This collaborative project examined the appropriateness of existing corporate legal frameworks as they apply to not-for-profit (NFP) companies. It challenged the application of laws designed for companies with profit making objectives to NFP organisations. The project considered the issues of reporting and accountability to NFP stakeholders and how these stakeholders (and their needs) differ from those of stakeholders in 'for-profit' companies. It is hoped that the results of the study and the reform recommendations in the final report will engender informed debate within the sector.
The NFP sector plays a vital role in the Australian economy. Australians give $2.8 billion annually to NFP organisations. The most recent official estimates suggest that NFP institutions contribute almost 4.7% of the Gross Domestic Product (GDP). They also make a significant contribution to employment, accounting for 6.8% of total employment in 1999 - 2000. In comparative terms, NFP institutions add more to GDP than the mining industry. Increasingly the sector's importance is being recognised worldwide, but in Australia there has been only limited research into NFP companies.
The legal nature of not-for-profit organisations is even more varied than in the 'for-profit' sector. Many, particularly smaller organisations, are incorporated under State based associations legislation. By contrast, many of the large welfare organisations are church sponsored and have no clearly defined identity of their own. Another significant group are incorporated as companies limited by guarantee under the Corporations Act 2001 (Cth). The complexity of the legal forms of NFP organisations has important implications for accountability, governance and regulation, and was a key focus of the study.
The project aims were to:
- obtain the views of those in the NFP sector, in particular those in NFP companies
- identify what is working in the current regulatory regime and what is not – for example, is a company limited by guarantee the most appropriate legal structure, what type of information should be disclosed and to whom and who is the most appropriate regulator for NFP organisations?
- make law reform recommendations and engender further debate.
The project has now been completed (February 2004). In 2002 a survey was sent out to 9,817 companies limited by guarantee and over 1,700 replies were received. Analysis of the data from this survey and recommendations for reform are contained in the final research report.
Final Research Report
The final research report titled "A Better Framework: reforming not-for-profit regulation" was released on 19 February 2004.
In March 2003, a detailed article reporting the results of this survey titled, "'Not-for-profit' Motivation in a 'For-profit' Company Law Regime", was published in the Australian Company Law and Securities Journal.
A submission was made to the General Manager, Corporations and Financial Services Division, Treasury Department on Financial Reporting by Unlisted Public Companies dated 16 August 2007.
The Victorian Department for Consumer Affairs is undertaking a review of the Associations Incorporations Act 1981 Vic. In response to the Department's Discussion Paper (24 March 2004) and drawing on research from the Project, Susan Woodward made a submission to the review.
Reviews of Associations Incorporations Acts were carried out in a number of states. While the Associations Incorporations legislation has served the not-for-profit sector well, a coordinated review is required. In order to continue to provide an effective framework to support the economically and socially significant contribution not-for-profit organisations make to the community, it is essential that there is now a uniform legislative approach. Our sole recommendation to the NSW Office of Trading was for the establishment of a uniform regulatory regime for Incorporated Associations nation-wide.
Collaborative Project with Philanthropy Australia
The project was funded by the Australian Research Council and supported by Philanthropy Australia (under the Strategic Partnerships with Industry program). It was a three-year study of the appropriateness of the corporate legal framework for not-for-profit organisations, particularly in terms of accountability and good corporate governance.
Philanthropy Australia is the national membership organisation for grantmaking trusts and foundations. Its mission is to promote and protect the interests of family, private, corporate and community giving in Australia. Its members have an overarching interest and concern to ensure that grants made by them are distributed to well managed not-for-profit organisations. Philanthropy Australia has been instrumental in the formation of the National Round Table of Non-Profit Organisations – a new organisation whose primary focus will be to represent the not-for-profit sector to government and the broader community.