non-profit-fact-sheets
What is an Unincorporated Association?
Published: February 22, 2023
Read Time: 8 minutes
Although an unincorporated association does not have the same economic significance as larger non-profit organisations, its great number and presence in many communities across the country attest to the robust nature of choosing it as a legal structure. In a 2021 report, Volunteering Australia found that there are nearly 6 million people who volunteer through an organisation every year. The most popular activities for volunteering are sports and physical recreation, religious organisations, and education and training. As a volunteer association, you will need to appoint leaders and determine a set of rules to provide your members with guidance on how to conduct activities and make decisions.
What is an unincorporated association?
An unincorporated association is the simplest form that a non-profit organisation can take. It is sometimes also called a voluntary association. This structure represents a majority of the non-profit organisations in Australia. The Australian non-profit sector is diverse and covers a broad range of areas and organisational sizes, including large entities with complex business structures and small volunteer-run groups. About one-third of registered charities are considered ‘very small’, have no staff, and manage a budget of less than $50,000 (ACNC, 2023). They, therefore, rely heavily on the contributions of volunteers. Find out about other legal structures.
When establishing a non-profit organisation, the legal structure you choose will determine the types of activities your organisation will legally be able to carry out. Unincorporated associations are usually small or more informal community-based organisations. They can be founded by any group of people who agree to act together, usually because of a shared interest or purpose. These organisations often have limited income and are capable of conducting only a small range of activities. The Australian Tax Office (ATO) states that unincorporated associations can remain informal, allowing their members to make their own rules for managing the organisation.
Establishing an unincorporated association is easy and free because there are fewer administrative and legal requirements than with other organisational structures. Members must abide by the rules of the organisation’s constitution, if it has one. The constitution is not legally required, but many choose to have one. It might be formal like that of incorporated organisations or more informal and not written down but verbally agreed on by members. Unincorporated associations are not considered a legal identity: they cannot hold assets in their name or the legal protections for members that come with incorporation. Understandably, there are risks associated with forming an unincorporated association. Your organisation will not have any legal standing when it comes to making legal agreements, which means individual members will be personally responsible for the actions or debts of the organisation or for any contracts signed.
Rules and regulations: unincorporated association
As an unincorporated association, you do not need to develop the same governing rules as an incorporated organisation. For example, your organisation is not required to obtain an Australian Business Number (ABN). That said, many associations choose to get one because it makes registration with the Australian Charities and Not-for-profits Commission (ACNC) easier should they grow and decide to change their legal structure. If you choose to develop a constitution, the ACNC can provide a model template for developing a constitution. Before taking this step, your members should have determined the organisation’s name, the state or territory where it will be located, and its charitable purpose.
If you register as a charity, you will be bound to the Charities Act of 2013. There are several charitable purposes to choose from, according to the Act. They include advancing education, health, culture, religion, or social or public welfare. Your activities may also focus on human or animal rights, protecting the environment, or promoting respect and tolerance between groups of individuals in Australia. As an unincorporated association, you will also need to decide when your organisation’s fiscal year runs. Normally, the default period is from July 1st to June 30th each year. If your organisation chooses not to follow this standard, you will need to register as a charity.
Next, you must determine how many committee members your association will have. Volunteer associations usually appoint a committee of members to act on the behalf of the organisation. Members must agree on who will be appointed and there must be a minimum of three members to be officially considered an unincorporated association. Once you’ve determined how decisions and activities will be conducted, you have the option to register for deductible gift recipient (DGR) status. This step is not required, but it may provide your members with a few benefits. As an unincorporated association, you are still subject to Australian tax laws and must file your company’s income tax annually.
Who regulates unincorporated associations? The federal government does not regulate volunteer associations. Yet, volunteers, including committee members who conduct activities for the organisation, are covered under the Work Health and Safety Act (WHS), which is meant to prevent work-related injuries or illnesses. If you appoint a trustee to manage your assets, you will also be subject to the Trustee Act 1936.
Risks of being an unincorporated association
There are a few risks associated with choosing not to incorporate. As an unincorporated association, your group will not have any legal status, which means your members could be personally liable if you encounter problems. The organisation cannot be sued if it’s unable to pay off debts. However, members could be held financially responsible, especially if they are decision makers.
Another potential difficulty is that your association members will not have the option to lease or purchase a property in the group’s name. This means individuals will need to enter into legal agreements and contracts depending on the activities you wish to conduct. There are also restrictions when it comes to receiving donations such as gifts, benefits, and endowments. Without a DGR status, your associations will not be legally permitted to accept these and may also have limited access to government and private foundation grants. This is likely to make it difficult to fundraise or grow.
When deciding whether to incorporate or stay unincorporated, you will need to consider what your group’s long term objectives are, and whether you plan to expand your activities in the future. Organisational growth requires a financial investment. You should also think about which types of agreements your group needs to enter into to effectively operate, such as opening a bank account, signing up for insurance, or leasing a space. Unincorporated associations are limited when it comes to these activities. In the end, if your group plans to operate only for a short period, staying unincorporated may be a good option.
Is it better to stay unincorporated or should I incorporate my organisation?
Many associations choose to remain unincorporated because this gives them the freedom to conduct affairs without having to report to the government. If you are a small informal group and you tend to conduct activities that are more social in nature, such as a book or exercise club, incorporation is probably not necessary. Generally, the rule of thumb for staying unincorporated is that your group is conducting low-risk activities and focusing on short-term issues that need urgent attention. Your members may also wish to remain unincorporated to avoid having to disclose financial information publicly.
Does my unincorporated association need a statement of objectives and rules?
No. You are not required by law to have a statement of objectives and rules. However, this is recommended if you plan to deal with assets or money. The written statement will help give your group members a clear direction and purpose and will make it easier to manage relationships between people. Otherwise, you may encounter frequent misunderstandings and make little progress on your goals.
What details should the rules of my association include?
Your written rules should include the purpose of your association, eligibility criteria for becoming a member, a list of the key members who currently make decisions for the group, a description of your assets or the money you manage, how often you hold meetings and what your voting process is, who is responsible for what activities, how you resolve conflicts when they arise, what process others will take to change the rules in the future, and how the group can be dissolved and any remaining assets shared should the organisation cease to exist.
How to register as a charity with the ACNC?
As an unincorporated association, you have the option to register as a charity with the Australian Charities and Not-for-profits Commission (ACNC). You will need to ensure your organisation satisfies all of the registration requirements as well as any legal and reporting obligations in the future. Once you become registered, your association will be subject to the ACNC Act 2012. All registered charities must meet the minimum standards for governance, including creating a constitution.
Can an unincorporated association have employees?
Yes, you can have employees as an unincorporated association. However, the employment contract will be between two individuals, rather than the candidate and the organisation. This means the member who signs the agreement carries all of the legal risks. If you plan to hire and pay an employee, you will need to do things like obtain an ABN, open a bank account and register as a charity. However, an unincorporated association may not enter into contracts or legal agreements and the responsibility will fall on your members. If your organisation intends to employ several staff members, you should consider incorporation or explore other legal structures to reduce their liability.
Resources
For more examples of charitable purpose visit the ACNC webpage. Model template of rules for charitable unincorporated association – Template Rules
This fact sheet is intended as a simple overview. Non-profit law is incredibly complex and there are many components, allowances, restrictions, exceptions and important qualifications that are not described above. Dedicated legal advice should be sought from a legal practitioner before taking action.
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Better Boards connects the leaders of Australasian non-profit organisations to the knowledge and networks necessary to grow and develop their leadership skills and build a strong governance framework for their organisation.
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