Are you a small community group in New South Wales such as a sports, school or arts group? If you are, then the recent changes to the Associations Incorporation Act 2009 (NSW) (the Act) may affect you and your association. The changes affect the model constitution (forming Schedule 1 of the Act) which governs the rights and responsibilities of members. Below, we first step you through the key characteristics of community incorporated associations before discussing the changes.
What is an Incorporated Association?
An incorporated association shares many characteristics with a public company limited by guarantee. An incorporated association, however, is typically restricted to operating in the state of registration, whereas a public company limited by guarantee can operate Australia-wide.
An incorporated association is a ‘legal person’ – it can enter into contracts in its own name, open a bank account, hold property and be sued – all the characteristics that flow from being a separate legal entity to its members.
Each different state and territory have a separate regime for incorporated associations. In New South Wales, this is the Associations Incorporation Act 2009 (NSW).
Small community groups such as sports clubs and art groups usually choose to register as incorporated associations. Examples of incorporated associations include the Fairfield City Art Society Incorporated and the Aus-China Culture Exchange Association.
The Model Constitution
Are you free to go about running your incorporated association however you would like? Holding meetings in remote, cliff-top locations, at short notice and isolated from other members? Can you exclude others from voting? Can you be your own incorporated association despot? Not in this town you can’t!
Every incorporated association must have a constitution – a legal contract between the association and its members – governing how the association operates.
An association can create its own constitution, or it can use the model constitution provided in the Act. The model constitution outlines, among other matters, the following:
- Membership qualifications (if any);
- Fees to be paid;
- Members’ liability;
- Dealing with internal disputes;
- Calling general meetings;
- Notice of general meetings; and
- Voting.
What are the Changes?
The Act changed from 1 September 2016, affecting several key changes:
- Joining: Potential members can now apply for membership rather than be nominated by the association;
- Welcome to the 21st century: Minutes can now be taken electronically alongside using technology to facilitate a meeting in two different places (e.g. using a conference call facility). Voting at meetings can also be done electronically (the Act did not deal with these matters previously);
- Not for profit: The Act provides that an association’s funds must be applied consistently with the Association’s objectives and cannot be used to gain a financial benefit for members; and
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Official address: The address of an association must now be in NSW (formerly this was not specified).
The most important change is the duty of care members owe to the association and the members’ personal liability.
- Duty of care: The Act previously only provided that a member needed to disclose a conflict of interest and act honestly in the performance of his or her duties. A member also could not allow an association to trade while insolvent. From 1 September 2016, members must carry out their functions for the benefit of the association, so far as practicable and with due care and diligence.
- Personal liability: From 1 September 2016, the Act provides members with protection from personal liability where they are acting in good faith while performing their duties.
Key Takeaways
Incorporated associations are used by many small community groups to run their own activities – your local hockey club is likely an incorporated association, as would be the arts group down the road. A constitution must govern each association – either one created bespoke for the association or associations can use the model constitution provided in the Act.
Changes from 1 September 2016 mean that members are protected from personal liability where they act in good faith and the Act now explicitly provides that members must act in good faith in the performance of their duties.
If you have any questions about these changes, get in touch with our commercial lawyers on 1300 544 755.
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