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/Factsheet_print/Cooperatives_and_associations/Charitable_fundraising/_Starting_a_charity.pdf
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Standard fact sheet.
/Factsheet_largeprint/Cooperatives_and_associations/Charitable_fundraising/_Starting_a_charity.pdf
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Large print fact sheet.

Starting a charity 

This page provides information and guidance about:

  • what a charity is and how it is set up
  • the different types of governing instruments that a charity might use
  • recommended standard provisions for a governing instrument (provisions that we would normally expect to see in a governing instrument)
  • the types of legal formats that may be used.

Definitions 

Beneficiaries means the people (or in some cases, organisations) which the charity is set up to help. The charity’s governing instrument usually explains who the beneficiaries are.

Governing instrument means any document that sets out the charity’s purposes and how it is to be run. It may be a constitution, association rules, cooperative rules, memorandum and articles of association, trust deed, or an Act of Parliament.

Management means the people responsible for the general control and management of the charity including:

  • the members of the committee responsible for running an unincorporated or incorporated association
  • the directors of a corporation or cooperative
  • the trustee(s) of a charitable trust.

Property means land, buildings, cash, investments or any other possession, which the charity has.

The Register means the computerised Register of Authority Holders. Some of the particulars of the Register can be found on www.onegov.nsw.gov.au

Recommend or advise are used where we are suggesting actions which we consider to be good practice but which are not legal requirements.

Should or must are used to refer to actions that persons have to take by law.

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What is a charity? 

Under common law, a not-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.

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Do you need a licence to conduct charitable appeals? 

Yes, unless you are exempt from the Act. For more information, go to the Exemptions from the Charitable Fundraising Act page.

The licence is called an authority to fundraise and the 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.

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What is the advantage of being licensed as an authority holder?  

There is only one advantage - having a licence allows organisations to lawfully conduct fundraising appeals for charitable purposes. This means that you are able to give the public the assurance that you are conducting your affairs in a prudent manner in accordance with the Act and that you are being monitored by us.

However, charities may be eligible to receive exemptions and assistance from Federal, State and Local Government. For example, a charity:

  • may not have to pay income tax
  • may be eligible to receive exemptions, concessions or special treatment in some circumstances under the tax regime such as GST and FBT
  • may be entitled to exemptions, concessions or special treatment in some circumstances in respect of taxes or duties imposed by the New South Wales Government
  • may be entitled to deductible gift recipient status in respect donations (income tax deductibility)
  • may be eligible for exemptions, concessions or special treatment in respect of taxes or duties imposed by Local Government
  • are often able to obtain grants or subsidies from government agencies more easily than non-charitable bodies.

Charities may also be able to obtain concessions on utilities (water, electricity). In each of the above matters, the grant of the authority to fundraise does not aid in the process of obtaining those benefits. You need to direct your inquiries to the government agency concerned such as Australian Taxation Office, Revenue NSW and Local Government.

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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.

For more information, go to the Charitable purpose web page and Australian Charities and Not-for-profits website.

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What are non-­charitable purposes? 

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.

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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.

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Charities and remuneration 

Approval must be obtained to enable a member of the governing body of a not-for-profit organisation to be remunerated; or to enable a staff elected employee, or a person receiving some form of assistance from the organisation (beneficiary/ consumer) to take up a position on the governing body.

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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. For more information, go to the Incorporating an association page.

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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 nondistribution of profits provision)
  • who will run the charity (the management).

For more information, go to the Governing instrument of a charity page.

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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.

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What is the difference between an unincorporated and incorporated organisation? 

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.

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).

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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 an owner of freehold or leasehold land or other property.

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