So you want to start a not-for-profit or charity and you’ve been told to incorporate…but what does that really mean?
If you have the ambition to create a not-for-profit, then chances are that you want to become registered as a charity or at least reap the benefits of lower ASIC fees and tax concessions. Should you want to be eligible for these incentives then it is essential to incorporate the correct structure as any old company just won’t do.
It would be mightily disheartening, as well as a waste of time and resources, to get your incorporated structure in place and then realise that you are ineligible to register for charity status with the Australian Charities and Not-for-profits Commission (ACNC). Therefore it is generally a good idea to ensure that you can meet their requirements before diving head first into a project when there is an existing entity you could have more fruitfully thrown your support behind.
Does the organisation have a charitable purpose? According to the Charities Act 2013 (Cth) there are 12 statutory charitable purposes that the ACNC will accept, including ‘advancing health’, ‘advancing education’ and ‘advancing the natural environment’. An organisation may have more than one charitable purpose but all purposes must be charitable. Put simply, a company cannot trade as a for-profit business and also operate as a not-for-profit or charity. This purpose must be clearly outlined in the organisation’s governing document, such as the relevant company or association constitution. Example clauses that relate to the specific purpose are available on the ACNC site to act as a guide.
It is from this purpose that the ACNC will allocate a subtype to the organisation (if the purpose is deemed to be legitimate). Legitimacy will be determined from a review of the organisation’s objects and activities, as set out in the constitution. The objects and activities must be aimed at achieving the purpose. In other words, an organisation cannot just promote the purpose but should be actively working to achieve it. The subtype that is granted to your organisation is very important, as it will affect the tax concessions that you are able to claim. As a point of clarity, some subtypes that relate to the purpose of ‘advancing education’ are ‘formal education’, ‘vocational training’ and ‘providing prizes or scholarships’.
Have you considered how the organisation will raise funds? The ACNC does not regulate fundraising options such as raffles, auctions, door knocks or membership fees. Instead these activities are regulated by state and territory specific legislation and the corporation and consumer laws, as appropriate for your legal structure.
Why should I register with the ACNC? There are two primary reasons why not-for-profits and charities choose to register. First, eligibility for tax concessions and exemptions, in particular income tax exemptions, GST concessions, FBT rebates and deductible gift recipient status. The latter often forms the greatest incentive for charitable donations. Second, registration with the ACNC will mean that your organisation appears on the official register with over 54 000 other charities. An appearance on the register authenticates your organisation to the public, encouraging awareness of and support for your charitable goals.
What legal structure should I register? The two most common incorporated structures for not-for-profits and charities are public companies limited by guarantee and incorporated associations. The incorporation process and criteria for both structures is outlined below…
Public Company Limited by Guarantee (Ltd)
This is a type of company structure that is designed for not-for-profit and charitable entities. It is administered by ASIC and governed by the Corporations Act 2001 (Cth) and the company’s constitution. It is a separate legal entity that can sue and be sued as well as offering limited liability to members. Each member offers a ‘guarantee’ to the company, such that a certain amount of money or asset will be contributed to the company when it is wound up. Members are not required to hand over the guaranteed amount or item upon registration. As a public company this structure must adhere to certain requirements common to all companies of the same nature, including but not limited to:
- The appointment of at least three directors, one secretary and at least one member;
- The lodgement of a company constitution with ASIC at the time of registration;
- The maintenance of a register of directors and members, minutes of meetings and resolutions;
- The appointment of a company auditor within one month of registration;
- Having a registered office address that it open to the public for a certain amount of time each business day;
- Holding an Annual General Meeting (AGM) at least once per calendar year and within five months of the end of a financial year.
Due to this being a more complex legal structure, it is always advisable to seek the advice of your accountant or solicitor before registering a public company limited by guarantee. It is an attractive structure for those wanting to expand their scope nationally, rather than being limited to a particular state, as an incorporated association can be (unless later registered with ASIC as a registrable Australian body).
An incorporated association is also a separate legal entity, however it is registered within a specific state or territory, for example in NSW applications must be lodged with Fair Trading and comply with the Associations Incorporation Act 2009 (NSW). The association can conduct activities outside of the state of registration if also registered with ASIC as a registrable Australian body. An incorporated association must have at least five members at any given time. The liability of each member is limited to the payment of association membership or subscription fees. It has the option of using a model constitution or drafting a tailored version that specifically addresses 17 matters. In order to register an incorporated association in NSW, a Form A2 must be submitted to Fair Trading via post, signed by the public officer with the registration fee included. At $164.00, registration of an incorporated association is a much cheaper option that company registration and may suit small-scale, localised not-for-profit groups.
The decision to start your own not-for-profit or charity is a noble and ambitious objective. That said, it also involves great commitment, research and planning. It is a constructive exercise to first consider the value that your own entity will add to the public benefit and whether an existing organisation deserves your support.
This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.