Governance Requirements for Charities and Not-For-Profits

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Table of Contents

• The ACNC Act Governance Standards
• Key Takeaways

Governance refers to both the day to day and overarching processes, activities and relationships of charities and not-for-profit organisations. Good governance is not only paramount to the success of a charity but also ensures that a charity meets its legal obligations and registration requirements set out by the the Australian Charities and Non-for-profits Commission (ACNC).

The ACNC is the independent national regulator of charities. It aims to support and sustain the not-for-profit sector while also ensuring public trust and confidence in its operation. The ACNC seeks to fulfill these roles through functions such as:

• Registering organisations as charities,
• Educating the sector on their obligations as registered charities; and
• Maintaining a public register of information about the charities.

As part of the registration function, the ACNC requires a charity to meet particular governance standards in order to be and remain registered.These governance standards relate to the charities function, policies, processes, activities, management and relationships. They help to ensure that charities operate lawfully and responsibly without imposing overly burdensome obligations on the charity. Upon request, a charity must be able to show the ACNC that it operates in compliance with these governance standards.

The ACNC Act Governance Standards

The first of the governance standards relates to the purpose and nature of the charity. It requires that charities must be not-for-profit and have a charitable purpose which they can demonstrate to the public. Secondly, charities must ensure accountability to their members. Such includes providing them with the opportunity to question how the charity is governed if they are concerned. The third standard requires compliance with Australian laws. If a charity breaches a law which could result in a penalty of 60 penalty units, they can no longer be registered.

Standards four and five both relate to ‘responsible persons’. Standard four requires the charity to take reasonable steps to ensure that responsible persons, such as board or committee members, are not disqualified from managing a corporation under the Corporations Act 2001 (Cth) or from being a responsible person by the ACNC Commissioner. If a charity becomes aware that a person has been disqualified, they must remove the person.

Standard five imposes an obligation on the charity to ensure its responsible persons understand, carry out and are subject to a list of duties including;

• Acting with reasonable care and diligence (by being in a position to monitor the management of the charity);
• Acting honestly in the best interest of the charity and for its charitable purposes;
• Not misusing their position or information obtained in performing their duties;
• An obligation to disclose conflicts of interest, whether actual or perceived;
• An obligation to ensure the responsible management of the charity’s financial affairs; and
• Not allowing the charity to operate while insolvent.

The ACNC website hosts a variety of resources with guidance on complying with their standards.

Key Takeaways

If you are thinking about becoming a board member, joining the management committee of a charity, or registering a charity, it is important to be aware of the importance of your governance obligations. If you have any questions about governance requirements or would like legal advice for your charity or not-for-profit, consult the ACNC website to learn more about meeting governance standards.

If you need help setting up your charity, our experienced charity 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.