With the recent increase in the number of professionals seeking to establish a not-for-profit (NFP) entity related to a private, for-profit business they run through another corporate entity, it is important to understand what you can and can’t do.
The structure typically involves an individual setting up an NFP which engages the services of, or refers clients/work to a private business in which the individual is also a director and/or shareholder. For example, where an individual establishes an NFP to help individuals in need of crisis accommodation and collects donations and contracts with a related for-profit construction business in which the individual is also a shareholder and director, to build the crisis accommodation.
Where an NFP is established and will provide income or benefits either directly or indirectly to a related for-profit entity, care should be taken to ensure any arrangements are structured appropriately and with sufficient safeguards and controls in place. If arrangements are not structured correctly, the NFP may not be eligible to be registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC) and would not be entitled to receive the corresponding tax concessions, including income tax exemption.
If the ACNC considers that an NFP has only been established to direct funds to a related private business which an individual receives benefits from, then the ACNC may decline to register, or may de-register, the NFP as a charity. The ACNC will have regard to a range of issues including but not limited to: the purpose of both organisations, voting control, Board control, contracting arrangements and whether funds or benefits are provided directly or indirectly to the NFP.
If you want to set up an NFP or require assistance structuring your NFP's commercial arrangements, please contact us.