Wanting to help relieve the suffering of others is a noble goal. Far too often, however, ideas that genuinely have the potential to change countless lives fall to the side because of poor planning, implementation and execution. So how can you pursue your charitable purpose?
Apart from a defined goal, you should also determine the size of your organisation. If you are planning on raising money for your local church, sports team or school, there is little need for you to set up a company. However, if you are looking to operate on a larger scale, you should consider incorporating your charity.
Generally speaking, charities are set up and run as companies limited by guarantee (indicated by “Ltd” or “Limited” at the end of its name as opposed to a “Pty Ltd” or “Proprietary Limited”). Incorporating a company limited by guarantee does not mean, however, that it will be automatically recognised as a charity.
To be eligible to register as a charitable institution with the Australian Charities and Not For Profit Commission (ACNC), an organisation must be able to demonstrate that it falls within the legal definition of a “charity”. To be recognised as a charity, an organisation must illustrate that it:
- Operates as a not-for-profit;
- Has only charitable purposes for the public’s benefit; and
- Complies with all applicable ACNC governance standards.
In layman’s terms, a not-for-profit organisation is one that does not operate for profit, personal gain or for the benefit of particular persons (i.e. its members or the people who run it). To illustrate to the ACNC that an organisation operates as a not-for-profit, it must contain suitable not-for-profit clauses in its governing documents (in the case of a company limited by guarantee, its company constitution). The organisation must also demonstrate that its activities are consistent with those clauses.
The law recognises numerous charitable purposes. Under sections 12 through to 17 of the Charities Act 2013 (Cth) (Charities Act), a company will possess a charitable purpose if its purpose is to advance the following:
- Social or public welfare
- Mutual respect and tolerance between groups that are in Australia
- Human rights
- Security or safety of Australia or the Australian public
- The natural environment; or
- Prevent the suffering of animals (to name a few).
It is possible to recognise an organisation as possessing a charitable purpose even if some of its ancillary activities fall outside the strict definition of a “charitable purpose”.
For the Benefit of the Public
For a benefit to be in the public interest, it must provide goods, services, education, counselling, spiritual guidance or some other type of benefit to the general public or a particular group of people. While charities do not have to benefit everyone, any restrictions on the allocation and disbursement of benefits must be consistent with the organisation’s charitable purposes. Organisations that allocate benefits in an overly restrictive manner can be regarded, in certain circumstances, as non-charitable.
The Australian Charities and Not For Profit Commission Governance Standards
As well as needing to fall within the legal definition of a “charity” (as outlined above), for an organisation to register as a non-for-profit, it must:
- Have a valid ABN;
- Consistently work towards its charitable purposes;
- Take reasonable steps to be accountable to its members (if any) and provide its members with adequate opportunity to raise concerns about the charity’s governance;
- Not commit serious offences under any Australian law or breach a law that may result in a penalty of more than $10, 200 (being 60 penalty units);
- Take reasonable steps to satisfy itself that its responsible persons (e.g. its Directors) are not disqualified from managing a corporation under the Corporations Act 2001 (Cth) or disqualified from being responsible persons of a registered charity by the ACNC Commissioner; and
- Take reasonable steps to ensure that its responsible persons carry out and adhere to these governance standards (Part 2.2, Division 45 of the Australian Charities and Non-for-profits Commission Regulation 2013 (Cth))
Maintaining Proper Records and Notifying of Changes
An organisation to maintain its registration as a charity must notify the ACNC of changes, keep financial and operational records that comply with the relevant standards, and allow audits and report annually on their activities to the ACNC every year.
An organisation cannot obtain or maintain charitable status if it has as one of its purposes is a “disqualifying purpose”. A disqualifying purpose is one which promotes:
- Unlawful activities;
- Activities that are against the public interest; or
- Opposes a political party or candidate.
If you would like to know more about the steps involved in setting up, incorporating or running a charity, see the ACNC website and follow the steps on registering your charity.
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