Which incorporated legal structure should we choose?
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| This fact sheet is based on material produced by PilchConnect, a service of the Public Interest Law Clearing House (Vic) Inc: see www.pilch.org.au/legal_info. We acknowledge PilchConnect’s support in allowing us to adapt their material for Queensland community organisations. This fact sheet may be used for personal use, or non-commercial use within not-for-profit organisations. However, this does not constitute legal advice. If you or your organisation has a specific legal issue, you should seek legal advice before making a decision about what to d |
Overview
This fact sheet aims to provide Queensland nonprofit community groups with an overview of the main incorporated legal structures available.
What incorporated structures are available for nonprofits?
There are a range of incorporated legal structures which may be suitable for Queensland nonprofit community groups. The 4 main options that we will discuss are:
- an incorporated association;
- a company limited by guarantee;
- a non-trading co-operative; and
- an indigenous corporation.
These are the most common options. However, you can also set up under a range of other legal structures such as a trust, a special Act of Parliament or a trade union. These structures will not be discussed in this fact sheet. Please seek legal advice if you think one of these structures may be suitable for your group.
The following pages set out a brief profile of each of the four main nonprofit legal structures.
Incorporated Association
| Features | Brief description |
| Relevant laws | Associations Incorporation Act 1981 (Qld) Associations Incorporation Regulations 1999 (Qld) |
| Jurisdiction | A group incorporated under the Associations Incorporation Act can operate (that is, carry on its activities) in Queensland. Queensland incorporated associations can operate outside Queensland if they register under the federal Corporations Act as a ‘Registered Australian Body’. |
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Government regulator |
The body responsible for registration and ongoing compliance monitoring is the Registrar of Incorporated Associations at the Office of Fair Trading, Department of Employment, Economic Development and Innovation (DEEDI), which is a part of the State Government of Queensland. |
| Required abbreviation | An incorporated association must use ‘Incorporated’ or ‘Inc.’ after its name. There are some limited exceptions. |
| Number | In Queensland- approximately 20,000 incorporated associations. |
| Description | The Associations Incorporation Act was introduced to provide a simple and inexpensive means of incorporating nonprofit groups in Queensland. All other States and Territories have their own, similar laws which set up incorporated associations. |
| Most commonly used for | It is likely that for locally focused nonprofit community groups wanting to operate in Queensland, an incorporated association will be the best structure. Setting up an incorporated association can be easier and less expensive than setting up a company limited by guarantee. Small incorporated associations are not required by legislation to have audited accounts for the purposes of the Associations Incorporation Act, and therefore may suit groups with limited funds and resources. |
| Not suitable for | Incorporated associations require a minimum of seven members so this structure is not suitable for a parent organisation which wants to set up a wholly owned subsidiary (i.e. with it as the sole member). |
Company limited by guarantee
| Features | Brief description |
| Relevant laws | Corporations Act 2001 (Cth), Corporations Regulations (various) |
| Jurisdiction | Can operate (that is, carry on activities) anywhere in Australia. |
| Government regulator |
The body responsible for the registration and ongoing compliance monitoring is the Australian Securities and Investment Commission (ASIC). ASIC is an independent Commonwealth government body. |
| Required abbreviation | Must use the word ‘Limited’ or ‘Ltd’ after its name (although charities with unpaid directors can apply for an exemption from this requirement). |
| Number | In Australia - approximately 11,000 companies limited by guarantee. |
| Description | Although we often think of a ‘company’ as being a business, a company limited by guarantee is a special form of public company that is used by nonprofit groups. It is a legal structure created by Commonwealth law (the Corporations Act), and is available for use by groups throughout Australia. It uses a company structure with ‘directors’, but has ‘members’ instead of ‘shareholders’. Some of the provisions of the Corporations Act (e.g. directors’ duties and penalties) that apply to ‘for-profit’ companies (ie. businesses) also apply to companies limited by guarantee. |
| Most commonly used for | A company limited by guarantee may be a suitable structure for nonprofit organisations wanting to operate nationally or in more than one State or Territory and which have the resources to comply with the Act. Often larger nonprofits, including those that only operate in one State, will use this structure. Some legislation requires this structure for certain types of organisations (e.g. registered housing and aged care providers). A company limited by guarantee is also suitable for a wholly owned subsidiary organisation, as it can be set up with just one member. |
| Comment | Companies limited by guarantee can be more costly to establish than incorporated associations and generally have higher ongoing compliance costs because of the requirement for all of them to have audited accounts. The penalties for non-compliance with reporting requirements are higher than for incorporated associations and more strictly enforced. |
Co-operative
| Features | Brief description |
| Relevant laws | Co-operatives Act 1997 (Qld) Co-operatives Regulations 1997 (Qld) |
| Jurisdiction | A group incorporated under the Co-operatives Act can operate (that is, carry on its activities) in Queensland. However, there are also a number of ways that co-operatives can register to be recognised in other States and Territories. |
| Government regulator |
The body responsible for the registration and ongoing compliance monitoring is Registrar of Co-operatives at the Office of Fair Trading, Department of Employment, Economic Development and Innovation (DEEDI), which is a part of the State Government of Queensland. |
| Required abbreviation | Must include the word ‘Co-operative’ in its name and the word ‘Limited’ or ‘Ltd’ at the end of its name. |
| Number | In Queensland - approximately 900 co-operatives. |
| Description | A co-operative is an organisation that is concerned with providing for the needs of its members. The co-operative structure is based on certain cooperative values, including self-help, self-responsibility, democracy, equality, equity and solidarity. There are both trading and non-trading cooperative structures. Only a co-operative which has rules to prevent surpluses or profits from being distributed to members is a suitable as a nonprofit structure. |
| Most commonly used for | Co-operatives are generally set up for the mutual benefit of members. They can be a suitable nonprofit structure for providing community services to its members. |
| Not suitable for | Co-operatives are run according to co-operative principles (one member one vote) and may not be suitable for organisations that are larger (difficult to get a quorum at meetings) or want to have non-voting members. |
For more detail on how to register a Co-operative in Queensland go to http://www.fairtrading.qld.gov.au/register-cooperative.htm
An indigenous corporation
| Features | Brief description |
| Relevant laws | Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (began on 1 July 2007, replacing the Aboriginal Councils and Associations Act 1976) |
| Jurisdiction | Can operate (carry on activities) anywhere in Australia. |
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Government regulator |
The body responsible for the registration and ongoing compliance monitoring is the Office of the Registrar of Indigenous Corporations (ORIC). |
| Required abbreviation | ‘Aboriginal Corporation’ (or a number of other allowable variations) |
| Number | In Australia - approximately 2,600 indigenous corporations. |
| Description |
The structure of an indigenous corporation is somewhat similar to a company limited by guarantee, although ORIC has some additional powers to those of the Australian Securities and Investments Commission, including power to call meetings of members and appoint special administrators. Indigenous corporations can, but do not have to be, ‘nonprofit’. Indigenous corporations which want to be nonprofit have to have a ‘rule book’ which prevents surpluses or profits from being distributed to members. Only Aboriginal and Torres Strait Islander organisations can incorporate using this structure. |
| Most commonly used for | The indigenous corporation is specifically designed to meet the needs of Aboriginal and Torres Strait Islander groups, and takes into account indigenous customs and traditions. Corporations holding or managing native title under the Native Title Act 1993 and the Native Title (Prescribed Bodies Corporate) Regulations 1999 must incorporate under this Act. |
| Not suitable for | Non-Aboriginal and Torres Strait Islander groups. |
For more detail on how to set up an indigenous corporation got to details go to the Office of the Registrar of Indigenous Corporations (ORIC).
At a quick glance
| Incorporated Association | Co-operative Society | Section 150 Company | |
| Basic Cost of Incorporation | $120.45 As at Oct 2010 |
$283.25(non-trading coop); $695.25(trading coop) as at Oct 2010 |
$340.00 as at Oct 2010 |
| Number of Officers | Minimum of 3 | Minimum of 3 but no stipulation in Act | Minimum of 3 |
| Members | Minimum of 7 | Minimum of 5 | Minimum of 1 |
| Age restrictions | Management committee must be adults | Directors must be over 18 years | Directors must be between 18 and 72 years |
| Registered office | No, but a nominated Qld. address for service of documents is required | Notice of registered office required | Notice of current address must be filed and the office must be open to the public at least 3 hours a day |
| Registers required | Register of members and assets | Members, directors and shares and loans, securities | Members, directors, secretaries and managers |
| Annual financial report |
Submit to AGM and lodge within 1 month. Fee $42.20 as at Oct 2010 |
Lodge annual return and accounts. No fee if on time | Submit to AGM and lodge within 1 month. Fee $41.00 as at Oct 2010 |
| Auditor | Required if over $100,000 total revenue or assets | Required | Required |
| Insurance | Compulsory if own or lease land | None | Not compulsory |
| Reservation of name | Not required | Not required | Required on application |
| Administrative discretion as to incorporation |
Yes | Yes | Yes |
| Eligibility for incorporation |
An association formed for any lawful purpose but not for the purpose of financial gain for its members | Trading or Nontrading with or without shares | A public company limited by guarantee which is formed for purposes beneficial to the community and prohibits payment of dividends to its members |
OK, so what next?
Having read the brief profiles, you might already have an idea of which structure would work well for your group.
You will note that two of the above structures – co-operatives and indigenous companies - are quite specialised. If your group would like to set up as one of these legal structures we have provided links to websites with further information about these click onto the links underneath the information table above.
For most nonprofit groups wanting to incorporate, the main decision is whether to choose to be an incorporated association or a company limited by guarantee. This is a detailed issue and different lawyers have different views. What is best will depend on the particular circumstances and future plans of your group.
Please remember this is guide only and it is highly recommended you seek legal advice.
Seeking Legal Advice
The best way to find a solicitor if your group does not already have one is to seek the opinion of other associations that have recently incorporated in your area. They will soon tell you if they were satisfied with the work done by their solicitor. Otherwise the Queensland Law Society Incorporated can provide a referral to a solicitor in your area.
Unless the solicitor is particularly sympathetic to your cause, your association will have to pay fees for the time taken by the solicitor.