Legal issues for activist organisations

Function

If your group is going to be effective in what it seeks to achieve, don't choose an off-the-shelf process that does not suit the members. Whether you form an affinity group, informal association, collective, co-operative, incorporated association, or corporation, don't choose a structure that you're not committed to, or that you are not sure you can follow through on, long term.

With this rule in mind, you will be able to consider the following questions with much more clarity:

• Who can be a member of the group – why are you including some and excluding others?
• How does the group make decisions – what do you do when there is disagreement?
• How are meetings conducted – will it have an agenda, facilitator and minute taker?
• If you need expert help, should such help be co-opted into your group, or consulted as an advisor, or be part of a reference group or steering committee?
• What are the ground rules of communication between members – is there a clear conflict resolution process in place?
• Does the constitution of the organisation honestly reflect its real objectives, or is it a "sham" devised to attract, say, tax concessions?
• Can the organisation honestly follow its own rules and constitution – or does it run a parallel system of governance beside the ‘legal' one?

Control

• who says what, when and to whom;
• who can act or speak so as to legally bind members;
• who is responsible for spending money, making contracts and financial commitments, and meeting legal obligations (and whether they have the information and competence to do so in a way that does not break the law or expose the group to penalties).

• Whether to accept money from particular sources (government, tobacco companies, gaming companies, corporations that operate unethically in developing countries etc).
• What investments are appropriate – high risk, higher potential return, ethical investments etc.
• Whether to pay members or associates for their services.

Money

When thinking about money and your organisation, some of the key questions include:

• what accountability systems are in place;
• who controls the money;
• whether to fundraise;
• ability to seek deductible gift recipient status and/or tax exempt status;
• GST implications; and
• state regulations for fundraising activities.

The structure that your organisation chooses can affect its tax status, the duties that it owes to members/supporters, and how it transacts business. Having a loosely structured organisation may mean that individuals who represent the interests of the organisation in business dealings may be held personally financially liable for their actions. For example, if you intend to raise donations, the money could be considered income in the hands of group members and attract income tax. Alternatively, it could be characterised as income of a non-profit organisation that may or may not attract tax. Having a very loosely structured organisation may also mean that the public and businesses are reluctant to deal with your organisation because they are not willing to take the perceived risk.

Charitable status

A charity is an entity established for altruistic purposes that the law regards as charitable. Having charitable status can entitle an entity to certain tax benefits.

The Australian Tax Office sets the criteria it uses to decide whether or not an organisation is a charity in Draft Taxation Ruling TR 2005/D6. Most criteria for deciding what is a charity have been established by case law but the Extension of Charitable Purpose Act 2004 (Cth) adjusts the concept for the purposes of Commonwealth law. Charities include most religious institutions, aged persons homes, homeless hostels, organisations relieving the special needs of people with disabilities and organisations that promote culture or environment protection. The characteristics of a charity are:

• it is an entity (corporation, unincorporated association, trust or partnership) that is also a trust fund or an institution;
• it exists for the public benefit or the relief of poverty;
• its sole purposes are charitable within the legal sense of that term; and
• it is non-profit

If you think that you might qualify or wish to qualify as a charity check out the Australian Tax Office website at http://www.ato.gov.au/nonprofit/ or contact the ATO on 1300 130 248.

Income tax

Tax exempt status

The income tax law provides that certain types of charities and non-profit clubs, societies and associations are exempt from paying income tax. Most of such entities are not automatically exempt. There is an endorsement process for charities and certain tax exempt funds. To find out about this process contact the Australian Tax Office on 1300130248 or check out the ATO webpage: http://www.ato.gov.au/nonprofit/.

A non-profit organisation does not necessarily need to have charitable status in order to be exempt from paying income tax. Some non-profit organisations that are not charities can theoretically self-assess their income tax exemption but in practice it is always desirable that you seek ATO approval for your exemption so as to minimise the risk of penalties etc. For example, certain types of clubs, societies and associations can be exempt from income tax. Below is a list of the types of organisation that can be exempt from income tax:

• community service organisations
• cultural organisations
• educational organisations
• employment organisations
• friendly societies
• health organisations
• religious organisations
• resource development organisations
• scientific organisations
• sporting organisations

Deductible gift recipient status

Certain non-profit organisations are deductible gift recipients (DGR). A DGR is a fund or organisation that can receive tax-deductible gifts. Being a DGR may mean that your organisation may be more attractive to people who want to support you financially. The income tax law determines which organisations and types of organisations can qualify.

Some DGRs are listed by name in the income tax law. They include organisations like Landcare Australia Limited, Amnesty International Australia, and the Australian Academy of Science. For other organisations to be DGRs, they must fall within a general category set out in the income tax law. Examples include public benevolent institutions, public universities, public hospitals and school building funds.

• have an Australian Business Number;
• maintain a gift fund; and
• be in Australia (with some exceptions).

DGRs are not automatically exempt from income tax – see above

GST

• you raise the funds by selling donated second-hand goods, or
• you raise the funds by holding a raffle or bingo in accordance with Victorian law; and
• you are able to treat any sales connected with your fundraising event as input taxed.

For more information about how GST impacts your organisation contact the Australian Tax Office on 1300130248 or check out the ATO webpage: http://www.ato.gov.au/nonprofit/.

Fringe Benefits Tax

FBT is payable by an employer who provides fringe benefits to its employees or their associates. FBT is payable at a flat rate of, in effect, 48.5% of the value of the benefits, but many non-profit organisations are entitled to a rebate on the rate of tax and a limited number can provide limited FBT exempt benefits. It is imposed even if your organisation is exempt from income tax.

For more information about how FBT may impact your organisation contact the Australian Tax Office on 1300130248 or check out the ATO webpage: http://www.ato.gov.au/nonprofit/.

Victorian regulations for fundraising activities

Fundraising in Victoria is regulated by Consumer Affairs Victoria (“CAV”) and the Fundraising Appeals Act 1998 (Vic).

A fundraising appeal occurs if a person solicits or receives money or a benefit on the basis of a representation that the soliciting or receiving is not solely for the profit or commercial benefit of the person or any other person, cause or thing on whose behalf the person is soliciting or receiving the money or benefit.

Fundraising appeals include things like door-knock appeals, telemarketing, traffic intersection/highway collections, appeals run by commercial fundraisers, public appeals to support a club, association or an environmental or community cause, public appeals to support a cause or person or group of persons, or the selling of goods where portions of the sale price are donated to a charitable organisation or cause.

Unless exempted from registration, anyone wishing to conduct a fundraising appeal is required to register with CAV before the fundraising commences. The purpose of the registration scheme is to protect consumers by helping to ensure fundraising is transparent and that people are aware of how and where their money is spent.

Exemptions from registration

Exempt organisations

• state schools, council schools or registered schools, and some kindergartens;
• universities, TAFE colleges or other tertiary educational institutions;
• hospitals or other registered health agencies funded by the state government;
• religious bodies with authority to marry people;
• registered political parties; registered trade unions and registered workplace relations or industrial relations organisations;
• non profit organisations that receive less than $10,000 gross in a financial year from fundraising, and use only unpaid volunteers;
• licensed children's services that receives funding for a pre-school program from the Department of Human Services;
• the Anti Cancer Council.

Exempt activities

• Raffles, lotteries or other activities permitted under the Gambling Regulation Act 2003 (Vic);
• Asking a person to become a member of an organisation;
• Asking for property bequests;
• Memorial gifts;
• Giving to certain patriotic funds;
• Fundraising in the workplace for the benefit of an employee or his or her close family;
• Grants or gifts from government or commercial organisations such as corporations, partnerships or trusts which are permitted by their contributions to donate money or benefit to charity; and
• A fundraising event internal to an organisation and targeted at past and present members and their relatives.

Process for registration

Other permissions necessary to fundraise

• Doorknock appeals – you will require permission from the local council of the area in which the doorknock is to be conducted.
• Traffic intersection collections (highway collections) – If Consumer Affairs Victoria allows you to conduct highway collections, you will also require permission from the local council of the area in which you are collecting and a highway collection permit from Victoria Police. Highway collection permits are available from Victoria Police Policy and Education Section, 3C, 637 Flinders Street, Melbourne 3005, telephone (03) 9247 5779.

A separate permit may be required to conduct certain gaming activities such as raffles or bingo. Contact the Victorian Commission for Gambling Regulation on 03 9651 3630 or minor.gaming@vcgr.vic.gov.au.

Obligations on fundraisers

Protection against civil liability

The structure of an organisation can determine its exposure to civil liability (being sued). Some groups simply gather behind an individual who is prepared to take the responsibility for saying or doing something (perhaps because they have no assets to risk). Others decide to establish a formal structure that creates an artificial ‘legal person'. Registered companies and incorporated associations are examples of such structures' however, the board members of these entities can still be personally liable.

The Wrongs Act 1958 (Vic) provides some protection from liability for volunteers undertaking community work (as defined in the Act) by transferring liability to the community organisation organising the work.

Unincorporated associations

An unincorporated association is not really recognised by the legal system. Such entities are the result of people who share a common lawful purpose simply agreeing to further their interests by collective action – provided they do not fall within the definition of a partnership (i.e. they are a non-profit organisation). Some small recreational, sporting and special interest clubs and societies are structured in this way.

The important features of an unincorporated association are that it:

• has a common lawful purpose (but not for financial advantage);
• has a set of rules setting out things like its name, purpose, eligibility for membership and the like. Having a set of rules is not mandatory, but can be a very wise thing;
• operates through a private agreement between members, by consent (not a contract);
• cannot hold commonly owned property in the name of the association.

Some unincorporated associations rely on membership subscriptions and fees to fund their activities, while others rely on contributions, donations or raised funds.

A major reason for not using an unincorporated association as the chosen method of organisation is the risk of direct civil liability. An unincorporated association cannot take responsibility for this liability. Instead, each member of the association, or in some cases, each member of its committee of management, carries the liability jointly and severally (where all of the members are liable in part, or, any one or more of the members are liable for the whole). In addition to this major limitation, an unincorporated association may find that it is difficult to:

• get tax concessions;
• enter into contracts in its own name;
• raise philanthropic or other gifts;
• deal with assets equitably and easily because they are common property, not in the ownership of the association.

Co-operatives

• All co-operative members have equal status – one member one vote;
• No member can hold more than 20% of the shares;
• All active members can nominate as directors and elect directors;
• Capital is used to run an activity rather than being invested for an individual's benefit.

• A co-operative is a legal 'person' and its directors and officers hold responsibilities similar to those of a trustee of a personal estate;
• Directors should be familiar with the Principles of Co-operation; as outlined in the Co-operatives Act 1996 (Vic).
• Directors must disclose any possible conflict of interest with their duties as directors;
• Directors must not allow the co-operative to incur further debt if they believe it would become insolvent by doing so;
• Directors must keep accurate and fair accounts and records and take responsibility for financial statements prepared for members.

• A trading co-operative must have share capital and at least five active members. It can distribute part of the surplus of the co-operative to members by way of bonus shares, dividends or rebates.
• A non-trading co-operative must have at least five active members, but must not distribute any surplus to members. It may or may not issue shares to members.

The Co-operatives Act 1996 (Vic) covers co-operatives in Victoria. Consumer Affairs Victoria (CAV) keeps a public register of co-operatives, authorises registration and enforces the Victorian Act. A detailed guide about running a co-operative can be obtained from the CAV website at www.consumer.vic.gov.au . The rules by which different types of co-operatives operate can also be downloaded there.

• A member of a co-operative with a share capital is liable to the co-operative for the amount, if any, unpaid on the shares held by the member together with any charges payable by the member to the co-operative as required by the rules of the co-operative.
• A member of a co-operative without a share capital is liable to the co-operative for any charges payable by the member to the co-operative as required by the rules of the co-operative.

Incorporation

Incorporated associations

Non-profit associations can be incorporated under legislation in each state. In Victoria this legislation is the Associations Incorporation Act 1981 (Vic).

Incorporated associations are usually small bodies of people, clubs, etc that wish to gain legal status (wish to purchase property in the name of the club, sue and be sued, etc). Incorporation offers some protection for the organisation's office holders from the debt and liabilities incurred by the association as long as the association does not trade or make a profit for its members. Incorporation is voluntary, and once incorporated the Act provides a standard for operation.

Incorporated associations are an alternative to the corporation/company and are particularly appropriate for small non-profit groups and community bodies. Consumer Affairs Victoria is charged with the responsibility for registering and maintaining records on incorporated associations (just as they are for registered co-operatives).

The rules of incorporated associations have to conform to minimum legal requirements about membership, management, meetings and the administration of an organisation with a separate and potentially perpetual existence.

At least five people are necessary to form an incorporated association. There are also controls on what names can be used so as not to mislead people.

• Simplicity – incorporation requires authorisation by its members, and application for registration by a representative
• Model Rules – model rules can, with care, be adopted without the trouble of drafting your own, although if you will be seeking tax concessions, special provisions will need to be included
• Legal Personhood – the incorporated association is a legal person and therefore able to own property, defend and claim rights, and to some extent protect the members who are generally not liable for its debts and liabilities.
• Except as provided under the Associations Incorporation Act 1981 (Vic), or the particular rules of an incorporated association, a member of the committee, the public officer or a member of the incorporated association shall not, by reason only of membership, be liable to contribute towards the payment of the debts and liabilities of the incorporated association or the costs, charges and expenses of the winding up of the incorporated association.

Note that if the organisation will be active in another state or territory, it should be registered with an Australian Registered Business Number under the Corporations Act (Cth). It may also be required to obtain separate fundraising registration.

Registered companies or corporations

A company has a legal identity separate from its members who are associated together in a company formed under the Corporations Act (a Commonwealth Act). The ‘legal person' is born at the point that it is incorporated. Almost all non-profit companies are companies limited by guarantee. Their members guarantee to pay, say, up to $100 towards the debts of the company on its winding up. Membership is generally of no value and is not transferable. They must have at least three directors who are appointed by the members.

The main features of a company/corporation are:

• It is a separate legal entity, with an existence distinct from its members;
• If there is a dispute, the corporation is the person that must act to resolve it. The corporation must defend or enforce its rights (though a court can sometimes look behind the ‘corporate veil' to trace the individuals behind the company);
• Liability of members can be limited – though this also can be set aside; and
• It must be registered under the Commonwealth Corporations Act. The company name and Australian Company Number or its Australian Business Number should appear on all letters, invoices, orders, notices and cheques.

Companies limited by guarantee are becoming increasingly popular for non-profits although their directors can have a higher level of personal liability for unpaid debts than committee members of incorporated associations. Concessional ASIC incorporation and annual statement fees are payable by charitable companies limited by guarantee.

For more information about companies, visit the ASIC website at: www.asic.gov.au. 

Public liability insurance for non profit organisations

There are two key ways to arrange insurance cover:

The first is to align yourself with a sympathetic organisation that already has insurance and get them to auspice your activities. This may be a specially created entity that offers this service (usually along with other services including auditing your financial affairs, receiving and acquitting grants and the like). Church groups are a good example of organisations that are sometimes willing to auspice the activities of community groups.

The second is for your organisation to obtain insurance in its own right. There are various insurance schemes available to non profit organisations. For example:

The Community Care Alliance of NRMA, Allianz and QBE (insurance providers) have also recently entered Victoria and provide public liability insurance for activities including community events, community centres and home care. It is now up and running and you can obtain a quotation at www.community-care.com.au .

GIO Insurance is also offering public liability insurance to non-profit groups throughout Australia.

Community Groups Insurance Scheme

The new public liability scheme developed by the Municipal Association of Victoria (MAV) has been introduced to provide public and product liability cover to not-for-profit community organisations (NPOs). The scheme has been developed as a response by local government to the concerns raised by NPOs to large increases in premiums over the last year and lack of available cover.

What is covered by the scheme?

Further information

To get more information (including information on excluded organisations and activities), to obtain a quotation or to get cover visit www.communityinsurance.com.au or call (03) 9860 3470 or (03) 9860 3434.

The State Government, Municipal Association of Victoria, Our Community and Jardine Lloyd Thompson are supporting this initiative with information about risk management for not-for-profit organisations. Further information on risk management is available at the Community Insurance Centre at www.ourcommunity.com.au/insurance/insurance_main.Jsp .

Spokespeople: who takes the rap?

Controlling who speaks on behalf of the group is very important. If a community group proposes to advance its cause through public pronouncements, media comment and submissions to government and industry bodies, it is equally important to ensure its representatives speak as representatives of a group that has a separate legal identity, and only with authority.

See Legal threats to silence activists for further information.