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Starting a charity

> What is a charity?
> Do you need to register the charity?
> Do you need a licence to conduct charitable appeals?
> What are charitable purposes?
> What are examples of non-charitable purposes which are often mistaken for charitable organisations?
> What is a not-for-profit organisation
> Do you need to register a not-for-profit organisation?
> What are the advantages of being licenced as an authority holder?
> What is a governing instrument?
> What legal form should I adopt for the charity?
> What is the difference between an unincorporated and incorporated association?
> Which organisations use an unincorporated structure?
> Which organisations use an incorporated structure?

What is a charity?

Under common law, a non-for-profit organisation is a charity if it has been set up exclusively or mainly for charitable purposes.
A charity’s purposes are its objects or aims which are set out in its governing instrument. Many organisations that conduct fundraising appeals for charitable purposes would satisfy the common law and be classified as a charity.
If the organisation is not set up exclusively or mainly for charitable purposes, this does not mean that it cannot conduct fundraising appeals for charitable purposes – it only means that it cannot classify itself as a charity.

Do you need to register the charity?

No. However, persons or organisations that wish to conduct fundraising appeals for charitable purposes may require a licence.

Do you need a licence to conduct charitable appeals?

Yes, unless you are exempt from the Act for example, an exempt exempt religious organisation or exempt from the requirement to hold a licence as a body under the control of a government Minister for example, an Area Health Service.
The licence is called an authority to fundraise.
This licensing scheme is governed by the Charitable Fundraising Act 1991. Under this scheme, an organisation does not have to be a charity – it need only possess one or more charitable purpose and conduct fundraising appeals for those purposes.

What are charitable purposes?

Charitable purposes can be grouped under four main headings:

the relief of financial hardship
the advancement of education
the advancement of religion
other charitable purposes for the benefit of the community

What are examples of non-charitable purposes which are often mistaken for charitable organisations?

The following are examples of organisations or purposes which are often assumed to be charitable, but in fact are not:

sports clubs set up to benefit their members (as distinct from sports facilities open for everyone or specifically provided for special groups of people, such as young people)
the promotion of political or propagandist purposes, or the promotion of a particular point of view
purposes which include arrangements where people running the organisation get significant personal benefit

What is a not-for-profit organisation?

To qualify as a not-for-profit organisation, all the income, assets and surplus funds of your organisation must be used to achieve its objectives and may not be distributed to members.

Do you need to register a not-for-profit organisation?

A not-for-profit organisation only needs to register if they wish to be incorporated.

What are the advantages of being licensed as an authority holder?

The main advantage of having a licence is that it allows organisations to lawfully raise money for charitable purposes.
Charities may also be eligible to receive exemptions and assistance from federal, state and local government and may also be able to obtain concessions on utilities (water, electricity). Direct your enquiries to the government agency concerned (Australian Taxation Office, Office of State Revenue, local government bodies).

What is a governing instrument?

A governing instrument outlines the objects or aims of the charity. We recommend it contains the following:

what the charity is set up to do (objects)
how the charity will do these things (powers)
that the funds of the charity cannot be distributed to members of the charity (a non-distribution of profits provision)
who will run the charity (the management)

View the template for a model governing instrument (Starting a Charity - Suggested Rules).

What legal format should I adopt for the charity?

There are two formats:

unincorporated formats, for example unincorporated associations, societies or clubs and trusts
incorporated formats, for example company limited by guarantee, incorporated association and a cooperative

What is the difference between an unincorporated and incorporated association?

An unincorporated organisation is relatively cheap and easy to set up. If the purposes of the organisation are relatively simple, then it may be enough to set up an unincorporated organisation.
The principle disadvantage of an unincorporated organisation is that members of the organisation are personally required to enter contracts on behalf of the organisation and if sued, their names will appear on the summons or writ, and they will have to pay any damages.
The major legal difference between unincorporated and incorporated organisations is that an incorporated organisation has a separate legal identity and so limits the liability of the members of the governing body (directors). This protection is known as limited liability.
There are costs of incorporation and once an organisation is incorporated, the association must maintain a public liability insurance policy; and lodge an annual statement lodgement fee.

Which organisations use an unincorporated structure?

It is appropriate to establish an unincorporated organisation where any one or more of the following applies:

the organisation is to be relatively small in terms of assets
the organisation is a local branch of a charity, and a standard constitution exists for branches
the organisation is to have a membership
the management committee is to be elected or appointed to hold office for a fixed period of time – usually for one year
the management committee is to be elected by members
the objects of the organisation are to be carried out wholly or partly by, or through, the members (ie where the members undertake office or voluntary work on behalf of the organisation).

Which organisations use an incorporated structure?

It is appropriate to establish an incorporated association where some of all of the following apply:

the organisation is to have at least five members
the organisation is to be small (large organisations with significant funds and property will have their applications refused and requested to seek incorporation under the Corporations Law 1989 or the Cooperatives Act 1992
it will employ staff
it will deliver charitable services under contractual agreements
it will enter regularly into commercial contracts
it will be a owner of freehold or leasehold land or other property

Starting a Charity fact sheet (51 kb).