Establishing a Not-For-Profit: The Governance Lasagne

Establishing a Not-For-Profit: The Governance Lasagne


In part one of this series, I told you about how I came to be doing an internship for a 12-year-old. This is instalment details some of what he’s had me doing. (Hot tip: I have not been sent to get coffee once!)

For the most part, my time working for Oliver has been dedicated to establishing a not-for-profit (NFP) organisation to coordinate his fundraising idea, Ice Cream Day. This piece outlines some good lessons for any would-be entrepreneur or social enterprise.

Having worked for some years in and around the NFP sector, and being between jobs, I appeared to have all the necessary qualifications for establishing our NFP. I knew roughly what to do, or so I thought.

For the uninitiated, establishing a NFP (or any other enterprise) is a remarkable experience in figuring out how to navigate a system of administrative spaghetti in a thick sauce of multi-layered bureaucracy. I have started calling this the “governance lasagne”; it is a vaguely-lit environment where instructions are usually elusive, and seemingly, often incomplete.

This is the story of me bumbling through getting it done. Hopefully, it makes things a little easier for anyone else who wants to give it a go.

I knew there would be a degree of difficulty involved in doing this, and accept there needs to be some oversight to stop shonky membership-based organisations gaining tax exemptions and the air of legitimacy afforded by NFP or charitable status.

That said, we wanted to do this ourselves, so we understood the environment that much better. In hindsight, much like applying for permanent residency or defending your case in court, this is probably a task best outsourced to a professional third party if you can. The system does not make itself easily navigable for the uninitiated.

In order to grow Ice Cream Day, especially if it is to develop interstate and internationally, we knew we would need to establish a formal structure. After trawling the internet for advice and consulting with some former community sector colleagues on NFP structures, I really had little more idea than I started with, although I knew some options required more paperwork than others.

The obvious options were:

  • Register as an incorporated association in Victoria; this meant we could no act outside Victoria without registering in subsequent states. The duplication of paperwork seemed unnecessary, and it is a structure more suited to clubs than social enterprises.
  • Form a foundation and trust; this is a great structure for large organisations but it requires double the amount of administration. This additional paperwork seemed unnecessary given out limited experience, budget and skillset, but this could be a good structure to adopt when Ice Cream Day goes global.
  • Create a public company limited by guarantee; most charities and NFPs have this structure, as it is relatively easy to manage, and it limits the liability of the company members. This structure does not have shareholders, but members, and requires a constitution. This is the structure we use.

Registering a company with the Australian Securities and Investments Commission (ASIC) is relatively easy, provided you have your paperwork in order. The paperwork includes the life details of all (at least three) directors and a company secretary, and a copy of the constitution. You will also need to know the name you want your company to have, a valid registered office address, and patience if something goes against you. There are details here.

Following this, you get to repeat the process with numerous other Commonwealth and state agencies, with a little piece of the NFP puzzle being granted to you each time.

Due to inexperience and deciding not to outsource company registration to one of the third parties offering this service, a few things have gone against us (me!) thus far. The most recent is what I am pretty sure is a $308 late-lodgement fee I discovered while writing this… Internships are all about learning, right?

The first snare I encountered was being told that our company name was incorrect on the constitution, as I had neglected to include ‘Ltd’ after it. Oops. While most NFPs do not have Ltd in their name, this is because they remove it so they don’t appear to be a private business, by applying to ASIC to do so, after being approved as an NFP. More on this later.

After editing that and reprinting the affected pages, I was told we could not have our preferred company name, as someone in New South Wales already has one materially similar. I had checked the business name register for clashes, but I had failed to check company name availability. You can search the company and business registers here.

This meant we had to find a new company name, triple check it was available, rewrite the relevant registration forms, edit the company name in the constitution, and print a new copy, before resubmitting the documents again.

Third time lucky, and $366 later, Kids Helping Kids Ltd. became a registered company. Ice Cream Day is now a Kids Helping Kids Ltd. initiative. An unexpected bonuses of this forced change was that we can now pursue other activities through Kids Helping Kids Ltd, keeping Ice Cream Day as an initiative distinct from the company.

After registering as a company, we needed to register with the Australian Taxation Office (ATO) in order to acquire a tax file number, and the Australian Charities and Not-for-profits Commission (ACNC) in order to become a registered NFP or charity. There are subtle distinctions between NFPs and charities I will leave you to explore here, but know the subcategories of NFP add further texture to the governance lasagne and are another labyrinth without a decent guidebook.

Registering with the ACNC required the life details of our directors and company secretary once again, with the added bonus of needing to set out what Kids Helping Kids Ltd. will do, how it will do it, why, with whom and all manner of other things.

After spending some time on the ACNC website, I submitted all the necessary documents and waited to hear something back. With no guidance or indication of how long this process takes, I lost patience after six weeks and called the ACNC to follow up. That is all that was required to get it “pushed toward the top of the pile”, I am sure much to the eternal pleasure of those displaced further down the order.

A few days later, I received contact from a genuinely helpful case officer, who sought further information, quizzed me on various declarations and intentions, and told me it would be all good in a few days. Then I got a phone call saying there was a problem with our constitution. In the clause relating to winding-up the company, while I had stipulated any remaining assets must be donated to an NFP, I had neglected to state be donated to a charity with similar objectives to the company.

The distinction between an NFP and a charity is easily illustrated. For example, hospital or university may be an NFP because it reinvests any profits in itself rather than pay shareholders, but they may not be charitable as they charge fees for service. A foundation that promoted healthy lifestyles or a fund that covers medical costs for the destitute could be considered charitable. The ACNC noted that our constitution, as it stood, would not preclude donating any assets remaining upon winding-up to a political party.

Point made.

Addressing this error, caused purely by my own naïveté, required a special meeting to authorise a change to the constitution, a trip to ASIC to lodge yet another version of the constitution, and a resubmission to the ACNC, complete with declaration we had lodged it with ASIC and a copy of the meeting minutes where we agreed to make this amendment. The representative from the ACNC could not explain why the ACNC would need the minutes if ASIC, the companies regulator, did not. This served only to further disenchant me with the governance lasagne.

Some weeks later, about three months after initially lodging the application, the ACNC notified Kids Helping Kids Ltd. it had been successful in registering as an NFP.

The things we are in the process of doing now include altering applying to remove Ltd from the company name – which will cost a further $377 and require yet another iteration of our constitution – and registering ourselves as fundraisers with Consumer Affairs Victoria (CAV). The CAV registration requires yet another batch of life details and some repetitious paperwork.

While at the start of this process it appeared to be a cunning plan to have the minimum number of company officeholders, this is in fact going to be somewhat difficult as we gain new directors, as each one will need to fill in forms for all these organisations again. My advice would be to think about the team you need form the very start, and build it from the beginning. This will probably save you some time later.

The process of starting an NFP is interesting and teaches you a lot about governance, but it helps to have support and guidance. If you have the funds to use a third part, that may be helpful, depending on your level of interest in experiencing the governance lasagne. As the very least, having a couple of directors with NFP experience.

Other challenges we have encountered include how to capitalise on interest from other companies who would like to partner with Kids Helping Kids, and ensuring our own funding. As we are still committed to 100 percent of all funds raised for charities through events being donated to the charities. Everything Ice Cream Day 2014 raises on October 16th goes to the Starlight Children’s Foundation, meaning we will have done great work, but we won’t be any better off financially. This is a very low-cost endeavour, social enterprise model still needs some work to be viable long term.

No doubt, there is more governance lasagne ahead.

Dominic Collins is a public affairs professional, specialising in stakeholder engagement, position development, communications and public policy. He is a consultant at edgelabs, a startup enthusiast, and is currently being an intern for a 12 year old, socially-minded entrepreneur.


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