Certified B Corporation

Funding Unincorporated Associations

You may not want to give money to unincorporated associations. But, by permitting grants to some groups (either occasionally or regularly), you can consider each case on its merits. You can also capitalise on the benefits of being able to support such groups, which constitute the vast majority of Australian not-for-profits. Most grants do (and probably should) go to incorporated groups, which in most cases are better organised, but you might reserve one funding stream for (probably small) grants to unincorporated associations.

What are they?

Unincorporated associations can be small or large, but they are not legal entities. All that is required of an unincorporated association is that:

  • it has members;
  • an agreement (contract) binds members among themselves;
  • there is a constitutional arrangement for meetings of members and for the appointment of committees and officers;
  • members are free to join or leave the association at will;
  • the association continues to exist independently of any change that occurs in the composition of the membership; and
  • there was a moment in time when a number of persons banded together to form the association.

As long as everything is going smoothly, the law touches unincorporated associations only lightly. But if anything goes amiss, then the board of the association has little protection, and the board members can be sued as individuals. If an incorporated association or company gets into trouble, on the other hand, the association or the company is sued, not the individuals. This is why entities incorporate.

Funding unincorporated associations: advantages and disadvantages

A number of grantmaking bodies won't give a grant unless there is a legal entity to receive it. Also, unincorporated associations are, by definition, not deductible gift recipients (DGRs), and many grantmaking funds have provisions that forbid them from making grants to anything not a DGR. If your rules are silent regarding unincorporated associations, you can give to them.

Advantages

The advantages of permitting grants to unincorporated associations are:

  • You can reach the three-quarters of Australian not-for-profits that are unincorporated.
  • You can support the good ideas being put forward by people who aren't interested in organisational management.
  • You can catch new groups as soon as they kick off, while their enthusiasm is still fresh.
  • You can link up with disadvantaged groups that don't have the confidence or the knowledge to make their way through the bureaucratic maze to official status.

Disadvantages

The disadvantages include not having a legal entity with which to enter into a contract. The contract is with the board and the board members, but which board? The board that accepts the grant, or the board that comes in the following year and does the actual work? This is a grey area.

What are they?

If you do want to fund unincorporated groups, there are a number of approaches you can take:

  • A primary contact person for the group can liaise with the grantmaker and receive a cheque on the group's behalf.
  • The money can be funnelled through another group which is incorporated. Organisations such as the Australian Sports Foundation, Creative Partnerships Australia, the Foundation for Rural and Regional Renewal and the Overseas Aid Gift Deduction Scheme exist for this purpose. Projects funded in this way are likely to have wider community acceptance and greater access to expertise and project management skills.
  • An unincorporated group may be auspiced by an incorporated group (or another legally recognised entity). This may allow you to provide a grant to the incorporated group with the understanding that it will be passed on to the unincorporated group. If you go down this path, you need to be satisfied that the auspice organisation has sufficient leverage over the auspiced organisation to be able to ensure that any terms and conditions applying to the project can be enforced. However, an incorporated organisation cannot act as a conduit for funding for just anything; it can only fund those projects that can be brought under their own charter.
  • You can assist the unincorporated group to become incorporated. Incorporation is not very expensive and doesn't take long. You could have one of your staff draft a constitution for the group, fill out the forms, call a meeting and pay the fees.

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