The ACNC’s 2024-25 compliance focus highlighted our work in reviewing charities’ use of complex structures, and the governance and compliance challenges that may accompany their use.
Operating within a complex structure is not, in itself, a problem or an indicator of poor governance.
However, the use of complex structures comes with more complex governance matters for charities to consider and manage. And without careful management, these issues can lead to inadvertent non-compliance with relevant laws.
This guidance aims to help charities identify and manage common governance issues that may arise when operating within a complex structure. Charities operating in a complex structure should consider obtaining professional advice specific to their circumstances.
In rare cases complex structures can be used deliberately by charities to attempt to conceal non-compliance with laws. If the ACNC becomes aware of a charity seriously or deliberately breaching its obligations, or that a charity’s governance or operating practices are putting vulnerable people or significant charity assets at risk, we will act firmly.
Registered charities' governance obligations
All registered charities, except for Basic Religious Charities, must comply with the ACNC’s Governance Standards. All charities that operate outside Australia must comply with the ACNC’s External Conduct Standards, and all charities must continue to meet the criteria required to maintain their entitlement to registration.
There are also other obligations contained in the ACNC Act and Regulations that all charities must comply with. These include record-keeping and reporting obligations.
Each charity that is part of a complex structure will often require more robust, considered and tailored governance measures to ensure they comply with their ACNC obligations.
What makes a structure 'complex'
A complex structure will typically involve multiple entities and have one or more of the features described below. Sometimes this arrangement is referred to as operating as a ‘group’.
The term ‘complex structure’ is not one that is defined in the ACNC Act or Regulations. Instead, we use it as a descriptive term for charities that use, or are within, a structure that includes one or more of the following features:
Purposes and activities
- The presence of charitable and non-charitable entities, including for-profits.
- The presence of different entity types – for example, trusts, incorporated associations, unincorporated bodies, companies limited by guarantee and private companies – within the structure.
- Charities in the structure with different charitable purposes.
- Different charities in the structure providing different services.
Operations
- Entities in the structure working across multiple jurisdictions – for example, both in Australia and overseas, or in different states and territories.
- Uncertainty or a lack of transparency about who controls a particular entity in the structure.
- The use of common directors, boards or committees across multiple entities in the structure.
- Some entities in the structure being subject to more regulatory oversight and obligations than others.
Finances and resources
- Entities in the structure sharing assets, resources – including employees – or both.
- Significant or frequent related party transactions occurring within the structure.
- Disparity of size between entities in the structure, indicating different governance needs.
Why a charity may operate within a complex structure
The ACNC recognises that there are good and legitimate reasons for charities to operate in complex structures.
These reasons often relate to the diversity of Australia’s charity sector, and may include the need to:
- reflect that entities operate in different geographic areas
- reflect that entities operate under different regulatory regimes in Australia or overseas
- mitigate risk – for example, to protect charitable assets by separating trading and other activities
- access debt or equity financing
- remain eligible for tax concessions
- provide organisational focus by separating programs operated by different entities.
Governance considerations for charities operating within a complex structure
If operating within a complex structure, charities and their Responsible People must ensure appropriate levels of oversight and governance are in place. Doing so helps charities meet the governance obligations and registration criteria previously outlined.
The ACNC considers the following areas of governance as ones where charities with a complex structure need to pay particular attention.
Each charity in a complex structure should consider if it is appropriate to adopt common policies and procedures, or develop bespoke policies and procedures.
Clear and robust policies and procedures help charities meet their obligations. Using shared or common policies and procedures across entities can increase efficiency, streamline governance and reduce complexity.
But every policy and procedure must still be fit for each charity’s purpose and circumstances. This means each charity within a complex structure may need to consider developing bespoke policies and procedures.
Common policies and procedures may not be appropriate where entities in the structure:
- provide different services
- have different purposes
- have different financial and operational circumstances
- operate on a for-profit basis
- are not registered charities and do not need to comply with ACNC obligations.
Charities should ensure their policies and procedures are appropriate for their circumstances, regularly reviewed and updated, and complied with.
And ensuring staff and volunteers not only understand the policies and procedures, but follow them, is vital when it comes to demonstrating compliance with the Governance Standards and External Conduct Standards.
Each charity in a complex structure should keep accurate, explanatory and contemporaneous records about its own finances and operations.
The ACNC Act requires registered charities to keep financial and operational records. Good record-keeping also helps charities meet other ACNC obligations – including our Governance Standards and External Conduct Standards.
Each charity within a complex structure must meet its own record-keeping obligations, and must ensure appropriate record-keeping is in place, particularly where:
- records relate or apply to multiple entities in the structure, or
- decisions involve or affect multiple entities in the structure.
Keeping records with appropriate detail helps ensure transparency across the operations of different entities within the complex structure.
The ACNC has information detailing examples of financial and other records that provides an overview of what your charity’s record-keeping should include, while our information on keeping charity records offers further guidance for charities.
Where individuals hold common directorships, they should understand which entity they are acting for at a particular point in time so they can discharge their governance obligations properly.
The term ‘common board’ refers to the situation where all the Responsible People of one entity are the same as those who serve as Responsible People or as a director for a second entity. Common directorships are where one or more individuals serve on more than one board in the group.
Common boards and common directorships across entities within a complex structure can provide efficiencies in communications and strategic alignment. But their use can also result in challenges when ensuring Responsible People comply with their duties.
Governance Standard 5 sets out the duties of Responsible People. They include the duty to act in good faith in the charity’s best interests, and to further the charity’s purposes.
Charities must take reasonable steps to ensure that Responsible People are subject to, and comply with, these duties. And Responsible People must consider how each decision they make is in their charity’s best interests, and how it furthers its purposes.
This can be challenging in complex structures where common boards and directorships are present, and where the duties of Responsible People to one charity might conflict with their duties to another charity or entity – for example, if:
- decisions impact multiple charities in the structure with different charitable purposes
- transactions occur between charitable entities
- transactions occur between a charity and a for-profit entity.
To address these issues, charities should encourage and promote a culture of disclosure and good conflict of interest management practices.
Charities should also consider, in the context of their unique circumstances:
- ensuring that Responsible People have a good understanding of their governance obligations
- ensuring that Responsible People understand what is required of them if they hold multiple directorships
- ensuring that the board properly documents its decisions and, where appropriate, the reasons for them
- whether to appoint different individuals to sit on these boards and board sub-committees
- obtaining professional advice where needed to help navigate the challenges these structures may present, and
- if the best way to manage a Responsible Person’s conflict is for that person to abstain from certain decisions.
Charities should also ensure their conflicts policy specifically covers conflicts of duties – when someone's responsibilities to one entity or role potentially clash with their obligations to another – in addition to conflicts of interest.
It should also define what a conflict of duty is and how it should be managed.
The use of common boards and common directorships may also result in the potential for board over-commitment. Charities should ensure their Responsible People are sufficiently resourced so they can properly discharge their duties.
Example
Charity X and Charity Z operate within the same group structure. Charity X provides childcare services and Charity Z operates a school. The same people sit on both organisations' boards.
Charity Z needs new property to expand the school’s operations, and Charity X owns a suitable property. In theory, Charity Z’s problem could be solved by Charity X leasing the property to Charity Z.
As the same people sit on the boards of both charities, each must understand which entity they are acting for at any given point in time. Determining what is in a charity’s best interests when there are multiple entities involved is not always a straightforward exercise, and may go beyond assessing each entity’s interests in isolation.
When people are in a board meeting for Charity X, they must consider if leasing the property to Charity Z is in the best interests of Charity X, and if it furthers Charity X’s purposes.
They might consider if there are any other potential lessors, if the transaction will be on commercial terms and if the lease would limit Charity X’s opportunity to use the property for its own purposes in the future.
When people are in a board meeting for Charity Z, they must consider if leasing the property from Charity X is in Charity Z’s best interests, and if it furthers Charity Z’s purposes.
They might consider if there are any other suitable properties, and if Charity Z should explore purchasing a different property. If Charity X and Charity Y were formed as part of a group working towards a shared mission, that may also be relevant to their decision making.
The minutes of each board meeting should describe the considerations discussed, the alternatives explored and the reasons for deciding to lease the property.
It is good practice for each entity in a complex structure to hold separate board meetings. Responsible People must understand the impact of their decisions on each and every charity within the complex structure.
The circumstances of each entity within a complex structure may vary, and there is a need to consider these circumstances when making decisions, considering finances and planning operations.
For charities, this includes considering how they are furthering their charitable purposes.
The need to hold separate meetings for each entity should be considered for any charity operating with a complex structure. This may help Responsible People on multiple boards meet their obligation to consider the best interests of each charity separately from other entities within the complex structure.
Meetings do not have to be held in separate places or on different days. A more practical alternative may be to simply hold meetings one after the other. If choosing this option, meeting agendas and meeting minutes should indicate that separate meetings are scheduled and held, including recording details about time, place and attendees.
Charities should maintain an accurate organisational chart detailing their place in the complex structure. This helps them and their Responsible People better understand and explain their place in the complex structure, as well as their relationship to other entities in the structure.
Maintaining an accurate organisational chart or diagram can also help ensure volunteers, staff and Responsible People understand responsibilities around governance and decision-making, as well as clarifying individual roles and responsibilities.
This is particularly helpful where entities in the complex structure share employees, or where certain roles are performed across multiple entities:
- If entities in the structure share staff and volunteers – or if staff are employed by one entity in the structure but perform work for others in the structure – it should be clear which entity they perform work for, who they are employed by and who they are responsible to.
- If a Responsible Person or individual performs a role or has decision-making responsibilities across multiple entities in a complex structure, it should be clear which charity they are representing or making a decision on behalf of.
Information on organisational structure, reporting lines and who holds key responsibilities – including who has the authority to make certain decisions – should be part of induction and handover procedures for those with governance responsibilities that are:
- new to an organisation in the complex structure, or
- changing roles within the complex structure.
This information should also be part of regular organisational governance training.
Each charity in a complex structure should have appropriate processes to ensure that conflicts of interest are disclosed.
The use or involvement in a complex structure can increase the likelihood that perceived or actual conflicts of interest may arise. For example, if there are:
- personal or familial relationships that exist across entities in the complex structure
- entities within the structure in which Responsible People have a personal interest, or
- common boards and common directorships across entities in the structure.
Conflicts of interest are common, but should not be a problem if they can be appropriately managed through good governance processes and policies.
Charities should ensure there are adequate disclosure measures in place to make it easy for anyone to declare a conflict of interest.
These include:
- developing and implementing a conflict of interest policy tailored to the charity’s circumstances. This policy should define what a conflict of interest is, explain how they are to be declared and documented, and establish procedures to manage them
- ensuring conflicts of interest are a standing item at meetings and in any decision-making forums
- encouraging and promoting a culture of disclosure
- maintaining a conflict of interest register that is regularly reviewed.
The ACNC website has a sample interests register your charity can adapt for use.
Charities in a complex structure should ensure that any related party transactions are identified and managed to ensure the charity remains focused on its purposes.
The use of a complex structure may increase the likelihood of related party transactions. This is because entities in a group are often related parties and may transact with each other.
Related party transactions are common and should not be a problem if charities manage them properly. In fact they can sometimes be beneficial to the entities involved.
Proper management of related party transactions includes:
- ensuring that decisions to enter transactions with related parties are made in the best interests of each charity, and to further that charity’s charitable purposes
- conducting a transparent process in selecting an entity to enter a transaction with – for example, by going to market (tender) and considering if the transaction should be entered into
- ensuring the related party transaction is made either on arm’s length terms, or on terms more favourable to the charity
- keeping accurate records of related party transactions, including the type of transaction entered into, the terms of the transaction and any supporting documentation – for example, loan agreements, shared services agreements, decision records and receipts
- maintaining related party transaction policies and procedures to help those making decisions understand what they must do and what they must consider
- ensuring any perceived or actual conflicts of interest are declared and managed, and
- ensuring related party transactions are reported to the ACNC if required.
All registered charities (except Basic Religious Charities) must provide the ACNC with information about their related party transactions. The ACNC recommends all charities in a complex structure keep – and regularly maintain – a register of related party transactions. The ACNC has developed a template that charities can adapt and use.
Care should be taken if charities engage in a related party transaction with an entity where relationships between Responsible People and a related party are likely to raise concerns over a perceived or actual conflict of interest.
Charities must ensure that related party transactions further the charity’s purposes for the public benefit, and do not give rise to an independent non-charitable purpose of providing private benefits to others.