Why incorporate?

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We need to seriously think about doing the paperwork to become incorporated so we can be a "real" (in the legal sense) group. --Ryan

(Via: Airstreams FAQ: Why is Air-Stream Incorporated?)

Incorporation is a system of registration that gives an association certain legal advantages in return for accepting certain legal responsibilities. The most obvious advantage of incorporation is that the Air-Stream itself has a legal existence. This means it can as an entity:

  • sue and be sued,
  • own land and chattels,
  • enter into tenancy or lease agreements,
  • enter into contractual agreements,
  • receive grants or funding
  • receive a bequest or gift from a will, and
  • perpetually exist, that is, remain in existence no matter who is a member until it is disbanded by operation of the law.

One of the principal reasons for incorporation is to gain the benefits of limited liability. Section 27 of the Act provides as follows:

'A member of an incorporated association is not liable, except as provided in the rules of the association, to contribute towards the payment of the debts and liabilities of the association or the costs, charges and expenses of a winding up of the association.'

An incorporated association may not be formed for the purposes of trading or earning profit for members. If the association earns a profit from commercial activity, this profit may not be distributed amongst the members. It must be used for activities carried on by the association.

Issues unincorporated bodies
There are a number of advantages to not being an unincorporated body. These include:

  • ease of dissolution as there are no statutory obligations;
  • privacy of affairs as accounts and financial statements are not subject to public scrutiny as in the case of incorporated associations;
  • an unincorporated association which 'carries on business' in other States of Territories does not encounter company registration problems as does an incorporated association;
  • it is not necessary to appoint a public officer, which is a statutory requirement for incorporated associations;
  • it may be difficult to sue people in relation to a wrong committed by an unincorporated association.

However there are more problems for members of an unincorporated association. In relation to contracts, the law sees a contract made with an unincorporated association as either:

  • a contract with the members of the committee personally at the time the contract was made; or
  • if it is clear that no personal contract was intended, no contract at all.

There is therefore risk that if a contract dispute comes before a court, the association may find a contract it is relying on is unenforceable; and a court may hold that the secretary or members of the committee are personally liable if a contract has been breached.

In relation to ownership of land, registration cannot be in the name of an unincorporated association but by all the members, which can create a difficulty as new members join. If incorporated, title to land is vested in the name of the association as a separate legal entity.

In relation to liability, generally the members of the committee of an unincorporated association will be personally liable for anything for which, if the association were a company, the company would be liable. In particular if some person acting in the course of their duties does some negligent act, which results in damage to person or property, the members of the committee will normally be personally responsible – risks of this kind can be covered by insurance. If incorporated, an insurance policy can be taken out in the name of an association and this covers at least part of the legal liability. However, you should note that at times these insurance policies are difficult to obtain.

In relation to litigation, an unincorporated association cannot sue or be sued in the name of the association. Any action taken must be in the name of individuals on behalf of the members of the committee and, for reasons already given, many actions have not been successful. If incorporated, any action in law is taken out in the name of an association as a separate legal identity.