Introduction to incorporated associations

What does incorporation really mean and what are its consequences? Can your association run a business and what does 'not-for-profit' mean in terms of the law? Before looking at the details of the day-to-day running of an association, it may be useful to review some of the legal matters that support incorporated status.  This section deals with the more significant of these, as well as what to do if the association is going to conduct any business activities.

Key Points

  • Incorporation creates a new legal entity with powers similar to those of a natural person.
  • An incorporated association can operate a business to help fund its objects or purposes provided that no funds or property are distributed to the members.
  • An incorporated association does not need to register a business name to conduct a business if it wants to trade under its incorporated name.  However, if the association wants to trade a part or all of its business under a different name, it will need to register the business name with the Australian Securities and Investments Commission (ASIC).
  • An incorporated association may have a common seal which is the official stamp of the association.  The common seal can only be used by those people authorised to use it in accordance with the rules.

Effect of incorporation

Once an association becomes incorporated it acquires a new legal status – it becomes a legal entity in its own right, separate from the individual members.  It usually has the following characteristics:

  • the association becomes a body corporate with perpetual succession (it may exist forever in its own right, even as the members of the association change);
  • the name of the association is the name stated on the certificate of incorporation and must end with the word 'Incorporated' or 'Inc';
  • members or officers of the association are generally not liable to contribute towards the payment of debts or liabilities of the association;
  • all rights and liabilities that were held by members or officers in their personal capacity in relation to the running of the activity now become the rights and liabilities of, and against the incorporated association.  However this does not relieve any person from liabilities incurred by or on behalf of the association prior to incorporation; and
  • the association may sue or be sued in its own corporate name.

Powers of an incorporated association

The effect of incorporation is to give an association a similar legal status to that of a natural person.

The Act specifically provides that an incorporated association may do all things that are necessary or convenient for carrying out its objects and purposes. It may:

  • acquire, hold, deal with and dispose of any real property (land) or personal property (goods, shares, etc.); 
  • open and operate bank accounts; 
  • invest its money; 
  • invest trust funds under Part III of the Trustees Act 1962; or in any other manner authorised by the rules of the association; 
  • borrow money upon such terms and conditions as the association thinks fit; 
  • give such security for liabilities incurred by the association as the association thinks fit  (eg a mortgage); 
  • appoint agents to transact any business of the association on its behalf; and 
  • enter into any other contract it considers necessary or desirable.

In addition, an incorporated association can do almost any lawful act so long as it is necessary or convenient for carrying out the association’s objects or purposes.

Not-for-profit

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. This does not mean that an association cannot make a profit from its operations.

Under the Act it is now acceptable for an association to trade with the public so long as the profits from those transactions are used to promote the objects and purposes of the association and individual members do not profit from the activities in any way.

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.

An association that operates outside of these conditions is no longer eligible to remain incorporated under the Act, and may be cancelled or required to change its incorporation to a different type such as a co-operative or company.

Being a not-for-profit organisation allows incorporated associations to:

  • make a profit (eg by fundraising), as long as individual members do not receive any of the profit;
  • employ people (including members) and pay them wages or salary;
  • allow 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);
  • protect or regulate 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 trade with the public;
  • charge admission fees to events organised for the promotion of the association's objectives;
  • arrange competitions between members for prizes and trophies;
  • provide facilities or services for members (eg a bowling club running a bar); or
  • pay remuneration to a member in good faith for services provided to their association.

Potential business requirements

Registering a business name

If your association is going to operate any business component of its activities under its incorporated name, there is no need to register the association's name as a business name.

You will only need to register a business name if the association wants to trade under a different name (including a shortened version of the association name) for part or all of its business.

Having a registered business name does not mean that a group has become incorporated and created a separate legal entity. The two processes are separate.

A registered business name is a trading name under which an organisation, group of people or an individual can conduct their business activities within the state of registration.

An incorporated association will only have one name for the purposes of incorporation, but may conduct its businesses under more than one registered business name (provided business is being carried on under each of those names).

A registered business name cannot be the same name as the name of incorporation.

The business name registration service is managed by the Australian Securities and Investments Commission (ASIC).

It is possible to search ASIC’s register of business names, and register or renew a business name online. In most cases confirmation of your registration is received instantly. There is also a choice of registering or renewing a national business name for one or three years.

It is important to note that once registered a name cannot be changed. Should changes be required, the association’s existing registered name must be cancelled and a new one applied for at the regular fee.

More information

Contact the Australian Securities and Investments Commission on telephone 1300 300 630 or visit their website for more information. User guides relating to all services concerning business names are available from ASIC Connect help.

Operating interstate

As incorporated associations are created under State laws, you may encounter problems if your association wants to operate interstate or nationally.  A formal application for registration as a Registered Australian Body can be made to the Australian Securities and Investments Commission.

If approved, the association will gain recognition outside of Western Australia and be subject to the legal requirements of the Corporations Act 2001 when conducting business interstate.

More information

Contact the Australian Securities and Investments Commission on telephone 1300 300 630 or visit their website for more information.

Bank signatories

All associations need people who can sign on behalf of the association, set up accounts, sign cheques, etc. even if there is no intention to run a business.  Often these people are members of the management committee.  Sometimes the authorised signatories and signing procedures are nominated in the rules of the association.  If the rules do not cover this, the association needs to resolve who the signatories are and the requirements for signing documents and cheques. 

Usually a combination of 3-4 signatures is agreed upon to provide financial and security safeguards.  The necessary paperwork can then be set up with the bank or credit union.

Decisions regarding accounts and signatures should be properly resolved and recorded in the minutes.  Resolutions are dealt with in Meetings.

Common seal

A common seal is the official stamp or ‘signature’ of an association.  As a body corporate an association is entitled to a common seal.  The association must have a common seal if its rules require it to have one, and maintain a list of those office bearers who are authorised to use it.  The Act also requires the association’s rules to provide for the ‘custody and use of a common seal’.  Common seals are not expensive to purchase and can be obtained from most stationery shops or rubber stamp suppliers.

The Act specifies that a common seal is only required for contracts which, if made between natural persons, would be required to be made in writing and under seal.  In Western Australia it is not necessary for an incorporated association to use a common seal to execute contracts made between natural persons.

An incorporated association may decide to use the seal to execute contracts and other formal documents as the official signature of the association.  It is good practice to limit the use of the common seal through the association’s rules by requiring that the stamp only be used if the committee formally resolves to ‘affix’ it to a document.

The rules should clearly indicate whether or not the association must use the common seal when executing contracts.  The fixing of the seal should be witnessed only by those who are authorised in the rules to witness the sealing of the document.  Association rules usually require the sealing of a document to be witnessed by more than one officer bearer.