Not-for-profit organisations (NFPs) play a crucial role in addressing social issues and contributing to the well-being of communities. In Australia, these entities operate under a specific legal and structural framework designed to promote transparency, accountability, and the effective use of resources.
Legal Structure
When choosing a legal structure, organisations must consider factors such as size, purpose (such as charitable purpose), and the need for limited liability. An organisation operating only for a charitable purpose must direct all its income to promote its charitable purposes, ensure directors approve all fees payable, and cannot pay dividends to shareholders or remuneration to directors.
Not-for-profit (NFP) organisations in Australia can take various legal forms, with the most common being an incorporated association or a public company limited by guarantee.
An incorporated association is an NFP incorporated under state or territory law, which is a legal entity separate from its individual members. Thus, members are protected against personal liability for the NFP’s debts. It uses the word ‘Incorporated’ or the abbreviation ‘Inc.’ after its name. Incorporated associations are more effective for small community organisations.
A not-for-profit public company limited by guarantee is a popular choice as it offers members limited liability (limited by their guarantee, which is normally a nominal amount), ensuring they are not personally responsible for the company’s debts. Charity organisations often set up companies limited by guarantee. By applying to the Australian Charities and Not-for-profits Commission (ACNC), the NFPs can report to ACNC and thereby waive their reporting obligations and annual review fees to the Australian Securities and Investments Commission (ASIC).
Registration
Incorporated associations are registered under state and territory legislation, not administered by ASIC. Thus, incorporated associations can only carry on business in the state they are registered in.
To establish a not-for-profit company in Australia, organisations must submit the necessary documents to ASIC. Once approved, the organisation is assigned an Australian Company Number (ACN) and becomes a legal entity.
Governance
Effective governance is essential for the success of NFP organisations. The governance structure typically includes a board of directors or committee responsible for overseeing the organisation’s strategic direction, compliance with regulations, and financial management. Directors or committee members are usually volunteers who contribute their skills and expertise to guide the organisation toward achieving its mission.
A not-for-profit company’s constitution is a fundamental document outlining the rules and regulations governing its operations. It includes details such as the organisation’s purpose, membership criteria, decision-making processes, and the powers and duties of directors. The constitution serves as a legal framework for the organisation and must align with the requirements set out in the Corporations Act 2001 (Cth).
Tax Concessions and Deductible Gift Recipient (DGR) Status
NFP organisations in Australia can access various tax concessions to support their activities. To be eligible, organisations must meet specific criteria outlined by the Australian Taxation Office (ATO). Obtaining Deductible Gift Recipient (DGR) status is particularly beneficial, as it allows donors to claim tax deductions for their contributions. Meeting the requirements for DGR status involves demonstrating that the organisation’s activities align with certain charitable purposes, namely, a registered charity that fits the specific criteria of the DGR category.
Financial Considerations
Financial management is a critical aspect of NFP companies. These organisations rely on a combination of funding sources, including grants, donations, and revenue from their activities. Transparent financial reporting is essential for maintaining the trust of stakeholders, and NFP are often required to prepare annual financial statements in accordance with accounting standards.
Please contact us if you need help understanding the NFP structures and what is suitable for you or the NFP company or incorporated association registration.
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The Author
Jean Kallmyr | Lawyer, The IP House Lawyers | t: 0435 799 831 | e: admin@theiphouse.com.au
Key Contact
Claire Darby | Managing Director/Lawyer, The IP House Lawyers | t: 0412 998 951 | e: claire@theiphouse.com.au
Disclaimer
The information and contents of this publication do not constitute any legal or financial advice. This publication is intended only for reference purposes for The IP House Lawyers’ clients and prospective clients.
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