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Help Sheet

Not-for-profit companies

A company structure is one way to limit your liability to unforeseen contingencies.

A company is a registered legal entity with the right to do business in its own right: the proprietors are the shareholders (and usually also its directors and employees). Most not-for-profit companies are companies limited by guarantee.

A business may be conducted by a Company as an entity in its own right and comes into existence by incorporation under Companies legislation, which also regulates the running of the company and sets out the duties of its officers.

It's normal for a solicitor to prepare company documents and apply for incorporation. A company has a Memorandum setting out its powers and Articles of Association governing the carrying out of these powers. A Company has shareholders, who are the owners of the Company, and directors, who run the Company. Shareholders may also be directors and employees.

Companies and corporations can be structured in various ways to make them more relevant to the needs of community based groups. One example might be a not-for-profit public company structure. In such a structure, the legal and business benefits of a company are obtained. However, the stated purpose, as reflected in the memorandum and articles of association, might be community good rather than profit.

Financing might come largely through public subscription or membership. The liability of the shareholders is limited to the unpaid calls (if any) on their shares in the company. Personal liability of directors and employees may also arise out of an offence under the Corporations Act 2001 or negligence in the performance of their duties.

Advantages

Disadvantages

Some not-for-profits have to be companies. Several of the State Associations Incorporation Acts have given the Registrar of Incorporated Associations power to direct associations incorporated under the Act to instead register as companies limited by guarantee under the Corporations Act. In Victoria, at least, some associations have received such a direction.

Being a company doesn't stop you being a not-for-profit or a charity or a public benevolent institution. An NFP company can still have tax deductible status if it meets the other requirements of the tax office.

There are also a variety of legislative provisions which effectively require certain NFP organisations to incorporate as companies, either to obtain grants or for licensing - for example, the Aged Care Act 1997 (Cth), the Aged or Disabled Persons Care Act 1954 (Cth) and the Registered Clubs Act 1976 (NSW).

Finally, in addition to companies registered as companies limited by guarantee there is a significant group of companies limited by share that also fall within the general heading of NFP companies. For example, it is increasingly common to find NFP organisations that have trading subsidiaries. These are companies limited by shares that operate as "for-profit" subsidiaries of the NFP parent organisation.

Our Community Pty Ltd   www.ourcommunity.com.au   ABN 24 094 608 705
National Headquarters: 51 Stanley St, West Melbourne Victoria 3003 Australia
(PO Box 354 North Melbourne 3051 Victoria)
Telephone (03) 9320 6800   Email service@ourcommunity.com.au