By Michael McMahon*
First published in ART+law newsletter issue December 2000.
Legal Structure
Whenever a group of people decides to join together to pursue a particular set of objectives, including the pursuit of arts and cultural objectives, one of the first questions to arise will be the choice of an appropriate legal structure. The law provides for a range of possible legal structures, all of which will need to be considered and assessed by the people wishing to form the organisation. Each legal structure has particular characteristics and the options need to be considered carefully. The ultimate choice of the appropriate structure will depend on a number of factors, including whether group members wish to earn a personal income from the activities, whether they want to create a corporate or separate legal entity to carry on the activities, the nature of the group's activities, the geographic area in which they wish to pursue those activities and the degree of regulation to which they will be subject.
Profit or Non-Profit?
Generally the first question that must be answered is whether the group members are going to carry on their activities as a business for their personal gain or whether the activities and the income generated from them is for the pursuit of a set of wider objectives. That is, is the organisation going to distribute its profits between its members or is there to be a prohibition on distribution of surpluses that will be retained within the organisation and used to achieve its objectives? This is a very important and frequently overlooked question.
If a group of artists wish to pursue their activities for their personal profit then they must choose between forming a partnership or incorporating as a private company. These are the two common ways in which the law provides structures for people who want to be in business for their personal gain. Being in business means that you must have a business structure.
If, however, the members of the group are concerned with using the organisation's funds and resources to further a wider set of objectives than personal profit - for example, establishing a resource centre for craftspeople within the community - then they will have to consider forming one of a range of non-profit distributing legal structures. These structures include becoming an unincorporated association, an incorporated association or a company limited by guarantee. In each of these structures the funds of the organisation, including any surpluses, are retained within the organisation and used to further its objectives. The group members have no entitlements to any of the organisation's funds.
Duties and Responsibilities
The choice of a legal structure for arts and cultural groups is a very important one, as it will affect the way in which other people and the law view the group and also the ultimate legal liability of the people in the organisation. The duties and responsibilities imposed on the people who are elected or nominated to serve on the governing committee or board of any organisation will also be determined by which legal structure the group decides to adopt. These duties and liabilities are not to be taken lightly as the law adopts a firm attitude to the people who are responsible for governing organisations, both profit distributing and non-profit distributing. The fact you are a voluntary committee or board member makes no difference to your overall responsibility for the management of the organisation
Getting together to form an organisation is a very important step towards furthering individual and group objectives. Making the decision on the appropriate legal structure for such an organisation is not always easy and the consequences of that decision can be far reaching. Early advice should be sought from Arts Law or from the Department of Fair Trading in your state on the appropriate legal structure to adopt.
*Michael McMahon, Solicitor at Logie Smith Lanyon.
