Should we Incorporate?
The decision to incorporate is an important one, as it marks the point at which an informal group of individuals becomes a separate legal entity. As a group grows and develops the need for a more formal structure often becomes apparent. Common reasons for the decision to incorporate are the increased need for accountability and the ability to access government funding.Accountability means the committee is legally responsible for the funds entrusted to it as well as the direction that they are steering the organisation. The process of incorporation means that there is a structure that provides accountability from the decision makers (the committee) to the actual owners/members. Members of an incorporated association are able to comment and pass judgement (vote) on how their association is being run. Incorporation means that members know their elected committee is accountable for the finances as well as the direction of the association and will report every year at the Annual General Meeting (AGM). The organisation also becomes accountable to the ACT Registrar-General, so their members and any external parties (such as banks or contractors) have the assurance that the organisation is under some regulatory oversight by the ACT Government.
Unincorporated associations often have found difficulty in securing ongoing funding for their organisation's activities or projects. Most government funding programs require an organisation to be incorporated so that there is a clear legal entity to recieve funds. Incorporation also means that your group can buy or sell assets, sue or be sued and open a bank account in the organisation's name. Without incorporation any monies received by the group would have to be held in a personal bank account, held as physical cash, or held by another organisation.
However, a group need not incorporate solely to receive public or private money. There are plenty of examples in the community sector where a groups enter into an auspice arrangement with a pre-existing organisation so that the burden of financial reporting then rests with another organisation that has the relevant expertise and resources. This leaves individuals in the unincorporated association to focus on their primary activities without having to be too preoccupied with fulfilling the obligations that come with incorporation. Auspice arrangements can be outlined in a Memorandum of Understanding (MoU) between the relevant parties and normally dictate the terms under which monies can be spent or received.
Before incorporating it might be worth asking the following questions:
- Does our group have a large enough membership base? There must be at least five members before an association can incorporate however does this provide you with a membership depth that will handle unforeseen changes to the inaugural committee. A larger group of around 20 might be more viable.
- Do we have thorough financial systems that are transparent and not reliant on any one person?
- Does our group need direction? One of the fundamental responsibilities of the committee of an incorporated association is to ensure that the organisation is setting and monitoring strategic goals and that its activities support the organisations values and mission statement.
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