There are several factors to consider before setting up and applying to register a charity. In this Insight, we discuss the Australian Charities and Not-for-Profits Commission (ACNC) registration process, including some of the challenges, traps and pitfalls you may face in achieving registration.
Registration of your charity can confer several benefits, including:
- Eligibility to apply for Tax concessions and Tax benefits from the ATO
- Eligibility to apply for Deductible Gift Recipient (DGR) status
- Public Recognition
In our experience, charities seeking registration face increasing scrutiny in the application process to demonstrate the organisational capacity to comply with ACNC Governance Standards – both on an upfront, and on an ongoing basis.
Designing your charity with the systems and processes in place from the start to create confidence it will comply with the law on an ongoing basis, will help to persuade the ACNC to approve your registration.
There are four key eligibility criteria you will need to consider if you are thinking of registering your charity with ACNC.
- The Charity must be Not-For-Profit
- The Charity must have a Charitable Purpose
- The Charity must Benefit the Public
- The Charity must comply with other ACNC registration rules including:
- Having an ABN
- Not being an individual or a partnership
- Meeting ACNC Governance Standards (and if it will operate overseas, ACNC External Conduct Standards
If each of the above four requirements are satisfied, the charity can proceed to apply for registration with the ACNC.
Your charity’s governing document will need to contain a ‘not-for-profit’ clause. The clause restricts how the assets and income of the charity can be applied by the charity during its operation and in the event that it ceases to operate.
Your charity’s governing document will need to contain a ‘charitable purpose’ clause. We will have more to say on this in a future article.
Your charity’s governing document will need to include wording to link its ‘charitable purpose’ to a ‘public benefit’. Its purpose must be directed to the benefit of the general public, or to a sufficient section of the general public.
Certain purposes are deemed to have a public benefit. These include:
- the purpose of preventing and relieving sickness, disease or human suffering;
- the purpose of advancing education;
- the purpose of relieving the poverty, distress or disadvantage of individuals or families;
- the purpose of caring for and supporting:
(i) the aged; or
(ii) individuals with disabilities;
- the purpose of advancing religion.
You will need to know what you want to achieve with your charity. This includes the aims, the main activities, the programs and services it will provide, the target group of people that will benefit from the charity’s activities and programs, the need for the charity and the duration it intends to operate for.
MEETING ACNC GOVERNANCE STANDARDS
There are 5 ACNC Governance Standards (plus 4 External Conduct Standards if you intend to operate overseas).
- The Charity must be a Not-For-Profit and work towards its charitable purpose(s). Your charity’s governing document will need to clearly show this. Generally, you will also need to be able to demonstrate the charity has the relevant policies, processes and resources to ensure that the charity sticks to the not-for-profit requirements and will focus its activities on its charitable purposes on an ongoing basis.
- If your charity has members, it is required to be accountable to its members. It must be able to demonstrate it will comply with its governing document and regularly consult and communicate with its members, enable them to participate in decision-making and respond to their complaints.
- Your charity must comply with Australian laws. There are State and Territory and Commonwealth laws that may affect how you run the organisation, how you can collect donations, and how you treat staff, volunteers and the beneficiaries of the charity’s services. In your application, you will need to be able to demonstrate an understanding of what those laws require and how your charity plans to comply on an ongoing basis.
- Your charity will need to demonstrate the suitability of its Responsible Persons to manage the charity. You will need to demonstrate the charity has systems and processes to ensure each person appointed to its governing board is a fit and proper person with the right skills, experience and competencies to fulfil their duties.
- Your charity will need to demonstrate it takes reasonable steps to ensure its Responsible Persons understand and apply their individual legal duties.
Developing the core documents and processes that will ensure you can comply with each of these standards is essential to your charity’s application.
What resources will you need?
In order to operate and run a charity, you will need financial, human and technological resources. It is vital to consider how the charity will fund its operations. This could include revenue from fundraisers, grants, investors, membership fees, public appeals, selling goods or services and events. It is also important to consider the costs associated with the operation of the charity such as the physical location, equipment, utilities, rent, licenses, insurance and salaries.
Directors have a legal duty to ensure the charity does not trade whilst insolvent. An ACNC report for the 2017 reporting year showed that the revenue of small charities from all sources averaged just over $126K per annum and just over $522K for medium sized charities for the same period. Even though these charities distributed a higher proportion of their revenue to grants (20% for small charities and 13% for medium charities), it can be more challenging for small and medium charities to demonstrate they have the financial, human and technological resources to comply with all their legal obligations.
Other issues to consider
There are several other issues you will need to consider in making the decision to seek ACNC Registration for your charity. These may include:
- How will your charity be governed?
- Who will be responsible for the day to day operations?
- Do you intend to operate in other states and territories or internationally?
- How will the organisation meet and make decisions?
- Company limited by guarantee or other legal structure?
- Volunteers and/or staff?
- What laws will apply?
In addressing each of these elements it is important to think carefully about the commitments your charity is making about its future operations. Significant penalties apply for providing false information to the ACNC in connection with an application for registration so, it makes sense to get advice before you apply to register with the ACNC.
Planning to register a charity, or have questions about the compliance of your current charity?
Please get in touch for a confidential discussion with the Birchgrove Legal NFP Team today on (02) 9018 1067. We can help you to design and develop a complying charity to meet ACNC’s requirements for registration and give your Board or governing body peace of mind.