1 Church Incorporation What Does it All Mean and What Do I Do Next? Prepared by Phil Burgess GM Operations September 2015 This presentation will be available on under Resources for Churches
2 Church Incorporation Some Background Why Do We Need to Consider This Topic? An essential quality of any healthy church is to have effective structures, supported and operated by strong, empowering leadership. Historically, many Churches of Christ congregations have remained as an unincorporated association, operating as an affiliated membership within Churches of Christ in SA & NT Incorporated. Much has happened since this subject was last considered back in 2004, including some big changes to the laws of the land with which we all must comply, and the need to ensure we are demonstrating the highest levels of governance to our congregations and broader constituents in society. It is important generally for Church Governing Boards to understand that they have serious responsibilities in conducting ministry activities, especially with respect to the employment of ministers and staff, and as such these responsibilities must be clearly understood and complied with by Boards and Leadership groups. What Are We Recommending to Churches? After considering this subject in depth this year, the State Board believe that taking the step towards incorporation is a logical and practical step for member churches, which will more effectively facilitate good governance and prudent risk management. It is not however a one size fits all decision there may be legitimate reasons for a member church to remain unincorporated, for example a small ministry meeting informally, operating without a minister. We aim to equip and support churches into a position of understanding: (a) what model is best for them, (b) how to transition, and (c) either model, what responsibilities need to be in place.
3 Churches of Christ in SA and NT Inc. What About the State Conference and our Umbrella Protection? The State Conference is structured as an Incorporated Association in South Australia. The constitution of Churches of Christ in SA & NT Inc. provides for the effective governance of the State Conference on behalf of member churches: processes for nominating delegates, and then composition, authorised powers and responsibilities of the State Board, appointment of the State Minister and other officers, the responsibilities of, and processes for, membership, and procedures for meetings and business matters in general. Churches of Christ in SA & NT Inc. also fulfils a number of important legal requirements for and on behalf of member churches, including: acting as Trustee for the funds entrusted to it on behalf of members and others, providing a governing organisation accountable to member churches, to fulfil key stewardship responsibilities required of the Churches of Christ movement overall, holding church property, specifically land titles, under a Deed of Trust that preserves and holds the congregation s rights to determine how the property is used, and protecting the property from any attempts within a church to act outside the interests of its membership and the movement as a whole, acting as signatory on contracts and agreements relating to member churches, thus taking on legal obligations in this sense, and fulfilling essential responsibilities with respect to ministry appointments, conduct, and ethics. Nothing fundamentally changes with respect to these duties. The Conference Structure is ultimately accountable to Churches, and only exists to serve the collective interests of all Churches.
4 Unincorporated Associations What Is an Unincorporated Association? Most member churches in our Movement are known at law as unincorporated associations, with an affiliation membership in the State Conference entity. The important legal characteristics of unincorporated associations are: they are not recognised as separate legal entities to the members associated with it; the group of people who agree to act together as an organisation form the association; the group can remain informal and its members make their own rules on how the group is managed; the rules may be referred to as a constitution (the contents of which are not prescribed by statute); the association cannot be sued or sue in its own capacity; the association has no separate legal existence from the members. Rather, the members, or a Management Board made up to represent the members collectively, are responsible for the actions of the association and are personally (jointly and severally) liable for all the debts and liabilities of the association and any shortfall will generally be borne by the leaders; and the association cannot enter into contracts, open bank accounts, or hold property. Its members must personally or collectively do so, or corporate structures may hold property on trust for the association. The Big Point Legally The church doesn t have a separate legal identity it s identity is its collective membership. Under most congregational governance models, the congregation members entrust the management of the church to the Board by virtue of the Constitution, under which the Board is given responsibility for the general administration of the association. Board members will be personally liable where they enter into a contract on behalf of the association. To the extent that there is ever any shortfall of funds, Board members will be held personally responsible for debts or liabilities incurred in the name of the association during their term as Board members, simply by virtue of the fact that they are members of the Board, or where the liability arose as a consequence of a decision of the members then that liability may attach to each of the individual members.
5 Incorporated Associations What Is an Incorporated Association? Some of the member churches in our Movement are incorporated. The important legal characteristics are: the association is a legal entity separate from its individual members, and can continue regardless of changes to membership; provides financial protection by limiting personal liability of members, and is the most common legal structure for registered charities; simplifies and clarifies the management and ownership of the money and other assets of the body, eg. Bank accounts are held in the name of the association; Assets can be purchased and owned by the association (albeit we maintain the position as Conference of holding real property in trust for the member church), and The association can enter into contracts. provides some legal and financial protection for the Management Board of the association who otherwise might be liable for damages arising from the activities of the association, for example: provides good governance guidance; protects committee members from most personal liability for debts of the association but leaves them with the responsibility to act honestly and prudently; and allows some taxation advantages. The Big Point Legally The incorporated association has a specific legal personality, separate and distinct from its members. It affords a level of protection to the Management Board, but not in all cases (eg. criminal jurisdictions, superannuation law). Ultimately this is a better structure for all of us.
6 What Are Our Responsibilities? Church Management Board Responsibilities There are some considerable accountabilities placed on the Church Governing Board with respect to its duties and obligations, particularly as they relate to the basics of legal compliance. Some of the more significant accountabilities include: Work Health and Safety, Employment Law, Taxation, Superannuation, Workers Compensation, Debt and Solvency, Child Safety, and General Board Duties under ACNC. Each of these areas carries some level of consequence should requirements fail to be met, including some which operate within a criminal jurisdiction and thus require special attention. It is not practical for the State Office Team to be across the compliance of all churches in these areas, hence it is vitally important that Boards understand and can fulfil their obligations. How Does Incorporation Change These Responsibilities? Responsibilities of the Church Governing Boards really don t change. They are very similar across both types of structures, however The accountabilities (and consequences thereof) can in some cases be markedly different depending on the structure (think: individual vs corporate liability).
7 Incorporation in South Australia In SA, incorporation is governed by the Associations Incorporation Act 1985, and regulated by Consumer and Business Services ( CBS ) Incorporation is a voluntary, simple and inexpensive means of establishing a legal entity, separate from the individual members. In other words, the association is considered by law to have a distinct identity that continues despite changes to its membership. Incorporated associations are non-profit organisations. Any surplus made should be kept by the association and should not be used by members for personal gain. A statement of rules is required under the Act (in church parlance, the Constitution ), which binds the association and all members of the association. Section 23A outlines the contents required of the rules as follows: must state the name of the association and set out its objects; must not contain any provision that is contrary to or inconsistent with the Act; must contain provisions that deal with the following matters with sufficient particularity and certainty having regard to the nature and objects of the association: membership in the case of an association that has members; the powers, duties and manner of appointment of the committee; the appointment of an auditor; the calling of and procedure at general meetings; who has the management and control of the funds and other property; the powers of the association and by whom / how they may be exercised; the manner in which the rules of the association may be altered; and any other matter prescribed by regulation. The big thing here is to ensure the Constitution is current
8 What Is Involved with Incorporation? In SA, incorporation is governed by the Associations Incorporation Act 1985, and regulated by Consumer and Business Services ( CBS ) Incorporation is a relatively simple process requiring completion of straightforward application forms, and lodging these forms together with the Constitution (rules of association). It is very likely that the member church Constitution will require revision as part of this process, and it is important that the Constitution appropriately reflect the requirements of the Act. This is probably the most important thing. CBS provide a useful example rule set which can be used as a guide to ensure that provisions are addressed ( As part of the application for incorporation, an Associations Checklist, which is a cross-reference between the association s rules, and the requirements of the Act (see Incorporation requires a one-off fee of $181. What About Ongoing Administration? Under the requirements of the Act, the association must maintain financial information (as a church should in any case), but is not required to lodge annual financial information where revenue is less than $500,000 per annum. The key message here I don t believe there is anything required administratively, over and above what the church should be doing anyway.
9 Can We Stay Unincorporated? The Short Answer is Yes, but We Strongly Recommend A Series of Measures 1. Ensure the Church Management Board understand the legal accountabilities Understand and then assess your capacity to assume the full range of accountabilities. State Ministry Team can assist with this. 2. Ensure Your Insurances are Appropriate and Up-To-Date Provide a copy of the insurance policy to each Board Member. 3. Review the Constitution Anyway Ensure it addresses minimum good governance practices and protections. 4. Ensure Management Board Control Measures are In Place Regular financial reporting. Reporting of compliance with key legal obligations eg. employment, WHS. Reporting of any issues and incidents. Ensure audit is in place, annual reporting occurs, AGM is held. Other matters as required. 5. Provide Annual Reporting to Conference For Conference to fulfil its corporate governance requirements, particularly its duties as Trustees and our accountability to all member churches, we desire to understand how churches are travelling, and to assist early with any potential issues that might arise.
10 What are the Steps Involved with Incorporation? Review Constitution Detailed review vs template, address missing requirements Update / modify / gain approval within congregation Legal advice if required Assess Governance Capacity Governance positions are in place and functioning Legal and compliance requirements are clearly understood Procedures and controls are in place and functioning, gaps are attended to Practical Steps Register with OCBR Undertake practical and administrative transition steps
11 What About The Practical Steps? Key Practical Steps Winding up the affairs of the old unincorporated association. Ensuring the appropriate church meetings are convened and duly authorised notices and approvals are given. Preparing and lodging new taxation registrations for the incorporated association. Updating ACNC registration. Transitioning the Workers Compensation registration. Novating any existing ministry and / or employment agreements, or establishing new agreements as appropriate. Updating all relevant communications (eg. including internet presence). Novating insurance policies. Opening new bank accounts in the name of the new association. Establishing a new Declaration of Trust for church properties in conjunction with State Conference.
12 What Assistance Is Available? The State Ministry Team, accountable to the State Board, is resourced to assist in a variety of ways Implementation Assistance Template Constitution for Incorporated Churches Compliant constitution for use as a reference point Located on our website under Resources for Churches Incorporation Implementation Guidance Training and implementation assistance Access to Preferred Legal Counsel if required Financial and Legal Compliance Checklist for Boards A checklist of key financial and legal compliance obligations for which churches should have policies and procedures in place Recommended Position Descriptions / Duties List for Board Members Template Financial Reporting Model Recommended format for what should be presented to Boards Template Audit Scope and Approach Recommended minimal audit scope and approach, together with audit checklist and template audit report
13 What Additional Assistance Is Available? We recognise that not all churches are resourced in critical areas as such, we have formulated some ongoing support services as follows Level 1 - Compliant Payroll Service For Ministers, administration of Ministry Expenses in accordance with the Ministers Appointment and Employment Handbook using CCFS Debit Card, Online Account Calculation and processing of employee pay, including ing of the Fair Work Act compliant payslip, on a fortnightly cycle (or otherwise as agreed), Calculation and remitting of tax, superannuation, workers compensation, Calculation and management of employee leave entitlements, Preparation and distribution of the annual Payment Summary for the employee, and Provision of payroll reporting to the Church, for the benefit of Treasurers and Accountants. Visa Debit for Ministers Online Ministry Expense Account Level 2 Full Bookkeeping Service Payroll service as above Full bookkeeping and monthly church reporting service accounting, BAS, compliance Direct online access to reports by Treasurer, Church Board and others Compliant, Online Reporting for Minster and Boards
14 What Assistance Is Available (Cont d)? There are some additional services that are ready to go that will benefit churches enormously, in partnership with our National Agencies Churches of Christ Financial Services Builds on our recent rollout of Churches of Christ Insurance Full transactional banking, ministry expense accounts, at call interest-bearing accounts Savings and investments, deposit services, church partnership accounts Internet access Cards, loans Church Valuation and Church Facility Risk Management Church facility valuation for insurance purposes Supply and Implementation of the Churches of Christ Red Book Church Building Compliance Guide
15 What Next? For Further Information Contact the State Ministry Team: Visit the website: Phil Burgess (GM Operations) (08) ; Greg Elsdon (State Minister) (08) ; Supporting resources will progressively be made available. To Engage with Further Discussion Available after the presentation. Available for one-on-one times with churches to meet and discuss issues.