A not for profit organisation can exist as a group of people with a common purpose. It can be a community group or membership based. There is no legal requirement for the not for profit organisation to become incorporated. However, there are a number benefits.
Benefits of ‘incorporation’
legal entity – The Not For Profit organisation becomes a legal entity that stays the same even if its members change. It can do the following things in its own name:
- accept gifts or bequests
- buy and sell property
- invest and borrow money
- open a bank account
- sue and be sued
- take out public liability insurance
limited liability – Members are liable for the amounts each member owes the Not For Profit organisation in respect of their membership. For most this means the fees or subscriptions due to the Not For Profit organisation. Members of the board or management committee of a Not For Profit organisation also have limited liability for the debts of the Not For Profit organisation, as long as they follow accepted business and community standards.
perpetual succession – This means that property acquired by the association remains with the association regardless of changes in its membership.
funding – It may seek funding from government or philanthropic organisations that may only be able to fund incorporated groups.
taxation – An incorporated group may be able to obtain further tax benefits.
legal protection for members – Members and office bearers are protected against personal liability for the Not for Profit organisation’s debts and other legal obligations.
Practical considerations – deciding whether to ‘incorporate’
Whether the Not For Profit organisation should incorporate is a decision about assessing risk – you may want to seek legal advice on this decision. Some relevant issues:
liability for debts or civil legal actions – Will the activities of the Not for Profit organisation involve risks where someone could get hurt (e.g. campaign activities, use of equipment)? Will the Not for Profit organisation enter into an agreement or contract where the Not For Profit organisation will owe money (e.g. leasing office space)? Will the Not for Profit organisation be hiring employees or independent contractors?
Incorporation has the benefit of limited liability which is one way to protect the group’s board or management committee members from being personally liable for any compensation, debts, or legal costs. Insurance and a risk management plan is also advisable.
ownership of goods and property Who has ownership of goods and property of a Not for Profit organisation is unclear because the group members must own the property on behalf of the Not For Profit organisation or on trust for the Not For Profit organisation. If a member leaves the Not For Profit organisation there is a need to transfer ownership or trusteeship of property to a new member
An incorporated Not For Profit organisation can own goods and property in its own name. Therefore there is no issue of ownership of goods or property as the membership changes.
particular activities Activities carried on by Not for Profit organisations for example in housing, aged care are required by State and commonwealth legislation to be incorporated.