Registering Unincorporated Charities; you can never go wrong with a suit
Small not-for-profit organizations can now register as charities without incorporation, but incorporating provides legal protection and a more favorable structure.
There are few things more embarrassing than arriving at a formal function wearing informal clothing. Strangely, being overdressed at a casual function is usually far less embarrassing than being underdressed at a formal function. For this reason, I am a firm believer in the fashion motto ‘you can never go wrong with a suit.’ As a general rule, formality will never let you down. Informality may leave you exposed.
This month, the not-for-profit sector decided to drop formalities. The Australian Charities and Not-for-Profits Commission (the ‘ACNC’) announced that they have developed a set of template rules to help small unincorporated charities with charity registration (the ‘Rules’). Prior to the introduction of the Rules, only Incorporated Associations or Companies could register as Charities with the ACNC. The introduction of Rules means that unincorporated entities may be entitled to benefit from registered charity privileges such as Tax Concessions and Deductible Gift Recipient status (‘DGR’).
Given that it is now possible to attain charity status as an unincorporated entity, a small not-for-profit organisation with an informal or undeveloped governance structure may query the benefits of incorporation. Indeed, beyond the not-for-profit sector, many informal organisations such as sporting clubs and lobby groups elect to operate as unincorporated entities. The benefits of an unincorporated organisation structure include:
- flexible membership arrangements;
- minimal statutory obligations; and
- nominal reporting duties.
Notwithstanding the advantages of an unincorporated status, incorporating a not-for-profit organisation can be beneficial in several ways, including the following:
- an incorporated entity becomes a ‘legal person.’ The organisation can trade in its own name and remains unaffected by changes to its membership base; and
- the incorporated entity can provide legal protection for its members and office bearers against personal liability for the organisation’s debts. (By contrast, in an unincorporated structure, members may be personally liable if the organisation incurs debts or has legal problems.)
Importantly, it should be noted, that while the ACNC are prepared to register unincorporated not-for-profit organisations as charities, the ACNC only has jurisdiction over charity status registration matters. The Australian Tax Office (the ‘ATO’) are responsible for determining Tax Concession and DGR applications. The approach of the ATO to Tax Concession and DGR applications from unincorporated not-for-profit organisations is currently unclear. Therefore, where a not-for-profit organisation requires Tax Concession or DGR status, it is prudent for the organisation to incorporate.
In conclusion, although unincorporated not-for-profit organisations can now attain charity status through the ACNC, overall, incorporating a not-for-profit organisation usually results in a more favourable structure. Despite the invitation from the ACNC to register informal unincorporated structures as charities, this is undoubtedly a casual solution. An incorporated entity will never look out of place in a corporate environment. Incorporating a not-for-profit organisation may seem to be a formality, but it will ensure that the organisation is never exposed. After all: ‘you can never go wrong with a suit.’
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