About the organisation
An organisation structured as a proprietary company limited by shares (Pty Ltd) applied to the ACNC for registration as a charity.
The organisation’s governing document stated that its purpose was to enhance the Australian natural environment.
To achieve its purpose, the organisation stated it would provide information and education, and conduct research.
About the application and registration process
The ACNC assessed the organisation as having charitable purposes for the public benefit.
However the organisation’s structure as a proprietary company limited by shares and governing document demonstrated that it was not required to operate as a not-for-profit.
A proprietary company limited by shares can be registered as a charity as long as its governing document makes clear that it must operate on a not-for-profit basis, and that it does not allow shareholders that are not charities to receive distributions of income or capital.
However, any governing document generally appropriate for a proprietary company limited by shares will need significant amendments for it to also be appropriate for use if that organisation seeks registration as a charity with the ACNC.
Because of this, the ACNC encourages people thinking about setting up a charity to consider whether the proprietary company limited by shares is the best legal structure for their charity. A different legal structure may better suit their charity.
The ACNC needed to work with the organisation to ensure its governing document was suitable and provided sufficient controls to ensure it operated as a not-for-profit – thus making it eligible for charity registration.
To be registered with the ACNC, an organisation must meet the requirement of being a not-for-profit. This means the organisation cannot, and must not be able to, operate for the profit, personal gain or other benefit of particular people.
An organisation can achieve this by including particular statements – or clauses – in its governing document, and then following them
Upon examining the organisation’s governing document, the ACNC identified some potential issues.
Sale of shares
The organisation’s governing document included a clause that did not restrict the price of any sale of shares or the issue price of new shares.
Allowing an organisation to sell or transfer shares for value other than the issue price, or distribute profits from dividends to members (that are not charities) shows its capacity to profit.
To be eligible for charity registration, a proprietary limited company must not be able to operate for private profit or benefit.
Payments of brokerage or commission
The organisation’s governing document also included a clause allowing for payment of brokerage or commission.
While this type of clause would not necessarily mean that an organisation can’t be registered as a charity, its Responsible People must ensure they comply with obligations to act in the best interests of the organisation when deciding to pay brokerage or commissions.
Clauses not overriding other governing document provisions
Lastly, while the organisation’s governing document contained appropriate not-for-profit and winding-up clauses, there was no clause to state that these clauses overrode any other inconsistent clauses contained in the governing document.
In order to be eligible for registration, the organisation could either amend its governing document to state that:
- shares could only be issued or transferred at the issue price; or
- the not-for-profit and winding-up clauses overrode any inconsistent clauses.
Response
After discussions with the ACNC, the organisation moved to address these issues, and to demonstrate that it was required to operate as a not-for-profit.
It did so by amending its governing document to include clauses stating that any transfer of shares could be for no more than the issue price.
As it was already amending its governing document, the organisation decided to go a step further and also include a clause stating that while the company remained registered as a charity, the ACNC Act and ACNC Regulations would apply.
Outcome
After the organisation formally made the changes to its governing document, the ACNC registered it as a charity.