Authors: Belinda Marsh, Partner and Merisa Raic, Special Counsel.
The ACNC has published its first decision summary which is part of the new ACNC Secrecy Reforms Project (the Project).
The ACNC received funding in the 2023-24 Budget for the project with the aim of improving transparency and providing more information to the charity sector relating to the ACNC’s regulatory and compliance activities.
The first published de-identified decision from the Project relates to an application for registration as a charity of an organisation which was legally structured as a proprietary company limited by shares i.e. Pty Ltd.
The ACNC determined that the organisation’s structure may be that of a proprietary company limited by shares provided it operates on a not-for-profit basis and its shareholders do not to receive private benefits. The ACNC guided the organisation in making changes to its governing document in order to achieve registration as a charity.
The ACNC was satisfied that the organisation’s purposes being for the public benefit were charitable.
In order to comply with the ACNC governance standards and achieve registration as a charity, the organisation’s constitution was required to be amended in a number of ways, including but not limited to the following:
- in order to satisfy the not-for-profit requirement, the shares of the company could not be more than the issue price, and that governing document would override the replaceable rules so that the ACNC Act and ACNC regulation would apply; and
- in order to satisfy the conflict-of-interest requirement, only the responsible persons who did not have a conflict of interest could determine if a person may participate in discussion on matters for which they had a conflict of interest. Also, responsible persons with a conflict of interest were to be precluded from voting on a matter and executing contracts and agreements.
The organisation, after amended it governance document, achieved registration and charity status with the ACNC.
It had been the case to date that a proprietary company is generally not a suitable structure to operate a registrable charity in Australia. However, this decision demonstrates that, provided that the governing document of a proprietary company complies with the requirements of the ACNC and relevant charity legislation, such structures are not prohibited from operating and being registered as a charity. This required considerable changes to be made to the governing document, changes that are not usually seen in the constitutions of proprietary companies.
Organisations considering operating a charity through a proprietary company should take utmost care and obtain advice beforehand or otherwise consider operating though more commonly accepted structures instead (for example, companies limited by guarantee).
This first decision published by the ACNC as part of the Project has provided useful insights to how the ACNC assesses charity structures. We look forward to seeing more decisions published in the future under this Project.