Establishing a charity or not-for-profit organisation: what structure should you choose?

If you are looking to establish a charity or not-for-profit organisation you will need to obtain charitable status. To be eligible for charitable status your entity must (along with other requirements):

• be not for profit (meaning members have no entitlement to any profits);
• have a charitable purpose for the public benefit;
• not be an individual, political party or a government entity; and
• comply with the ACNC Governance and External Conduct Standards.

Before applying for charitable status, you will need to establish your entity. There are various structures you can use, including:

1. Unincorporated association
2. Incorporated association; or
3. Company limited by guarantee.

Unincorporated association

No registration is required for an unincorporated association. Generally, this is a group of people who agree to act together as an organisation and form an association.

An unincorporated association is not recognised as a separate legal entity to the members associated with it. This means that any contracts will be made with the members, and liability will be incurred by the members.

Incorporated association (as per NSW law)

An incorporated association is an entity that in NSW is established under the provisions of the Associations Incorporation Act 2009 (NSW) and must have at least 5 members.

The main benefit of establishing an incorporated association is that it creates a separate legal entity, meaning that it provides protection to its members in legal transactions. It is also able to enter into contracts in its own name, open bank accounts and sue or be sued. However, the restriction with this option is that your activities will need to be limited to the NSW as this is where the entity will be registered as an incorporated association.

Company limited by guarantee

A company limited by guarantee requires at least 3 directors (1 of whom must reside in Australia), 1 company secretary along with at least 1 member. Unlike a ‘Pty Ltd’ company, a company limited by guarantee does not have shareholders and the members cannot receive a benefit from the company (other than arms’ length service contracts).

Companies limited by guarantee are formed on the principle that the liability of members is limited to the amount they agree to contribute if the company is wound up. This amount is typically nominal and set out in the company’s constitution.

Please contact our office to discuss which structure is suitable to your circumstances, whether your proposed entity would be eligible for charitable status and the process for establishing your charity or not-for-profit organisation.

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