Introduction

Essentially there are three main types of organisations involved in not for profit Australian Sporting Clubs and associations, they are:

• unincorporated associations;
• companies limited by guarantee; and
• incorporated associations.

In each case, directors or officeholders of those organisations can be personally liable for certain debts or other liabilities incurred by the organisation.

Unincorporated Associations
An unincorporated association does not have the power to enter into contracts or sue or be sued in its own name.  Generally speaking, third parties, when dealing with unincorporated associations, contract with members of that association's committee direct.  Consequently, the committee members become personally responsible for performance of that contract.  They also may become personally liable for any other liability existing or relating to that unincorporated association's activity.

As a consequence, the potential liability for members of committees of unincorporated associations is enormous.  Any such organisation should immediately take steps to become incorporated, to give the association the ability to contract in its own name and to offer limited liability to the association's members and office holders.

Companies Limited by Guarantee
A company limited by guarantee, is a  corporation created under the Corporations Law.  A company limited by guarantee/s constitution prohibits the payment of dividends to its members.  Usually the members liability is limited to a nominal amount such as $50.00.

The responsibilities of directors of a company limited by a guarantee, are prescribed by the Corporations Law and under the Common Law.

There are three principal areas under the Corporations Law, which govern a directors liabilities and responsibilities.  They are:

1. section 232, which involves the general duty, among other more specific requirements, to act "carefully and diligently";

2. section 318(1), which imposes personal liability for failure to take "reasonable steps" to comply with the requirements of the administrative obligations of a company e.g preparation of financial statements and directors reports;

3. section 588G relating to the personal liabilities of directors for failure to prevent insolvent trading by the company.

It is important to note that in all these three areas, the Corporations Law provides for a system of civil penalties for breach of these duties.

The Common Law
Under the common law directors have always had a duty to exercise reasonable skill and care and fiduciary duties of good faith.  These duties can be summarised as follows:

• to act honestly and be loyal to the interests of the company;

• to exercise their powers for the purpose which they are conferred and not for any collateral and improper purpose;

• not to fetter the future exercise of their powers;

• to avoid being placed in a position where their individual or collective interests conflict with those of the company;

• to exercise a proper level of due care, diligence and skill in acting for the company.

Obviously there is a fairly significant overlap between the statutory obligations of directors and their obligations at common law.

Incorporated Associations
Most not for profit organisations in Australia are now incorporated associations under their relevant State legislation.

Incorporated associations are entities in themselves, separate and distinct from their members in the same manner as companies.  They have perpetual succession, the rights to acquire and hold property and are capable of suing and being sued.  Incorporated associations are not for profit organisations that are prevented from distributing their income or assets to their members.

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