Are you looking to create a charitable institution? Apart from having a sound concept, the first thing that must be determined is whether the concept is to operate on a large or small scale. As a would-be a philanthropist if you are planning on raising money for your local church, sports team or school, there is little need for you to incorporate an entity for this purpose. However, if you wish your benevolent concept to operate on a larger scale, it may be worthwhile considering incorporating a charitable institution.
Generally speaking, charities are set up and run as companies limited by guarantee (one of those companies that have a “Ltd” or “Limited” at the end of its name as opposed to a “Pty Ltd” or “Pty Limited”). However, incorporating a company that is limited by guarantee does not mean that the company will automatically be recognised as a charity.
Charitable Institution Eligibility
To be eligible to be registered 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 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 that are for the benefit of the public; and
- complies with all applicable ACNC governance standards.
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). However, having such clauses it not sufficient, the organisation must also demonstrate that its activities are consistent with those clause.
The law recognises numerous charitable purposes. Per sections 12 to 17 of the Charities Act 2013 (Cth) (Charities Act), a company will possess a charitable purpose if its purpose is to advance; education, health, social or public welfare, culture, religion, mutual respect and tolerance between groups that are in Australia. Also, purposes such as human rights, security or safety, environment or to prevent the suffering of animals are accepted. It is possible for an organisation to be recognised as possessing a charitable purpose or purposes even if some of its ancillary activities do not fall within 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. An organisation that allocates benefits in too restrictive a manner can in certain circumstances be regarded as non-charitable, due to the inaccessibility of the benefits it provided to the public.
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 be registrable as a non-for-profit it must:
- have an ABN that is valid;
- work towards its charitable purposes consistently;
- provide its members with an adequate opportunity to raise concerns about the charity’s governance;
- not commit serious offences;
- not breach a law that may result in a penalty of more than $10,200 (being 60 penalty units);
- ensure its Directors are not disqualified from managing a corporation under the Corporations Act 2001 (Cth)
- disqualified from being responsible persons of a registered charity by the ACNC Commissioner; 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
To maintain its registration as a charity an organisation has to 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 a “disqualifying purpose” A disqualifying purpose is one which promotes unlawful activities, promotes activities that are against the public interest or promotes 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.
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