Charities and their board members face a number of ongoing obligations in order to properly fulfil their duties and retain their status as a valid Australian charity. We set out some of these compliance requirements for those charities that are companies limited by guarantee.
Charities can be formed via a number of different structures, including becoming an associated incorporation, a company limited by guarantee or to form a trust. While many of the obligations are similar regardless of the structure a charity chooses, the legislation and bodies that govern the charity will differ between the various types of structures. This article sets out information specific for companies limited by guarantee.
1. Duties of board members: a director or officer of a Company Limited by Guarantee is required to comply with the general duties imposed on directors by the Corporations Act 2001 (Cth). Directors have the following duties:
(a) to exercise powers and duties with reasonable care and diligence;
(b) to exercise powers and duties in good faith, in the best interest of the organisation;
(c) not to improperly use their position to gain an advantage;
(d) not to improperly use information obtained through their position;
(e) to declare a conflict;
(f) not to trade whilst insolvent;
(g) to keep adequate financial records;
(h) to find out and assess how any proposed action will affect the company’s business performance;
(i) to question managers and staff about how the business is going; and
(j) take an active part in directors’ meetings.
Similar duties are imposed by Division 45 of the Australian Charities and Not-for-Profits Commission Regulation 2013.
2. General requirements for a Company Limited by Guarantee: a company is required to:
(a) display the company name and company number (‘ACN’) on all notices, advertisements and business documents;
(b) have a minimum of three responsible directors;
(c) keep all records, including meeting minutes, financial records and explanations of transactions for at least seven years;
(d) execute documents by the signature of two directors or a director and secretary;
(e) pay an annual review fee to ASIC;
(f) hold an Annual General Meeting for its members; and
(g) notify ASIC of any changes to the company such as:
- change of a director or officeholder;
- change of the registered office; and
- change of name.
3. Financial reporting to ASIC: a Company Limited by Guarantee with a revenue of less than $250,000 a year is not required to prepare or lodge an annual financial report with ASIC.
A Company Limited by Guarantee with a revenue in excess of $250,000 a year is required to prepare an annual financial report and lodge the report with ASIC.
4. Ongoing obligations to the ACNC: registered charities are accountable to the ACNC and must:
(a) notify the ACNC of any change to the name, address, board members or constitution of the charity;
(b) lodge an annual financial report with the ACNC. Small charities with a revenue of less than $250,000 are required to provide the ACNC with a basic Annual Information Statement. Larger charities with a revenue in excess of $250,000 are required to provide the ACNC with a full financial report;
(c) act in accordance with the provisions established by the constitution of the charity;
(d) operate the charity on a not-for-profit basis;
(e) use charity funds solely to carry out the charitable purpose defined by the constitution; and
(f) there must be a minimum of three professionally qualified board members on the board of the charity.
Compliance is crucial in charity law. Warlows Legal are specialists in the Charity and Not-for-Profit sector. Regardless of the structure you choose, we can help assist ensure you meet the ongoing compliance requirements. If you have a charity or are thinking of setting up a charity, get in touch with our team today!