establishing a Not for Profit in Australia

Best practice in establishing a Not for Profit in Australia

There are a range of entity structures that are suitable for establishing a not for profit in Australia.  Each structure is designed to meet specific needs what suits one organisation may not suit another.

The main choices of organisational structures for not for profit organisations are:

  • Incorporated associations ( for small scale organisations),
  • Non-distributing co-operatives (suitable for any size of entity);
  • Mutuals ( usually a specialised form of co-operative);
  • Companies limited by Guarantee ( for medium to large size organisations);
  • Trusts

It should be noted that the trustees of a trust are appointed by a settler. Trustees are not elected and there are no annual general meetings.

Incorporated associations are only suitable for small organisations with limited turnover. If incorporated associations become too large they will, under normal circumstances, be forced to convert to a company limited by guarantee or a co-operative.

Common Mistakes

Not for Profits and Tax

Just because you are a not for profit does not automatically mean you are exempt from tax. Not for profit exemptions are set out in the Income Tax Assessment Act. It is necessary to be sure whether or not any of the income tax exemptions apply to your organisation. 

Mutuals

Many organisations describe themselves as “mutuals”. An organisation is only a mutual if it complies with the principles of mutuality. Mattila Advisory has specialist experience in establishing mutuals that comply with the principles of mutuality.

Call Mattila Advisory if you need any further information on how we can assist you in establishing a not for profit in Australia.

forming a cooperative in australia

Forming a Cooperative in Australia – need help?

Cooperatives around Australia are incorporated under the relevant State or Territory Government’s Cooperatives Act.

In forming a cooperative in Australia you must have:

  • A minimum of 5 potential members;
  • A minimum of 3 member directors;
  • Draft Rules; and a
  • Draft Disclosure Statement

Prior to forming a cooperative the draft Rules and draft Disclosure Statement must be approved by the Registrar of Cooperatives in your State or Territory. The Registry will not draft your Rules or Disclosure statement for you. These documents are specific to your cooperative.

The purpose of cooperatives is to buy or sell goods or services to members at the best price. Examples are the best price for the provision of disability support services or agricultural cooperatives to market farmer’s produce.

Unlike companies there are no third party shareholders making profits from cooperative members. Cooperatives cut out the additional layer of costs incurred by third party profits paid to external shareholders.

Rules

In forming a cooperative in Australia you will require a set of Rules.  Rules are similar to the combination of a company constitution but Rules also incorporate some concepts from a company shareholder’s agreement.

The Rules are the “contract” between the co-operative and the member shareholders and the member/shareholders and one another.

The Rules are specific to your cooperative and must be approved by the Registry of Cooperatives as being compliant with the Cooperatives Act.  This is easier or harder depending on if you try to do it yourself or if we do it professionally for you.

Disclosure Statement

You will also need to lodge a Disclosure Statement for approval with the Registry of Cooperatives. The Disclosure Statement explains to proposed members the business of the cooperative and is usually based on the business plan if you have one.  Alternatively the types of issues you would address in a business plan are set out in the Disclosure Statement so that members can make an informed decision as to whether to join the co-operative.

The Disclosure Statement also serves an additional purpose of ensuring that the proposed directors have properly considered all the key questions that need to be answered before proceeding, in particular whether the proposed co-operative is financially viable.

Disclosure Statement – Due Diligence and Verification

To complete a Disclosure Statement it is necessary that a due diligence is performed and all statements are verified in a similar manner to a company prospectus.  Like a company prospectus the Directors are personally liable to member/shareholders for any false or misleading statements or omissions in the Disclosure Statement.  This is why it is necessary to do a due diligence and verification as part of the procedures for completing a Disclosure Statement– it’s for the protection of the directors and to ensure potential members are not misled.

Due to the detailed nature of the Disclosure Statement we have found over the last 20 years since the Disclosure Statement concept was introduced cooperatives have a significantly lower rate of financial failure than unlisted companies.

Cooperatives come in all shapes and sizes

Cooperatives can be very large like Cooperative Bulk Handling (CBH) with 4,200 grain grower members and an annual turnover of $2.7bn.

Cooperatives may be very small such as university student groups who bulk buy groceries so that members can obtain groceries at the lowest price.

Or they may be in-between such as cooperatives established by support workers or primary care givers to provide disability services to those in need.

 

Contact Mattila Advisory if you need any further information on how we can assist you to incorporate a co-operative.