Our firm has observed some momentum for the establishment of Public Juridical Persons (PJPs) particularly by religious congregations for the ongoing ownership, management and control of some of their ministries. This trend is evident particularly in the health aged and community care sector and the education sector.
The establishment of new PJPs has implications in civil law as well as Canon Law largely because of the obligations under Canon 1284 §2 2° for Juridical Persons to safeguard their assets in ways that are valid in civil law.
There have already been a number of PJPs which have been established and we note that a number of them have used different civil law corporate structures to act as trustee for the new PJP.
In light of these different choices and in response to requests from some clients, we thought it would be appropriate to review incorporation options that are available to canonical bodies looking to establish PJPs and to discuss their advantages and disadvantages.
The principal options are as follows:
1. A company limited by guarantee
Public companies limited by guarantee are incorporated under the Commonwealth Corporations Act 2001. This option is available throughout all states and territories.
This is the typical vehicle used by charities and Not-For-Profit organisations, particularly those whose operations extend beyond a single State or Territory.
In this type of company, there are no shareholders but rather members agree to contribute a specified amount in the event that the company is wound up.
The principal benefits in establishing a company limited by guarantee are the ease of using the structure throughout the Commonwealth of Australia and the ready recognition of this form of legal entity in the general commercial world.
This structure also provides the greatest legal protection for the member. The liability of a member is generally limited to a nominal sum.
The disadvantages include significant responsibilities placed upon directors of companies under the Corporations Act 2001, the need to file accounts and annual returns with the Australian Securities and Investments Commission (ASIC), the supervision of the company by ASIC and the need to file regular notifications to ASIC in the event of a change of directors or secretaries.
2. Incorporated Association
It is possible to incorporate under Associations Incorporation Acts in each State and Territory. The activities of such an incorporated association are monitored and governed by the relevant State or Territory government rather than the Commonwealth.
The advantages of incorporation are similar to those for a company limited by guarantee but, in addition, the cost of establishing an incorporated association is considerably less than for a company limited by guarantee.
However, an incorporated association has similar disadvantages to that of a company limited by guarantee. Also, the activities of an incorporated association are generally limited to operation within the State or Territory of incorporation.
In addition, the State and Territory Acts were not designed with the intention that significant asset holding associations would incorporate under that legislation. The legislation is intended to provide a vehicle for smaller community, Not-For-Profit and sporting bodies to be incorporated.
In some circumstances, incorporation under the local Associations Incorporation Act will be appropriate for a church body, particularly where activities are limited within a State or Territory or where specific legislation relating to incorporation of church bodies does not exist in that jurisdiction.
3. Specific Church Legislation
In a limited number of States and Territories, it is possible to incorporate entities under legislation that applies specifically to church bodies. An example of this is the Roman Catholic Church Communities Lands Act in New South Wales.
To achieve incorporation under that Act, it is necessary to satisfy the local bishop that the particular “order, congregation, community, association or society” constitutes a community within that Bishop’s diocese. It is then necessary to request the Governor to incorporate the entity.
It is necessary for a PJP to have a site or house in New South Wales (whether as owner, lessee, licensee, etc) from which it conducts activities. Such an entity can operate outside the territory of New South Wales but, in that case, must register and comply with certain provisions of the Corporations Act.
Once incorporated, the day-to-day governance of the incorporated entity is much simpler and the entity is more flexible in its operations than companies limited by guarantee or incorporated associations.
An entity incorporated under “church legislation” does not have to comply with the Corporations Act (unless operating in different states as indicated above) and there is therefore no need to file regular returns or statutory accounts.
Companies limited by shares are generally inappropriate for church entities except where required by Government regulators, eg Catholic Church Insurances Ltd.
Once incorporated, a legal entity has perpetual succession; it can enter into contracts; and it can sue and be sued in its own name. It can also provide limited liability in certain circumstances and, where it does, it provides significant protection to church bodies and members against personal liability.
Once incorporated, there are a number of housekeeping matters which would need to be attended to including obtaining Australian Business Numbers, seeking endorsements as tax concession charities and/or deductible gift recipients, seeking membership of the Catholic Church Religious Group and other general governance matters.
Organisations considering incorporation should take professional accounting and legal advice (canonical and civil) to ensure that the proposed entity is appropriate and will achieve the intended outcome in furthering the mission of the church organisation.