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Decide whether to incorporate
In this topic, we help you make the decision about whether your group should incorporate or not. There are many things to consider, and benefits for both. We also explore your options if you decide to incorporate.
While reading this topic, think about the following questions and how they relate to your organisation, community or nation:
- What are the advantages and disadvantages of incorporating?
- Which structure best suits the needs of your group?
Unincorporated organisations are not incorporated under any government legislation. For example, a group of people who come together with a common interest, vision and purpose.
Being unincorporated means your group is not a separate legal entity. However, you still have legal obligations. For example, you must follow laws – such as employment law, occupational health and safety law, consumer law and tax laws.1“How to decide whether your group should incorporate,” Justice Connect, updated February 2022, [link]
There are many unincorporated organisations operating in every community. These include committees, working groups, reference groups, task forces and advisory groups. Community members often volunteer in a governance capacity in these organisations. Government departments and agencies start some of these organisations. They’re set up to deliver local policies and programs.
- do not have to meet the same governance, legal or reporting conditions as incorporated organisations
- are more informal and can make certain decisions for themselves – for example, you can choose what type of governance model, positions and processes you want to have
- cannot get property or government grants in their own name.
Unincorporated organisations can still enter partnerships and alliances – including auspicing arrangements. This helps to access financial and administrative services usually associated with incorporated organisations.
To ‘auspice’ means to provide support, sponsorship or guidance.2“What is auspicing?” Justice Connect, updated June 2022, [link] Auspicing arrangements can help small, informal groups that have limited resources.
Through an auspicing arrangement, a larger, more established organisation – the auspicor – can help a smaller group – the auspicee. This help could include:
- administrative support
- receive and manage grant money
- enter into contracts or agreements on behalf of the auspicee.
The type of help depends on the agreement between the two groups. It’s most common for the auspicee to be an unincorporated group, though incorporated organisations can also be auspiced.
If your group is considering an auspice agreement, it’s wise to agree on how you will work together with the auspicor. This agreement should describe the responsibilities of each organisation.
For detailed information on auspicing, see Justice Connect’s Auspicing Guide.
Martumili Artists manager Gabrielle Sullivan and staff member Kathleen Sorensen talk about how the organisation’s steering committee works and their decision to remain an unincorporated body whose financial management is largely run by the Shire of East Pilbara.
In 2012, the Alekarenge traditional owners received compensation from the federal government. This was for compulsory 5-year leases taken out by the community during the Northern Territory Emergency Response.1In June 2007, the federal government staged a massive intervention in the NT to “protect Aboriginal children” from sexual abuse. Without consultation Aboriginal peoples’ lives were heavily regulated, and many felt ashamed and angry. Despite wide-spread protests the intervention was extended until 2022. The traditional owners decided to use the money to benefit the community. They formed an unincorporated working group to plan projects.
The Alekarenge Community Development Working Group is comprised entirely of Aboriginal residents who live in Alekarenge. The group’s role is to initiate projects for the benefit of Alekarenge community using funds that belong to the traditional owners of Alekarange.
The working group started by planning and prioritising projects. Then getting sign off from the broader traditional owner group. When they received more lease money for community development programs, the owners gave the working group the authority to sign off. This is about the Alekarenge community deciding how to use their resources to benefit their community.2Australian Indigenous Governance Institute, Our People, Our Way: Stories of Indigenous Governance Success (AIGI, 2020), 7.
“Committee members are people who are reliable, and they have something to say – something to share. It doesn’t have to be a big story – you just have to say something that we can understand.”
– Graham Beasley, Committee Member
The Marruk Project was awarded First Place in Category B of the 2014 Indigenous Governance Awards. Here Project Manager Angela Frost explains the benefits of being a non-incorporated entity – the project can operate fluidly and remain true to its core values.
Incorporation occurs when you register your group with the government. You do this by applying to become incorporated under state, territory or federal legislation.
An incorporated organisation is a separate legal entity. It is its own body in the eyes of the law, with rights and liabilities separate from those of its members. This legal status gives your organisation the same rights as a natural person.3“Starting a small business company,” ASIC, accessed February 2023, [link]
Some incorporated organisations generate substantial income through their own enterprises and resource agreements. For example, those linked to mining, compensation, leases, and to the arts industry. Many hold significant community assets.
Incorporation is based on centuries of western law. It’s based on western concepts and standards about the best ways to govern. It does not always align with Aboriginal and Torres Strait Islander ways of governing. However, many Aboriginal and Torres Strait Islander groups are incorporated. These are often the most visible example of governance in communities.
- follow a particular structure – they have rules (a constitution or rule book), members, and a governing body (board or committee) that has legal duties
- can enter contracts, sign a lease, employ people, and sue and be sued
- have the power to acquire, hold and dispose of property and assets in their own name, but not that of its individual members
- must report to the relevant regulator responsible for their type of incorporated structure – this could be the Office of the Registrar of Indigenous Corporations (ORIC) or the Australian Securities and Investments Commission (ASIC).
If you’re thinking of incorporating, you need to look at the options for structure. Aboriginal and Torres Strait Islander groups can incorporate under different federal, state and territory legislation. Each has their own legal requirements and conditions.
It’s important to understand these requirements and conditions. These limit the powers of an organisation in particular ways. And governing members must carry out specific legal responsibilities.
Deciding whether to choose a state-based or federal-based structure means thinking about the scale you want to operate at – for example, local community, regional, state-wide, or cross-jurisdictional.
Before deciding, you need to consider the advantages and disadvantages of each structure.
Making the decision to incorporate under a state-based structure means a group is allowed to operate (carry out activities) in the state or territory where they have been incorporated.
This may work if your group only needs to operate in one state or territory across Australia. If you are planning to operate in more than one state, then a state-based incorporation structure may not be suitable.
An incorporated association is a registered legal entity where profits must be put back into the organisation’s activities. In other words, a not-for-profit organisation.
Specific rules, requirements and limitations apply to incorporated associations. To help you decide if this structure is right for your group, you need to understand the rules that apply in your state.
An Aboriginal and Torres Strait Islander group might also choose to form a co-operative.
The members own and control the co-operative.4“How to set up your organisation,” Justice Connect, updated April 2022, [link] For example, it might provide goods or services to its members, or have community-focused goals that benefit all members.
Learn more about state-based structures
Learn more about setting up an incorporated association or a cooperative in your state:
- New South Wales – Incorporated associations and Co-operatives
- Victoria – Consumer Affairs Victoria Incorporated associations and Co-operatives
- Queensland – qld.gov.au Incorporated associations and Co-operatives
- Northern Territory – nt.gov.au Incorporated associations and Co-operatives
- Western Australia – Department of Mines, Industry Regulation and Safety What is an incorporated association? and Co-operatives
- South Australia – Consumer and Business Services Associations, charities and Cooperatives and Co-operatives
- Australian Capital Territory – Access Canberra Incorporated associations and Co-operative registration
- Tasmania – Consumer, Building and Occupational Services Incorporated associations and Co-operatives
Deciding to incorporate under a federal-based structure means a group is allowed to operate outside of the state or territory where they are based. In other words, it allows your group to carry out activities across Australia.
Company limited by guarantee
Aboriginal and Torres Strait Islander groups can choose to incorporate under the Corporations Act 2001 (Cth).
There are different company structures under the Corporations Act. ASIC regulates these organisations. Each has advantages and disadvantages.
A common structure for Aboriginal and Torres Strait Islander groups is a ‘[public/private] company limited by guarantee’. This structure is used for not-for-profit and charitable organisations (charities).
Companies limited by guarantee are owned by members – called guarantors. They agree to pay an amount if the company is wound up (closed). This amount is usually small and is the same for all members.
For more information, see Companies limited by guarantee on the ASIC website.
Another federal-based option is registering your organisation under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) – referred to as the CATSI Act. ORIC regulates these organisations.
The CATSI Act creates a framework for incorporating, regulating and supporting Aboriginal and Torres Strait Islander corporations. To incorporate under the CATSI Act, most members of your organisation must be Aboriginal or Torres Strait Islander people.
In 2020, there were more than 3,300 Aboriginal and Torres Strait Islander corporations incorporated under the CATSI Act.5“CATSI Act review survey – Summary report,” National Indigenous Australians Agency, June 2020,[link]
To learn more, see About the CATSI Act on the ORIC website.
Incorporating under the CATSI Act compared to the Corporations Act
This table summarises some of the features of incorporating under the CATSI Act compared to the Corporations Act.6“The CATSI Act and the Corporations Act —some differences,” ORIC, amended January 2018, [link]
For more information, see The CATSI Act and the Corporations Act – some differences on the ORIC website.
Note: the CATSI Act is currently under review and the laws are likely to change. We recommend you visit the ORIC website for updates.
|Feature||CATSI Act||Corporations Act|
|Company structure||Corporation.||Company limited by guarantee (most common structure for Aboriginal and Torres Strait Islander groups).|
|Naming||Business name must include the words, or a combination of the words:
See the ORIC website for more details.
|Business name is followed by a series of words indicating what type of company it is, for example: Proprietary Limited or Pty Ltd.|
|Aboriginal and/or Torres Strait Islander membership||Most members – and a majority of directors – must be Aboriginal or Torres Strait Islander people.||No race-based restrictions.|
|Governing document||Rule book is your primary governing document.||Constitution is your governing document.
Alternatively, you can use ‘Replaceable rules’ – a basic set of rules for managing your company.
|Aboriginal and/or Torres Strait Islander customs and traditions||Rule book can take into account Aboriginal or Torres Strait Islander customs and traditions.
Provisions in the CATSI Act recognise the special circumstances of Aboriginal and Torres Strait Islander corporations – for example, in relation to meetings.
|Provisions in the Corporations Act are mainstream. For example, all organisations must hold an annual general meeting each year.|
|Liability of members||When they register the corporation, members can choose not to be liable for the debts of the corporation.||Similar to CATSI Act, liability under Corporations Act is generally a small amount per member.|
|Minimum number of members and directors||Must have at least 5 members to register, and a minimum of 3 directors.||Need only one member to register, and a minimum of 3 directors.|
|Funding options||Can access more government funding under the Indigenous Advancement Strategy.
This funding assists corporations to deliver programs.1For an Indigenous organisation (a corporation that satisfies the Indigeneity requirement under Section 29-5 of the CATSI Act), the Indigenous Advancement Strategy Guidelines set as a condition for funding of $500,000 or more, that the relevant body is incorporated under the CATSI Act. There are exceptions to this. Where an Indigenous organisation is already incorporated under the Corporations Act it will not be required to change its organisation status. Also, an application can be made to the Minister for an exemption from this requirement. This is subject to change as the funding guidelines change.
|This funding is not available.|
|Reporting||In special circumstances, allows for exemptions from some reporting requirements.2“Lodging reports,” ORIC, accessed May 2023, [link]
Some flexibility, but strict requirements for corporate governance still exist.
|Generally stricter governance requirements.|
|Flexibility||The ORIC Registrar has more flexibility in administration to assist corporations to maintain the best possible governance.3“Special rules for during the pandemic,” ORIC, accessed May 2023, [link]
ORIC can approve ‘special rules’ that allow for greater flexibility to comply with the CATSI Act. For example, in response to the COVID-19 pandemic, corporations could postpone or cancel a meeting, more easily pass resolutions without a meeting, and meet virtually.4“Special rules for during the pandemic,” ORIC, accessed May 2023, [link]
|Unlike CATSI Act, which was designed as a special measure, Corporations Act offers less flexibility.|
|Regulation of charities and not-for profit organisations||If you are a CATSI corporation and are also registered as a charity or not-for-profit with the Australian Charities and Not-for-profits Commission (ACNC), you only need to report to ORIC. ORIC shares the information with the ACNC.5“Registrar and ACNC continue ties to reduce reporting obligations,” ORIC, accessed May 2023, [link]||Must report some things related to your corporate status to ASIC.
Must report some things related to your charitable status to the ACNC.
To learn more, see Charities registered with the ACNC on the ASIC website.
|Fees||Free to register.||Some fees to lodge forms and documents– see Schedules of corporations fees on the ASIC website.|
|Native title||A Prescribed Body Corporate (PBC) must be registered under CATSI Act.||Cannot register as a PBC under Corporations Act.|
|Training and assistance from the regulator||ORIC can provide more hands-on assistance than ASIC – for example, support, information and training.
ORIC has LawHelp – a referral service for Aboriginal and Torres Strait Islander corporations.
The ORIC Registrar has special regulatory powers.6“Regulatory powers,” ORIC, accessed May 2023, [link] These are more extensive in some areas than ASIC’s powers – this can be an advantage or a disadvantage.
|Limited access to regulatory assistance.|
|Examinations by regulator||ORIC carries out examinations on a rolling basis, or when a matter comes to the attention of the Registrar.
Following examination, a corporation may need to make changes to its governance. There may also be more serious findings.
These examination can be useful as a ‘health check’ – to assist organisations to meet their governance requirements.
|ASIC also has examination powers.7“ASIC’s compulsory information-gathering powers,” ASIC, accessed May 2023, [link]|
|Special administration||Special administration under CATSI is different Corporations Act.
Registrar can provide early proactive regulatory assistance when a corporation experiences financial or governance difficulties. The aim is to return control of a better corporation back to its members.
|This ‘special administration’ not available under Corporations Act.|
|Shares||Members cannot own or trade shares in the corporation.
However, they can include rules in the Rule Book about how any profits are shared.
|Companies can issue shares.
Proprietary companies can issue shares to its members, and public companies to the public.
|Debentures||Aboriginal and Torres Strait Islander corporations cannot issue debentures.
A debenture is a note or certificate acknowledging a debt or other securities.
|Can issue debentures and other securities.
Companies issue debentures in return for funds.
|Financial services or trade union||Cannot provide financial services or be a trade union.||Has provisions dealing with managed investment schemes and financial products/services.|
Deciding whether to incorporate
Perhaps one of the biggest decisions to make is whether to incorporate or not. The decision has significant consequences for your group.
Aboriginal and Torres Strait Islander peoples form both incorporated and unincorporated organisations for their own social, cultural and political purposes. Carefully consider your group’s specific needs when deciding whether to incorporate or not.
Aboriginal and Torres Strait Islander groups and initiatives are not all the same. Some may be more informal groups of people who unite to get specific things done. These groups may deliberately choose not to incorporate. For example, assemblies, alliances and volunteer organisations. By not incorporating they can keep maximum:
- decision-making flexibility
- self-determined priorities
- strong cultural ways of governing.
“We don’t want it incorporated. It’s like a traditional style of governance. You know, it’s about us coming together, and we don’t need no Western system to ensure that we can come together and have a discussion about what we feel is important to us.”
– Sam Jeffries, Murdi Paaki Regional Assembly, Indigenous Governance Awards 2012
Some government agencies and private sector companies only provide funding to incorporated organisations. This means your group must incorporate to get money for programs, services or agreement monies. Incorporated organisations may also find it easier to access or share specialist expertise and resources.
When deciding, consider:
- your groups’ activities – for example, whether you need to enter into contracts, get insurances, or rent an office space
- whether there is a structure that best fits your cultural networks and affiliations – these provide legitimacy and are the foundations for your governance.
- whether the structure allows for a clear separation of powers and roles across its layers
- whether you need to employ staff or work with volunteers
- where you will be operating – for example, whether you plan to operate in more than one state
- whether you need to partner or create alliances with other organisations
- your funding – for example, whether you want to apply for grants or be eligible for tax concessions, or need help to manage your funding
- whether you can follow strict regulatory requirements – for example, for reporting and meetings
- which structure best aligns with the system of representation you want to have
- whether cultural geographies are relevant to the kind of structure you need – that is, the relationship your group has to Country
- whether you can meet the costs and obligations of being incorporated.
Justice Connect have some helpful information on whether to incorporate or not.
The table below compares the features of incorporating and remaining unincorporated. This information is adapted from resources published by Justice Connect (2021).7“Getting started,” Justice Connect, updated March 2022,[link]
A separate legal entity that can do things in its own name:
Not recognised as a legal entity, cannot do things in its own name:
Must follow incorporation laws and government regulations.
Must report to the relevant incorporation regulator (ORIC or ASIC).
Do not have to follow many of the requirements or complete the forms imposed on corporations.
Less government regulation and red tape.
Involves large start-up costs and ongoing workload:
Do not have to pay the costs associated with incorporation.
Limited liability for individuals – protects members from being personally liable for the corporation’s debts.3“How to decide whether your group should incorporate,” Justice Connect, updated February 2022, [link]
Does not have the benefits of limited liability – if something goes wrong, individual members can be held responsible.
Perpetual succession – the separate entity continues even when your members change or leave.
No perpetual succession- if membership changes, group may not be recognised by others.
Increased funding options – easier to get government funding, grants and donations.
Some government grant programs only give money to incorporated entities.
Easier to get charity status.
Difficult to get grants, tax concessions, donations, government funding and charity status.
Cultural ways of governing
Less freedom to integrate cultural ways of governing into organisational arrangements.
Greater freedom to integrate cultural ways of governing into organisational arrangements.
Flexibility and control
More formal and less flexibility.
Less control over agenda and less flexibility in decision-making procedures.
More informal and greater flexibility.
Greater control over agenda and flexibility in decision-making procedures.
It’s important to note that it doesn’t have to be one or the other. A lot of groups set up different types of governance for different purposes. For example, Murdi Paaki in NSW have kept some of their governance arrangements informal through community working groups. But they also have set up an incorporated arm that handles receipt of funds.
Some groups decide to incorporate from the beginning. Others start off unincorporated, then decide to incorporate several years later. For example, when they enter a phase of growth, or when they want to apply for government or private sector grants or funding.
There are also other options you can consider – for example, trusts. Trusts are ‘giving’ structures rather than ‘operating’ structures. Trusts distribute income from grants, rather than for running businesses or programs. Like incorporation, trusts have strict rules. These relate to managing assets – through a trust deed – and taxation arrangements.
This can help you to decide what best suits your group’s aims, activities and cultural priorities. If you get help from lawyers and accountants, we have tips on managing and maintaining relationships with experts.
Charities and not-for-profit organisations
The Australian Charities and Not-for-profits Commission (ACNC) defines a not-for-profit organisation as an organisation that does not operate for the profit, personal gain, or other benefit of its members.
A not-for-profit organisation can make a profit, but those profits must be invested back into the organisation.
A charity is a specific type of not-for-profit organisation. The term charity has a special legal meaning. A wide range of not-for-profit organisations are charities, including Aboriginal and Torres Strait Islander organisations.
To be a charity, your organisation must:
- be a not-for-profit organisation8“ACNC Governance Standards,” Australian Charities and Not-for-profits Commission, accessed May 2023,[link]
- have only charitable purposes that are for the public benefit – see the ACNC website for the 12 charitable purposes listed in the Charities Act 2003 (Cth)
- not have a disqualifying purpose – this includes engaging in or promoting activities that are unlawful, contrary to public policy, or that promote or oppose a political party or candidate for political office9“Advocacy,” Australian Charities and Not-for-profits Commission, accessed May 2023,[link]
- not be an individual, a political party or a government agency.10“Who can register with the ACNC,” Australian Charities and Not-for-profits Commission, accessed May 2023, [link]
Both incorporated and unincorporated organisations can be registered as charities. As a charity, making that decision to incorporate or remain unincorporated needs careful consideration of the features, advantages and disadvantages of each.
Unincorporated organisations that register as a charity must comply with the ACNC Governance Standards. These Governance Standards are a base set of standards that explain how a charity is run. For example, a charity must be run lawfully, and in an accountable and responsible way. These standards are not a set of exact rules or principles, so a charity must choose how they follow them.11“ACNC Governance Standards,” Australian Charities and Not-for-profits Commission, accessed May 2023, [link]
Another type of organisational structure is a social enterprise. Unlike a charity, a social enterprise seeks to make a profit. However, this profit must be used for the benefit of the community or another social cause.
Benefits of becoming a charity
According to the ACNC, the main benefits of a charitable status include being able to:
- apply for charity tax concessions
- apply for additional tax benefits, if applicable
- apply for certain categories of deductible gift recipient (DGR) status
- receive a range of other concessions, benefits, or exemptions available to charities under Commonwealth law
- appear more attractive to funders.
Learn more about DGR status on the ACNC website. Or consult an accountant for advice. Pro Bono Australia has a list of accounting companies that can offer their services at no or very low costs to not-for-profit organisations.
What to consider
The decision about whether to register your organisation as a charity depends on your individual circumstances.
Charities have ongoing obligations to maintain their registration. These include:
- notifying the ACNC of certain changes
- annual reporting
- complying with the governance standards.
If you plan to register your organisation with the ACNC, there are legal issues to consider. For example, certain rules or clauses that need to go into your constitution or rule book.
The ACNC has developed template rules for unincorporated associations who want to register as a charity.
The ACNC website also has information on how charity laws apply to Indigenous charities, see Commissioner’s Interpretation Statement: Indigenous Charities.
We’ve translated our extensive research on Indigenous governance into helpful resources and tools to help you strengthen your governance practices.
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