structuring a charity

Setting Up a Charity –
Part I: Get The Legal Structure Right

 

Posted by Alice Kang on 16 October 2018

Starting a new charity is an exciting time to make a positive difference, but the legal side of things can be confusing.

Whether you’ve just got an idea, or already working in your community – if you’re looking for guidance on how to get your legals right, you’ve come to the right place!

To guide you on the things you need to know, we’ve put together a two-part blog series on how to set up a charity.

This Part I will cover the different legal structures that are available for your charity. Specifically, we’ll cover what it means to “incorporate” a charity, and whether you should incorporate as an Incorporated Association or a Public Company Limited by Guarantee.

If you already know what structure you want, you can skip this article go straight to Part II: Get Registered.

What does it mean to incorporate a charity?

Incorporating means that your charity becomes its own legal entity that exists separately to the members.

The benefits of incorporation include having its own legal identity, ability to sign agreements, limiting liabilities for the members, and so on. If you’re thinking seriously about the charity and its long term, you should definitely think about incorporating.

There is still the option of registering an “unincorporated” charity – however, there are some downsides. You’ll be exposed to risks because an unincorporated structure will always be tied to the members individually as it does not have a separate legal identity. This means you may be personally liable for any debts incurred or obligations owed if things go south.

If you decide to go down the unincorporated route, you’ll need to get your rules drafted, set your charitable purpose, and register with Australian Charities and Not-for-profits Commission (ACNC) – please contact us if you need any help with this.

If you want to know more about how to incorporate a charity, keep reading!

Incorporated Association v Public Company Limited by Guarantee

If you decide to incorporate your charity, you have two options:

  1. Incorporated Association under state-based legislation*
  2. Public Company Limited by Guarantee under the federal Corporations Act

*This article uses the NSW-based legislation as an example, however, all States and Territories have similar rules around Incorporated Associations. If you’re not in NSW, please contact us to find out more about the laws in your state.

Below is a table outlining the differences in incorporating your charity as an Incorporated Association or a Public Company Limited by Guarantee:

ItemIncorporated Association (NSW)Public Company Limited by Guarantee
Incorporation fee$170 (as at July 2018).$403 (as at July 2018).
Annual reportingTo both Fair Trading and ACNC.Only to ACNC.
Annual reporting feeNone for ACNC.

For Fair Trading NSW:

  • $194 for Tier 1
  • $46 for Tier 2
None for ACNC.

Could be others for ASIC but ACNC-registered charities are generally exempt.

Geographic operationAlthough occasional one-off activities interstate are permitted, generally only allowed to legally operate within NSW.

If you want to operate in other States, the charity may need to become a Registered Australian Body with ASIC or incorporate separately in each jurisdiction.

Permitted to operate Australia-wide.
MembersNeed minimum 5 members.Only need one member.
ManagementIncorporated Associations must have a “management committee” with  3 or more “members” who are +18 and ordinarily reside in Australia.

Specific requirements and roles will depend on the charity’s rules, but generally the committee may also have non-members on the committee.

A public company must have a “board of directors” with at least 3 directors (2 of whom ordinarily reside in Australia) and a secretary.

The charity’s constitution may set out further requirements and roles.

AddressMust be in NSW.The charity can be anywhere in Australia, but it must have an office that is open and accessible to the public, on business days either:

  • from at least 10 am to 12 noon and from at least 2 pm to 4 pm; or
  • for at least 3 hours chosen by the company between 9 am and 5 pm

In summary, the key deciders for the legal structure that is right for you are:

  • The required level of organisational formality
  • Set up costs
  • Number of members
  • Board structure
  • Availability of a public address
  • Geographic locations of operation
  • Tax implications

Conclusion

There are many elements that need to be considered when you are deciding on a legal structure for your charity. It is essential for you to understand all the relevant laws governing the legal structures for you to make informed decisions.

Still confused about what legal structure is right for your charity?  Feel free to contact us for help.

Once you have your legal structure sorted, it’s time to move to Part II: Get Registered

Need help with setting up your charity?

We can help! Just get in touch and we can walk you through your options.

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