What are the different legal structures of non-profit organisations in Australia?

There are many different non-profit structures that organisations use in Australia. Among them are unincorporated associations, incorporated associations, companies limited by guarantee, cooperatives, charitable trusts, organisations formed by Royal Charter or by Special Act of Parliament, and Indigenous corporations. The Australian government uses not-for-profit and non-profit interchangeably to describe organisations and the sector, along with other terms such as voluntary organisations (VOs) and non-government organisations (NGOs). Third Sector non-profit organisations share similar characteristics: they are non-governmental, they are value-driven rather than profit-driven, and they reinvest financial surpluses to further their objectives.

Non-profit structures in Australia

In Australia, the most common non-profit structures are incorporated associations, charitable trusts, and companies limited by guarantee¹. Incorporated associations are membership-based entities such as sporting clubs, societies, or community organisations formed for a purpose other than profit gain and are one of the more common types of structures. There are 136, 000 incorporated associations in Australia, each structure with its own set of rules and benefits. What are the different legal structures of non-profit organisations?

• Charitable trusts are types of charities that can own assets or property. They must use them for the benefit of the public such as the advancement of poverty relief, education, or religion.

• Companies limited by guarantee are closely modelled after UK law and are run by members who are legally required to guarantee payments to creditors if the organisation is unable to pay its debts.

• Cooperatives are organisations jointly run by their members who share in the profits and benefit from selling their own products.

• Indigenous corporations are governed by specific rules that aim to benefit Aboriginal and Torres Strait Islander communities and improve conditions for their families, especially in remote areas.

You may also choose to maintain an unincorporated structure, such as a trust or an unincorporated association rather than register as a charity. A trust is a legal relationship imposed on a person or other organisation through a trustee who manages assets and financial matters for the benefit of beneficiaries. An unincorporated association is a group of people who act together as an organisation without having a legally recognised status as an organisation. It is more informal than incorporated associations.

There are two additional categories of legal structures available for non-profit organisations in Australia. The first are organisations formed by Special Act of Parliament such as public universities are established under legislation that is specific to them and their activities. The second are organisations formed by Royal Charter. These structures are difficult to obtain and only conferred under special circumstances.

Who oversees legal structures in non-profits?

In 2010, the Productivity Commission investigated the non-profit sector in The Contribution of the Not-for-Profit Sector. At the time, it considered the value of transitioning to a single legal form to prevent confusion and reduce the restrictive nature of some the non-profit legal structures. In the report, however, the Commission recommended retaining a variety of legal structures for non-profits in Australia as the migration of existing entities to a new system would be extremely expensive and time-consuming for organisations and current staff and advisors who are already familiar with the current system and regulations relating to their organisations.

In most cases, each type of non-profit legal structure in Australia is legislated by a law determined by the territory or state in which the organisation operates. For example, in New South Wales, charitable trusts are legislated by the Charitable Trusts Act 1993 (NSW) and in South Australia incorporated associations are governed by the Associations Incorporation Act 1985 (SA). There are exceptions such as organisations set up by a Special Act of Parliament and Royal Charter entities.

All registered charities are regulated by the Australian Charities and Not-for-profits Commission (ACNC), a federal government-run established in 2012. The objective of the ACNC is to maintain, protect and enhance public trust and confidence in the non-profit sector, reduce unnecessary regulatory obligations, and support a strong, independent, innovative sector. While ACNC rules do not require all not-for-profit organisations to register as charities, they do collect information about them and offer guidance. In 2021, the government drafted the Australian Charities and Not-for-profits Commission Amendment (2021 Measures No. 3) to increase the revenue threshold that determines registered charity status. This change is intended to reduce regulatory obligations and associated costs for smaller charities so that they may benefit from the same financial advantages as larger organisations.

Charities registered with the ACNC are recognised by the Australian Taxation Office ([ATO(https://www.ato.gov.au/)]) as not-for-profit organisations and may be eligible for tax concessions and deductible gift recipient status (DGR). The ATO considers an organisation as non-profit when “its constituent or governing documents prevent it from distributing profits or assets for the benefit of particular people – both while it is operating and when it winds up”. There are two categories of NFP organisations, according to the ATO: charities and non-charities². There are other regulatory bodies overseeing non-profit organisations. For example, Australian Non-Governmental Organisations (NGOs) must be accredited by the Department of Foreign Affairs and Trade to be eligible for funding under the Australian NGO Cooperation Program (ANCP).

Which structure should I choose?

Your decision to become a more formal entity and obtain incorporated status vs remaining a more informal group (unincorporated) will provide both advantages and disadvantages. The ACNC offers this advice to individuals or groups considering starting a non-profit:

“The legal structure you choose for your charity should meet your charity’s needs, and allow for future development. Charities have a range of structures, incorporated or unincorporated, and there may be more than one that works for your charity. For example, charities can be incorporated under Commonwealth or state or territory laws.”³

Many non-profit organisations rely on tax-deductible giving to operate. A Philanthropy Australia report found that donations to not-for-profit organisations are increasing and now total $13.1 billion⁴. The structure you choose will be an important factor in how you can legally manage your money. An organisation’s legal structure also determines the types of activities it is legally able to carry out and which government bodies it is required to seek registration from or report to.

It is possible to change the legal form of an organisation after it has been established and some leadership teams opt to do this when their organisation outgrows its original form, perhaps by gaining more members, increasing revenue or expanding the area of operation. However, the structure you choose will have a direct influence on your governance structure, the liability and responsibilities your members are exposed to, reporting and compliance obligations, and the legal ‘identity’ of your organisation. To learn more about each legal structure, visit the resources section below and explore our Non-Profit Fact Sheets.

Frequently Asked Questions

Resources

To search the Australia Non-Profit Organisation List and learn more about accredited Australian non-government organisations visit the DFAT website.

The legal structure is the simplest level of qualifying information available about a non-profit organisation and the variety of organisations that can be found within each of these categories is broad. An organisation in any of the categories below might also qualify as a charity or be granted other special tax exemptions or different reporting requirements, but these are separate legal conditions on top of their basic legal structure. For more information on the differences between a non-profit organisation and a charity please see our differences fact sheet.

• Unincorporated associations

• Incorporated associations

• Company Limited by Guarantee

• Cooperative

• Charitable trusts

• Organisations formed by Royal Charter or by Special Act of Parliament

• Indigenous Corporations

References

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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.