Incorporated Association

The following factsheet list some advantages and disadvantages of incorporating an association. Sections include:

• What is an Incorporated Association?
• Some Advantages
• Some Disadvantages
• Useful Web Resources

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What is an Incorporated Association?

An incorporated association is a separate legal entity which exists where five or more people come together to pursue common aims and agree to be bound by mutual understandings.

The incorporation of associations is governed by legislation which exists in each Australian state and territory. This legislation is not uniform and is administered by regulatory authorities in each state and territory. In the ACT the relevant legislation is the Associations Incorporation Act 1991 administered by the Office of Regulatory Services.

To be eligible for incorporation as an incorporated association, an organisation must be a not-for-profit organisation.

Some Advantages

Some advantages of incorporating an organisation under the Associations Incorporation Act 1991 include the following:

1. Separate Legal Entity

An incorporated association is a separate legal entity to its members, giving it a number of capabilities:

• liability is limited, provided management committee members follow accepted business and community standards;
• the association has the capacity to enter into and enforce contracts, including generally the power to hold, acquire and deal with property in its own name;
• the association can receive funds in its own right; and
• the association can have perpetual succession - it continues regardless of changes in its membership.

2. Lower Administrative Costs

An incorporated association provides most of the benefits of being a company but at a lower cost.

Administrative costs of establishing an incorporated association are lower compared to incorporation under the Corporations Act 2001 as the structure is more simple and straightforward. However, there are some costs involved in ongoing reporting obligations.

Lawyers are not totally necessary to set an association up, but they are recommended – you could approach a legal firm for pro bono (free) assistance.

3. Lower Duties and Reporting Requirements

Generally the duties and reporting requirements imposed on incorporated associations are less onerous than for a company. However, as is the case under the Corporations Act 2001, persons vested with the management of affairs of an incorporated association will have certain duties and obligations. Disclosure and governance requirements of incorporated associations include:

• holding annual general meetings;
• keeping accounting records;
• preparing a statement of accounts;
• auditing (which becomes more onerous as the gross receipts of the association increase); and
• lodging annual returns.

Some Disadvantages

Some disadvantages of adopting an incorporated association model are as follows:

1. Restrictions on Operating beyond ACT Borders

The legislation governing the incorporation of associations in each State and Territory is not uniform - different obligations are imposed on associations in respect of submission of financial accounts and auditing. This means that the association may have to register separately interstate.

Alternatively, an incorporated association can register with the Australian Securities and Investment Commission (ASIC) for national recognition as a “Registrable Australian Body”, allowing them to trade interstate.

2. Cancellation of Incorporation

The Registrar-General can cancel incorporation of an association on a number of grounds, including that it is no longer operating and that it has fewer than five members. Some organisations lose their incorporation status each year because they fail to lodge annual returns as required.

Under the Associations Incorporation Act 1991 the Registrar-General can cancel the incorporation of an association if he or she is satisfied that the continued incorporation of an association would be inappropriate due to the scale, nature or value of the activities of the association. In this case, the association may be able to apply for permission to convert to a company limited by guarantee.

3. Annual Regulatory costs and other Accounting Issues

Annual costs need to be paid to the Office of Regulatory Services; however; these costs are likely to be less than ASIC's annual filing fees for companies limited by guarantee.

Accounting requirements for incorporated associations may not be not suitable for those with a very large budget (many $millions).

Useful Web Resources

• The Incorporated Associations section of the ACT Office of Regulatory Services website has the relevant forms and information on incorporated associations.
• Information on Registrable Australian Bodies is available from ASIC.

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This website does not constitute legal advice. ACTCOSS does not warrant or guarantee the currency, accuracy or completeness of information contained on this website. For further information, read our disclaimer.