Corporate governance standards for not for profits

The vagaries of corporate governance is a regular and sometimes controversial topic of discussion in Australian business circles.  It is also the subject of much judicial interpretation.

On 1 July 2013, the Australian Charities and Not‑for‑profits Commission Amendment Regulation 2013 (No. 1) (Cth) (Regulations) came into effect by amending the Australian Charities and Not‑for‑profits Commission Act 2013 (Cth).

One of the principal effects of the Regulations is to insert Division 45 – Governance Standards into the Regulations – creating what has become known as the “Governance Standards”.  In order for a charity to be registered with the Australian Charities and Not-for-profits Commission (ACNC) it must comply with the Governance Standards.

The ACNC is the government regulator created by the Australian Charities and Not-for-profits Commission Act 2012 (Cth) charged with monitoring compliance with the Governance Standards.

Simplified outline of the Governance Standards

The simplified outline contained at section 45.1 of the Regulations provides that:

“The governance standards support registered entities in fulfilling their objectives by providing a minimum level of assurance that they meet community expectations in relation to how a registered entity should be managed”.

The variable nature of governance

The simplified outline contained in the Regulations provides that the steps that a registered entity must take to comply with governance standards will vary according to:

• its particular circumstances;
• the sources of its funding;
• the nature of its activities; and
• the needs of the public.

Who must comply with the Governance Standards?

Section 45.1(1)(a) of the Regulations provides that the object of the governance standard is to commit a registered entity, its members and its responsible entities to the registered entity’s purposes.

What is a registered entity?

Registered entities are those that are registered with the ACNC as a charity.

Is registration with ACNC mandatory?

Registration is voluntary, however only registered entities are eligible to receive charity tax concessions.

The ACNC governance standards

The ACNC Governance Standards are comprised in five (5) parts contained in subdivision 45 B of the Regulations.

Governance standard 1 (GS1) – purposes and not for profit-nature of registered entity

GS1 provides that charities must be working towards their charitable purpose and must provide information about their purpose to the public.

Governance standard 2 (GS 2) – accountability to members

A registered entity that has members must be accountable to its members.  In addition, the members must have an adequate opportunity to raise concerns about the governance of the registered entity.  The notes to GS2 provide examples of steps which registered entities could take to ensure that they are accountable.

Governance standard 3 (GS3) – compliance with Australian laws

GS3 aims to provide members of the public trust and confidence that a registered entity is governed in a way that complies with Australian laws.

Governance standard 4 (GS4) – suitability of responsible entities

Registered Entities must ensure that their responsible entities comply with Australian law and must check that their responsible persons are not disqualified from managing a corporation under the Corporations Act 2001 (Cth).

Governance standard 5 (GS5) – Duties of responsible persons

GS5 provides that a registered entity must take reasonable steps to ensure that responsible persons comply with their duties as described in the Governance Standards.  Further GS5 describes duties which are akin to the common law duties of a director of a company.  The words “care and diligence”, “fiduciary” and “disclose material conflicts” attempt to imply a statutory duty of care to the controllers of the registered entity.  Most notably, section 45.25(2)(g) of the Regulations provides that reasonable steps must be taken not to allow the registered entity to operate whilst insolvent.

Links and further resources

Legislation

Australian Charities and Not-for-profits Commission Act 2012 (Cth)

Australian Charities and Not‑for‑profits Commission Amendment Regulation 2013 (No. 1) (Cth)

Other links

Australian Charities and Not-for-profits Commission

ACNC media release introducing the Governance Standards.

Further information

If you need assistance to ensure you comply with the Governance Standards, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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