What is the main purpose of the Cleardocs "Not-for-profit Pty Ltd company"?
The Cleardocs "Not-for-profit Pty Ltd company" has been developed mainly to be used as the trustee of an Ancillary
Fund (whether a
Private Ancilary Fund, known as a "PAF", or a Public Ancillary Fund, known as a "PuAF").
Ancillary Funds provide a tax advantageous structure for people who wish to donate money to entities which are
recognised as "deductible
gift recipients". You can read more about Ancillary Funds:
The Cleardocs "Not-for-profit Pty Ltd company" can be used for other not-for-profit purposes, for example,
a charity. For an entity to be a charity, the company will need to apply to the Australian Charities and
Not-for-profits
Commission (ACNC) for registration as a charity and to the Australian Taxation Office (ATO) for endorsement as a
charity.
The ACNC and the ATO may have requirements about the Constitution which may require changes to the Cleardocs
"Not-for-profit Pty Ltd company" Constitution. You must seek your own legal, accounting and financial advice
about your particular situation and the ACNC and the ATO's requirements.
Are other structures suitable for not-for-profit purposes?
Yes, there are various other types of structures that are suitable for different types of not-for-profit
purposes. For example, as well as the "Not-for-profit Pty Ltd company" that Cleardocs now provides,
the other structures include:
-
a Public Company Limited by Guarantee; and
-
incorporated associations, these are available in most states and territories — but not through Cleardocs.
If you are setting up a not-for-profit company, then you need to get legal advice about the best structure to suit
the company's purposes. Cleardocs is not able to give you that advice. However, you can ring our lawyers at
Maddocks to arrange a quote for the firm to give you that advice. If you would like to call Maddocks, then
please call us on 1300 307 343 and we will put you in contact with the relevant people at Maddocks.
Is the "Not-for-profit Pty Ltd Company" a "special purpose" company?
Yes, a "Not-for-profit Pty Ltd Company" is a "special purpose" company. The law says that a special purpose
company is a company which — as its name suggests — is set-up for a particular purpose, for example:
- to be only the trustee of an SMSF (and to do nothing else); or
- to pursue certain charitable purposes (and to do nothing else).
The Cleardocs "Not-for-profit Pty Ltd company" is a not-for-profit special purpose company. The legal requirements
for a not-for-profit special purpose proprietary limited company are set out in section 3(d) of the Corporations
(Review Fees) Regulations 2003 (regulations made under the Corporations Act 2001). These regulations
provide that the constitution of a special purpose company must:
- require the company to pursue charitable purposes only and to apply its income in promoting those purposes;
- prohibit the company making distributions to its members and paying fees to its directors; and
- require its directors to approve all other payments the company makes to them.
ASIC has confirmed that the key requirement for creating a not-for-profit proprietary limited company is
that the constitution of that company states that it has been created for a specific purpose: pursuing charitable
purposes.
On a winding-up of a not-for-profit proprietary limited company, any assets which are left over after the
company has paid its debts must be distributed to another entity with similar objectives to the not-for-profit
company. The assets must not be distributed to the shareholders.
The company is a proprietary company, limited by shares: what makes it not-for-profit?
Ordinarily, companies which are established with share capital are "for-profit". The share structure allows
the company to distribute profits and dividends to shareholders in proportion to their shareholding. When the
company
is wound-up the liability of the shareholders is limited to the amount they've paid for their shares.
The Cleardocs "Not-for-profit Pty Ltd Company" is not-for-profit because its constitution:
- requires the company to pursue charitable purposes only and to apply its income in promoting those purposes;
- prohibits the company making distributions to its members and paying fees to its directors;
- requires its directors to approve all other payments the company makes to them; and
- must provide for winding-up distributions to be made to like-minded companies.
The Cleardocs "Not-for-profit Pty Ltd Company" pursues charitable purposes: what makes it different from a
charity?
The Cleardocs "Not-for-profit Pty Ltd Company" is a "special purpose" company. It is set up to pursue certain
charitable
purposes and to do nothing else.
Although the Cleardocs "Not-for-profit Pty Ltd Company" pursues charitable purposes, this does not mean it is a
charity.
For an entity to enjoy the tax benefits of being a charity, the entity must be registered as a charity with the
Australian
Charities and Not-for-profits Commission (ACNC) and endorsed for tax concessions by the Australian Taxation Office
(ATO).
Only then will the entity qualify for tax concessions.
The Cleardocs "Not-for-profit Pty Ltd company" has been developed mainly to be used as the trustee of an Ancillary
Fund
(whether a Private Ancilary Fund, known as a "PAF"; or a Public Ancillary Fund, known as a "PuAF"), not to be a
charity.
For a charity, the ACNC and the ATO may have particular requirements for the entity's Constitution. You need to
arrange
your own legal advice about these requirements and whether they are changes to the company documents we provide. We
cannot
give you that advice.
What is the difference between a not-for-profit proprietary limited company and a public company limited by
guarantee?
Cleardocs offers both:
Both have been developed for use by not-for-profit entities.
The Not-for-profit Pty Ltd Company
Registration has been
developed mainly for use as the trustee of an ancillary fund
(whether a public or private ancillary fund). It can also be used for other not-for-profit purposes, such as a
charity
if it seeks and obtains charity status. You can read more about this here.
The Public Company Limited by Guarantee
has been developed for use as a not-for-profit organisation, which may also seek charity status. You can read more
about this here.
The main differences between the companies are:
- the Not-for-profit Pty Ltd Company
Registration product
establishes a proprietary company, limited by
shares. It has a share capital as per any other proprietary limited company, that is, its funding comes from
shareholders and, in limited circumstances, the public. Given the entity is not-for-profit, it is not permitted
to
distribute profits or assets to its shareholders. The company must comply with all obligations of proprietary
companies under the Corporations Act 2001 (Cth).
- the Public Company Limited by Guarantee product
establishes a public
company, limited by
guarantee. The company does not have a share capital and its funding comes from the public. The limit of
a member's
liability is called a 'guarantee' — a nominal amount the member agrees to pay in the event that the
company is
wound up. It is not permitted to distribute profits or assets to its members. The company must comply with all
obligations of public companies under the Corporations Act 2001 (Cth).
There are various other types of structures that may also be suitable for not-for-profit entities, such as
incorporated associations. You must seek your own legal advice about what kind of structure is best for you.
What is an Ancillary Fund?
Ancillary funds are funds endorsed by the Australian Taxation Office as income tax exempt, deductible gift
recipients.
Ancillary Funds may be Private Ancillary Funds, known as "PAFs"; or Public Ancillary Funds, known as "PuAFs".
Tax legislation specifies that Ancillary Funds are established and maintained under a will or instrument
of trust for, among other things, the purpose of providing money, property or benefits to endorsed "deductible
gift recipients" (known as "DGR").
PAFs use donations of businesses, families and individuals.
PuAFs seek donations from the public.
Both PAFs and PuAFs ned to be endorsed by the ATO in order to qualify for tax exemptions.
The key features of Ancillary Funds (both Private Ancillary Funds and Public Ancillary Funds) are:
- the governing rules of the Ancillary Fund must set out and reflect that it is established as a not-for-profit
entity;
- the fund must fall within the category of deductible gift recipient for Ancillary Funds;
- the fund must be established in, and must operate in, Australia; and
- on the winding-up of a PAF or PuAF, its assets must not be distributed to members, but instead directed towards
another
entity with similar purposes.
Ancillary Funds must also have an investment strategy and must distribute certain minimum amounts of the fund's
assets annually.
There are also particular requirements for individuals who are trustee-directors of Ancillary Funds. For more
information,
read the Government's guildelines on Private Ancillary Funds here
and Public Ancillary Funds here.
You should ensure that you have ongoing legal advice about the operations of your Ancillary Fund. There are a number
of reasons for this,
including:
-
guidelines about Ancillary Funds may change: the Commonwealth Treasurer has the power to make (and
change) legislative
guidelines about the establishment and maintenance of Ancillary Funds; and
-
penalties may apply if your Ancillary Fund is non-complying: the Commissioner of Taxation has the power
to impose
administrative penalties on trustees that fail to comply with the Government guidelines and to remove or suspend
trustees
of non-complying Ancillary Funds.
You can use the Cleardocs "Not-for-profit Pty Ltd company" to be the trustee of an Ancillary Fund, but you don't
have to —
it can be used for other not-for-profit purposes.
If you do want the company to be the trustee of an Ancillary Fund, then you need to choose "yes" to the following
question
on the Cleardocs interface: "Is this company going to be a not-for-profit company? (Including as the trustee of a
Private Ancillary Fund or a Public Ancillary Fund)".
What happens to the assets of a not-for-profit Company on a winding-up?
On a winding-up of the not-for-profit proprietary limited company, any assets which are left over after the company
has paid its debts must be distributed to another entity with similar objectives to the company. The assets must not
be distributed to the shareholders.
Can the capital and profits of a not-for-profit Company be directed to the members?
No, the capital and profits of a not-for-profit Company cannot be directed to the members. Instead, the capital and
income of the company must be applied solely towards the company's charitable purpose.
Can the directors of a not-for-profit Company be paid any fees or remuneration for their services?
No, under the terms of the Cleardocs not-for-profit proprietary limited company Constitution:
-
directors cannot be paid fees for their services;
-
the directors can be remunerated for travel and other expenses they incur in relation to their duties as
directors. The directors must
approve any such payment before it is made.
The Cleardocs not-for-profit proprietary limited company Constitution has been prepared in this way to satisfy ASIC's
requirements for
a not-for-profit special purpose company so the company can obtain reduced annual review fees.
The Private Ancillary Fund Guidelines1 2009 state
that the trustee of a
Private Ancillary Fund may apply income or capital of the Fund:
-
to reimburse the trustee for reasonable expenses incurred on behalf of the Fund; and
-
to pay fair and reasonable remuneration for the trustee's services in administering the Fund.
If you want:
-
to incorporate a company to act as trustee of a Private Ancillary Fund; and
-
the directors of that company to have the ability to pay fair and reasonable remuneration for the trustee's
services in administering the
Fund as allowed in the Private Ancillary Fund Guidelines,
you can contact our lawyers at Maddocks who will provide you a quote to prepare an appropriate Constitution. Please
be aware however, that this
form of Constitution will not meet the requirements of an ASIC not-for-profit special purpose company and the
company will need to pay the
annual
review fees for a standard proprietary limited company rather than the reduced annual fees for a special purpose
company.
[1] The Private Ancillary Fund Guidelines
2009 were made under
section
426-103 of Schedule 1 to the Taxation Administration Act 1953 (Cth),
Do I need a Director Identification Number?
It is a requirement of law that directors now hold a Director Identification Number. If the product you are purchasing involves the creation of a company, creation of a corporate trustee or the appointment of a new director, then each director of the company/corporate trustee will need to verify their identity by applying for a director identification number (Director ID). Directors will retain the same Director ID even if they cease being a director, become a director of another company, change names or move interstate or overseas. Directors will not need to apply again or renew their applications.
If a person is appointed as a director:
- between 1 November 2021 and 4 April 2022, they must apply for a Director ID within 28 days of appointment.
- from 5 April 2022, they must apply for a Director ID prior to appointment.
For information on how to set up your Director ID, visit: https://www.abrs.gov.au/director-identification-number/apply-director-identification-number.
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The master documents are written in plain language and are signed-off by our lawyers at Maddocks.
