Our team members at Pointon Partners are regularly requested by clients to establish not for profit bodies. The activities proposed to be undertaken may be charitable in nature, community oriented or the body may be being established to operate as a sporting club. Or possibly to act as a peak sporting body to represent the interests of or oversee the activities of a number of sporting clubs which will be members of the peak body.
We thought it would be useful to provide a snapshot of the different legal structures available and which type of body may be suitable, depending upon the activities to be conducted.
1. Charitable Trust
One of the oldest types of legal structure with a history dating back centuries. Quite a flexible structure and which is established by way of a trust deed. Can have one or more individuals acting as trustees or alternatively a company can be incorporated to act as trustee. Quite a good structure to use if the charity is going to be associated with or controlled by one individual rather than being more democratic in nature. The trust deed we have developed also provides for such an individual to be named as the “Patron” of the charity. Applications can be made:
- with the Australian Charities & Not for Profits Commission, to have it included on its register;
- with the ATO for tax exempt status; or
- with the ATO for deductible gift recipient status (‘DGR status'), though obtaining this status is not necessarily easy and involves demonstrating that the activities conducted by the charity fall within particular categories specified in legislation.
The charity may also be required to register with Consumer Affairs Victoria under the Fundraising Act if it is raising more than $20,000 per annum from the public each year.
2. Private ancillary fund
A private ancillary fund is a private philanthropic vehicle typically established and operated by a high net worth individual or family. Private ancillary funds do not carry out charitable activities themselves on a day to day basis but instead act as a sieve through which the high net wealth individual or family is able to stream donations to charities which have their own DGR status. In fact they are the only charities to whom the private ancillary fund can make donations to. The high net wealth individual is able to obtain an immediate tax deduction for making a donation to the private ancillary fund. Hence we occasionally see private ancillary funds being established in say the year when a successful business is sold and the individual or family may otherwise be liable for a significant capital gains tax bill.
Private ancillary funds are completely creatures of statute and have to comply with strict requirements in relation to:
- the form of trust deed;
- only operating in Australia;
- distributing at least 5% of their net assets each year;
- dealing at arms length with the founder and their associates; and
- having at least one trustee, or if a corporate trustee is acting then at least one director, who is a “responsible person”. This is defined as someone with a degree of responsibility to the Australian community as a whole (eg because they perform a public function or belong to a professional body which has a code of ethics) and includes an individual before whom a Statutory Declaration can be made.
Provided that the above requirements are satisfied then upon registration with the ATO the fund is automatically granted DGR status without separate application having to be made.
3. Public Ancillary Fund
Somewhat similar to a private ancillary fund in that it operates as a sieve through which donations can be made to charities which do have DGR status. However as the name suggests the rules of the fund must reflect that the public are to be invited to contribute.
Public ancillary funds can be established by way of a deed of trust or a Will though the ATO also provides a model trust deed which may be used.
Public ancillary funds have to comply with rules regarding:
- the trustee, which will generally be a constitutional corporation;
- it operating on a not for profit basis and it being registered with the Australian Charities and Not for Profits Commission;
- a majority of the directors of the trustee must be “responsible persons”; and
- it must distribute at least 4% of its net assets each year.
4. Incorporated associations
This is a structure commonly used by local sporting clubs and community groups. Though it can also be used by a charity and particularly if the intent is for the charity to be democratic in nature and have members as opposed to merely donors. The incorporated association is established pursuant to the Associations Incorporation Reform Act (Vic) Application is made to Consumer Affairs Victoria for registration. Consumer Affairs Victoria provides a form of model rules which may be used. These can departed from but if so then then the rules of the incorporated association have to address specific requirements set out in the legislation.
5. Public company limited by guarantee
This is a structure established pursuant to the Corporations Act and commonly used by peak sporting bodies, whether at a state or federal level. It is also regularly used by larger sporting clubs such as private sandbelt golf clubs. It is also often used as a structure for the running of large scale not for profit events such as the Melbourne Food & Wine Festival.
Pointon Partners does have significant experience in:
- advising on which legal structure ought be adopted by a not for profit venture;
- establishing the structure including drafting of its constitution, trust deed or rules;
- advising on and drafting any subsequent amendments to the constitution, trust deed or rules;
- advising on applications for tax exempt status, DGR status or applications pursuant to the Fundraising Act;
- advising on corporate governance issues affecting not for profit entities; and
- transitioning the body to a new legal structure if the old one has passed its use by date.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.