To become an incorporated association, the organisation must be not-for-profit. 'Not-for-profit' refers to the membership, purpose and activity of the association. It does not mean that an association cannot make a profit from its operations, but any profits must be used to further the objects of the association and cannot be distributed to the members.
This is different to a ‘for-profit’ company like Telstra or Qantas, where profits can be lawfully distributed to the members (ie shareholders) in the form of cash dividends.
If an association is going to run a business as part of its operations, two important conditions must be met:
- any trading, either with members or the public, must be secondary to the main purpose of the association; and
- trading with the public must not be substantial in volume in relation to the other activities of the association.
An association that operates outside of these conditions is no longer eligible to remain incorporated under the Act, and may be wound up or required to change its incorporation to a different type, such as a cooperative or company.
To clarify, the restrictions on trading and profit making in the Act do not prevent incorporated associations from:
- making a profit (eg by fundraising), as long as individual members do not receive any of the profit;
- employing people (including members) and paying them wages or salary;
- allowing members to derive a monetary benefit from the association in circumstances where the member would be equally entitled to the benefit if he or she was not a member (eg members of housing associations being housed);
- protecting or regulating a trade, business or industry that members are involved in, as long as the association itself does not participate in the trade, business or industry, (eg professional associations);
- commercially trading, as long as the trading is ancillary and not substantial in volume in relation to the main activities of the association (eg a community organisation selling publications while its main function is to provide a counselling service);
- charging admission fees to events organised for the promotion of the association's objectives;
- arranging competitions between members for prizes and trophies, other than money prizes; or
- providing facilities or services for members (eg a bowling club running a bar).