The building blocks of charity: what to think about when establishing your not for profit

Corporate & Commercial 18 September 2020

Charities and not for profit organisations are an important part of Australian society.  Many of us would have interacted with or had our lives positively impacted by the assistance, support or guidance of a charity at one time or another.

For some, the identification of a gap or a need in their community can lead to a desire to establish a not for profit organisation to meet this need or gap.  Starting a new organisation, particularly a not for profit, can be a big task and there is a lot for you to think about.

If you are looking at starting a not for profit organisation (NFP), besides building your business plan and seeking support from your community, one of the first things you should turn your mind to is your legal operating structure.  Ensuring your structure is properly established and appropriate for your needs is the first step to ensure that, if eligible, you can be registered as a charity.

What is a not for profit organisation?

A NFP is an organisation that does not operate for profit, personal gain or benefit of its members or controllers.  Any money earned, fundraised, raised through donations or the like by the NFP must either be used in pursuing or advancing the NFP’s purposes, keeping the NFP running and/or donated to other similar charities.

There is no obligation to be registered as a charity, and not all NFPs are or can be registered as a charity.  Some NFPs which cannot ordinarily be registered as a charity include sporting and recreation clubs and community service organisation.

Why charity registration?

Being registered as a charity can have a number of benefits, including the following:

1. Your organisation will be searchable on the Charity Register of the Australian Charities and Not for Profit Commission (ACNC), helping you to better connect with donors, volunteers and investors;

2. Financial transparency through the ACNC reporting requirements means that investors and donors may have greater comfort that their donations are going where they are needed.  This may mean they are more likely to become involved with you; and

3. Your organisation will have access to the charity tax concessions, including:

(a) Income tax exemptions;

(b) Refunds on franking credits;

(c) Goods and services tax concessions; and

(d) Fringe benefits tax rebates.

How can a NFP be registered as a charity?

Charity registration takes place via the ACNC, who review all applications for registration against their requirements and the requirements at law.

To be registered as a charity, your organisation’s purpose must fall within one of 14 charity sub types, being the 12 charitable purposes as set out in the Charities Act 2013 (Cth) and two additional categories, being ‘Public Benevolent Institution’ and ‘Health Promotion Charity’.

The charity sub types cover a broad range of purposes, including but not limited to advancing health, education, religion, culture, social/public welfare, human rights and the natural environment.

The easiest way to show that your organisation’s charitable purposes fall within one or more of the charity sub types is to clearly set out the purposes of the organisation within your governing document.  A well drafted purposes clause ensures that your charitable purpose is clear to the ACNC, as well as donors and investors.

Registration as a charity means that some of the organisation’s reporting obligations are to the ACNC and not to ASIC, including submission of the charity’s annual information statement, and annual financial report (if required).

How should my NFP be structured?

The structure of your NFP will really depend on your individual circumstances and the purposes you are trying to achieve.

The three most common NFP structures are as follows:

1. Public company limited by guarantee;

2. Incorporated association; and

3. Trust.

Each structure has its own advantages and disadvantages.  It is important to seek legal and financial advice to assist you to determine what structure is most appropriate for you and your purposes.

Public company limited by guarantee

A public company limited by guarantee is a public company that is designed for not for profit organisations.  In order to be incorporated by ASIC, amongst other requirements, a public company limited by guarantee must have at least three (3) directors.

Under this structure, the liability of the company’s members is limited to the amount that the members undertake to contribute to the property of the company if it is wound up, which is indicated in the constitution of the company and is typically a nominal amount around $10.00 per member.

This structure is more costly to establish and run than a trust or incorporated association, and the obligations upon a public company limited by guarantee are more onerous.  However, the strict legal requirements of this structure can potentially instil greater confidence in potential donors.

Incorporated association

In Victoria, incorporated associations are governed by Consumer Affairs Victoria.  Incorporated associations are often utilised by clubs and sporting and community groups.

They are relatively simple and inexpensive to register, particularly where the association intended to adopt the Model Rules as set out in the Associations Incorporation Reform Act 2012 (Vic).  In addition, the ongoing obligations are less onerous than that of a company.

It should be noted incorporated associations can only operate in the state they are incorporated in, unless they register with ASIC to obtain an Australian Registered Body Number.  As such, if your organisation intends to carry on business in more than one state, this structure may not be the most appropriate for your circumstances.

Trust

The final common type of structure for NFPs and charities is a trust.  To establish a trust, a trust deed must be prepared and adopted and a trustee appointed.  For charitable trusts, we most often recommend a corporate trustee rather than an individual.

Unlike a company or incorporated association, there are no registration requirements for a trust, and fewer reporting obligations.

How can Coulter Roache assist me?

There can be a lot to think about when starting up a not for profit, however with a business plan in hand and the right legal and financial assistance, setting up a not for profit can be a much more straightforward process.

Coulter Roache can:

1. assist you to determine the best legal structure for your not for profit;

2. advise you on charity registration and DGR endorsement and any other relevant matters;

3. establish your legal structure; and

4. make the relevant applications to the ACNC, ATO and any other relevant entity on your behalf,

all to ensure that your not for profit can be operating for the benefit of the community in a timely and efficient manner.

Contact Us

If you require advice or further information in relation to this article, please contact our corporate & commercial team.

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