How Does A Nonprofit Organisation Work In Australia?

Charity

This article provides an introduction to the not-for-profit (NFP) sector in Australia. It includes an overview of the different legal forms that NFPs take, the key similarities and differences between NFPs and for-profit companies, and an overview of the key regulators in this sector.

We also have a separate article, which looks at some of the key governance challenges facing NFPs in 2021 — you can find the article on our blog here if you’re interested.

Introduction to NFPs

The NFP sector in Australia is large and diverse, with one common focal point: it exists for the public good.

What defines ‘public good’?

This “public good” can take many forms, and includes such things as: charities, sporting groups, political groups, community groups, ethical and lobbying groups, support groups, professional and trade associations, and education and religious organisations.

According to the Australian Institute of Company Directors (AICD), the majority of NFPs are small, unincorporated organisations; that is, they do not have a legal status that is distinct from their members.

For the remainder of NFPs with formal legal status, the most common corporate structures are incorporated associations under relevant state or territory incorporated associations Acts or companies limited by guarantee, which are registered with ASIC.

Other legal structures.

Other, lesser common legal structures may include trusts, cooperatives, Indigenous corporations, religious organisations, and organisations formed by a special act of Parliament.

Despite this variance in legal form, the duties and liabilities of directors across all NFPs are similar in nature and are based on overarching fiduciary duties to act in good faith in the best interests of the organisation and for a proper purpose.

NFP organisations vs. for-profit companies

The similarities.

It is important to understand that whilst NFPs and for-profit companies have distinct and important differences; NFPs and for-profit companies can often both be corporate entities.

This means that the boards of both organisation types will be subject to the same governance, legal and fiduciary requirements to act in the best interests of the company, avoid conflicts of interest etc.

The basic components of good and successful governance are also fundamental to both organisation types, regardless of their legal form; such as having clarity of roles and responsibilities, ensuring appropriate and compliant financial management; and maintaining a clear and well-defined strategic purpose and direction.

The differences

Notwithstanding this, it is important to understand the key differences between these types of organisations. These include:

  • The primary focus of NFPs is mission driven, rather then financial return for shareholders as with for-profit companies.
  • NFPs operate under a different taxation regime than that of for-profit companies.
  • Accountability for NFPs (and the decision of its board members) can be much more diverse than for-profit companies. For example, for-profit companies are accountable to shareholders, regulators and the commercial market, whereas NFPs can be accountable to members, regulators, donors and funding bodies, government agencies and the broader community.
  • NFPs operate on mutual principles, whereby any returns are reinvested into its key mission rather than passing through to the members for personal financial benefit.
  • NFP’s rely, to a significant extent, on relationships, donations and support in order to sustain their organisational model, rather than profitability of business.

Who is responsible for regulating NFPs?

Unlike for-profit entities, which are solely regulated by ASIC, there is no single governing body for NFPs in Australia.

Rather, there are a number of different regulators that are responsible for overseeing and monitoring the NFP sector, and generally, an organisation’s regulatory body will be determined on the basis of its incorporation.

These can largely be categorised into the following groups:

  • Charitable organisations are regulated by the Australian Charities and Not for Profit Commission (ACNC);
  • Non-charitable companies limited by guarantee that are registered under the Corporations Act 2001 (Cth) are regulated by ASIC;
  • Incorporated associations registered under state and territory legislation are regulated by the relevant state or territory government minister or department;
  • Indigenous corporations are regulated by the relevant legislation under which they are registered;
  • Co-operatives and mutual are regulated by the relevant legislation under which they are registered; and
  • Other statutory incorporated bodies are regulated by relevant legislation pursuant to which they are incorporated, for example, religious and educational organisations.

We will shortly be releasing a separate article, which outlines in further detail the role of the ACNC.

How do we assist NFPs?

We are a bespoke accounting firm on the Central Coast that specialises in NFP accounting and financial services. We provide end-to-end solutions that meet your organisation’s specific needs.

Please feel free to reach out to us if there is anything we can do to assist your NFP, or if the above article has raised any questions.

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