appropriate and aware of their responsibilities is vital.
Incorporating risk management in governing documents and policies
While unincorporated associations are not legally required to have a written governing document, it is a prerequisite for charity registration with ACNC.
A governing document helps demonstrate compliance with ACNC requirements and ensures clarity in how the association is run. It should outline rules for decision making, liability, resource management, membership, and conflict resolution.
At the very least, it should specify the association’s objectives or purposes and include provisions for not for profit status, financial controls, and procedures for handling issues like conflicts of interest and complaints.
Taking these steps will help unincorporated associations maintain compliance, protect their status, and build public trust in their charitable endeavours.
Employing staff in an unincorporated association
Unincorporated associations can have employees. However, it’s important to understand that in such cases, the employment contract is established between two individuals the employee and a member of the association rather than between the employee and the organisation as a legal entity.
This arrangement means that the member who signs the employment agreement assumes all the legal responsibilities and risks.
If an unincorporated association plans to hire and pay employees, several steps need to be taken, including:
- Acquiring an ABN: An ABN is necessary to facilitate employment and address taxation related requirements. The association must obtain an ABN to ensure compliance with legal regulations.
- Establishing a Bank Account: A bank account should be opened in the association’s name to manage payroll and handle financial transactions related to employment.
- Considering Charity Registration: If the unincorporated association plans to employ staff, it may need to undergo charity registration. This process involves specific obligations and benefits that are pertinent to the association’s charitable activities and employee management.
It is essential to recognise that unincorporated associations, given their inherent characteristics, cannot directly engage in formal contracts or legal agreements.
Consequently, the responsibility for managing such matters falls upon individual members. When the association anticipates employing multiple staff members or participating in more extensive contractual relationships, exploring alternative legal structures, such as incorporation, is advisable.
Adopting these structures can help mitigate the personal liability of individual members and provide a more robust legal framework for handling employment and contractual arrangements.
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.
