Not-For-Profit: How to choose the appropriate organisational structure?
Discover what legal structure are available for your not-for-profit project!
Particularly for those of you who are planning to start a not-for-profit organisation, deciding which organisational structure to undertake is one of the biggest considerations that you have to make. There are several different structures available but this article will only focus on the two most common types: Incorporated Associations (IA) and Company Limited by Guarantee (CLG).
It is always recommended that you seek legal advice when deciding which structure to undertake. Lawpath has a marketplace of over 750+ lawyers who are qualified to provide professional insight.
How to choose the appropriate organisational structure?
Different organisational structures suit different needs. Therefore, depending on your organisation’s size, locality and finances, you may decide to choose one over the other.
1. Where are you planning to operate your organisation?
Choosing between IA and CLG can affect where you are able to legally operate. With the CLG structure, your NFP organisation can operate anywhere in Australia. IAs on the other hand, are restricted to the State and Territory under which it is registered. That is, if you register your NFP in New South Wales, you would not be able to operate interstate, without taking further legal steps. You can mitigate this by registering your organisation with the Registrable Australian Body through ASIC or, simply just registering another Incorporated Association in the state that you wish to operate in.
If you are thinking about operating overseas, it is best that you seek advice as to the legal requirements of that particular country.
2. Will your organisation be able to pay initial and ongoing fees?
Registering your organisation does involve upfront and ongoing cost so you must be realistic as to the resources you have available.
Generally, ASIC charges for-profit CLGs a greater application and review fee than charged by Fair Trading as applicable to IAs. Fortunately, charitable organisations receive substantial subsidies and sometimes, fees are completely waived.
3. Is your organisation able to comply with annual reporting, audit and review requirements?
IAs and CLGs have different reporting requirements depending on the size of your organisation. The respective governing bodies, Fair Trading and the Australian Charities and Not-for-profit Commission (ACNC) categorises sizes into tiers.
Company Limited by Guarantee
For CLG, the ACNC classifies company size into 3 tiers.
- Tier 1 is for small CLGs with annual revenue of less than $250,000. Tier 1 companies have no reporting requirements, that is, unless required to do so by ASIC direction or member direction (the demand of 5% of members).
- Tier 2 are for CLGs with revenue between $250,000 and $1,000,000. Whilst review is needed, it does not have to be as comprehensive as a full audit. Furthermore, the CLG must prepare a director’s report and provide annual reports to any member who requests them.
- Finally, Tier 3 companies include those making an excess of $1,000,000. A full comprehensive audit is required. Again, Tier 3 CLGs need to prepare director’s report and provide annual reports to any member who requests it.
As for Incorporated Associations, there are 2 tiers. Tier 1 classifies associations with assets exceeding $500,000 or with a revenue stream exceeding $250,000. Tier 2 on the other hand classifies associations with assets below $500,000 or annual revenue below $250,000.
All IAs must lodge an ‘Annual Summary of Financial affairs’ within 1 month of AGM and no later than 7 months after the end of the association’s financial year. The only difference between the two is that Tier 1 (Large IAs) would need to have their financial statements, audit report and any resolution passed in relation to the financial statements or auditor’s report with Fair Trading, unless they are exempted.
Deciding between which structure to undertake for your not-for-profit venture really requires forethought as to the realistic capacity of your venture as well as how you intend to operate it. Once again, we would advise you to get in touch with one of our business lawyers to provide you with the necessary insight.
Are you wanting to obtain advice about or change your business structure? Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 750+ expert lawyers or to get answers to your legal questions.
Tony is a legal Intern at Lawpath who is working with the contents team to provide legal insight for SMEs. With an interest in contract and business law he is currently completing his Finance and Law degree at the University of New South Wales.