In Short
- Choosing the right legal structure impacts governance, liability and compliance. Common options include incorporated associations and companies limited by guarantee.
- Registering with the ACNC gives access to tax concessions but requires ongoing compliance with governance standards.
- Non-profits must meet legal and financial obligations to operate effectively and maintain public trust.
Tips for Businesses
If you’re setting up a non-profit, choose a structure that suits your resources and compliance capacity. Incorporated associations are simpler but limited to one state, while companies limited by guarantee allow national operation. If seeking charitable status, register with the ACNC and ensure your organisation meets its governance and reporting requirements.
Non-profit organisations play a vital societal role by contributing to various causes and communities. In Australia, starting a non-profit requires adherence to frameworks designed to uphold transparency, accountability and public benefit. Some non-profits may decide to additionally register with the Australian Charities and Not-for-profit Commission (ACNC) to obtain charitable status. This article highlights topics you should consider when deciding how to structure your non-profit.
Choosing a Legal Structure
The first step in establishing a non-profit is choosing an appropriate legal structure. Your chosen structure will impact the organisation’s legal identity, governance, liability and compliance obligations. Options include:
- an unincorporated association;
- an incorporated association;
- a company limited by guarantee;
- a cooperative; or
- a trust.
Two of the most common structures are incorporated associations and companies. Your decision should consider whether there will be a committee or board that can dedicate time and resources to ongoing compliance. For example, if you manage an organisation with limited resources and administrative skills, it may be wise to avoid a structure that comes with too many mandatory reporting requirements.
As a business owner, you have a legal obligation to provide a safe workplace for your employees and customers. This free guide explains how.
Incorporated Associations
An incorporated association is a legal entity separate from its members. The law for registering an incorporated association varies by jurisdiction. For example, some differences include the:
- number of members required to form an association;
- management structure;
- rules for conducting meetings; and
- financial reporting obligations.
Companies Limited by Guarantee
A company is also a separate legal entity. It is registered per the Corporations Act 2001 (Cth). You must also ensure compliance with ASIC rules, which may change occasionally.
Non-profit status as a company opens up funding opportunities since it can carry on activities anywhere in Australia. On the other hand, the company structure is complex since corporate law is a challenging subject. Obtaining advice from a lawyer is recommended to understand your rights and obligations.
What is a Charity?
Once you have established the basic legal structure, register with the ACNC if your organisation seeks charitable status. A charity must demonstrate that it:
- is not-for-profit in that any profits are for its purpose;
- has only charitable purposes that are for the public benefit;
- does not have a disqualifying purpose (such as promoting unlawful activities); and
- is not an individual, a political party or a government entity.
A charity must also comply with the ACNC Governance Standards and, if operating overseas, adhere to external conduct standards. You must also maintain accurate financial records and report annually to the ACNC.
Continue reading this article below the formThe ACNC Governance Standards
The ACNC Governance Standards are a set of minimum standards that guide the administration of charities in Australia. They cover various aspects of charity governance, including processes, activities and relationships. The standards are:
- Charities must be not-for-profit and work towards their stated charitable purpose.
- Charities with members must take reasonable steps to be accountable to their members and provide them with adequate opportunities to raise concerns about charity governance.
- Charities must not commit a serious offence (such as fraud) under Australian laws or breach a law that may harm the charity’s public trust and confidence.
- Charities must take reasonable steps to ensure that their board or committee members are eligible to manage a corporation or be responsible persons per the ACNC.
- Board or committee members must act with reasonable care and diligence, act in the best interest of the charity, not misuse their position or information they gain as a responsible person, disclose conflicts of interest and ensure responsible management of financial affairs of the charity.
- Charities must take reasonable steps to maintain and enhance public trust and confidence in the Australian not-for-profit sector.
The ACNC may act against charities that fail to comply with these standards, including issuing warnings or directions or revoking charity registration.
The Benefits of Non-Profit Status
Organisations that are charities can benefit from tax concessions like deductible gift recipient (DGR) status. Other concessions that some not-for-profits can access include:
- income tax exemption;
- fringe benefits tax exemption or rebate;
- goods and services tax (GST) concessions; and
- refund of franking credits.
Key Takeaways
Establishing a non-profit in Australia requires careful planning and adherence to legal requirements. By selecting the proper legal structure, registering with the ACNC for charitable status (if eligible) and adhering to best practice governance principles, not-for-profit organisations can operate effectively, inspire trust among their members and contribute to the greater good.
If you are starting a charity, our experienced charity and not-for-profit lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
An incorporated association is easier to set up and has fewer compliance requirements but can only operate in one state or territory unless approved by ASIC. A company limited by guarantee can operate nationally and access more funding opportunities but has stricter governance and reporting obligations.
Registration with the ACNC is only required if you want charitable status and access to tax concessions. Otherwise, it is optional, but charities must comply with ACNC governance standards.
We appreciate your feedback – your submission has been successfully received.
