Charity or social enterprise – What’s the best structure?

We are often consulted by clients who wish to set up a charity, not-for-profit organisation or social enterprise.

So, what are the differences between charities and socials enterprises and what does it mean to be a not-for-profit organisation?

Charity

Charities are regulated with the Australian Charities and Not-for-profits Commission (ACNC) and once registered you can:

• apply for charity tax concessions as a charity from the Australian Tax Office (ATO)
• apply for additional tax benefits as a public benevolent institution (PBI), health promotion charity (HPC) or charity for the advancement of religion
• apply for certain categories of deductible gift recipient (DGR) status.
• receive a range of other concessions, benefits or exemptions available to charities under Commonwealth law.

To be classified as a charity, an organisation must:

• be a not-for-profit entity which means that does not operate for the profit, personal gain or other benefit of particular people;
• exist for charitable purposes that are for the public’s benefit;
• not have purposes which are ‘disqualifying’; and
• not be an individual, a political party or a government entity.

There are 12 charitable purposes listed in the Charities Act 2013 (Cth) and they are:

• advancing health
• advancing education
• advancing social or public welfare
• advancing religion
• advancing culture
• promoting reconciliation, mutual respect and tolerance between groups of individuals that are in Australia
• promoting or protecting human rights
• advancing the security or safety of Australia or the Australian public
• preventing or relieving the suffering of animals
• advancing the natural environment
• other similar purposes ‘beneficial to the general public’ (a general category), and
• promoting or opposing a change to any matter established by law, policy or practice in the Commonwealth, a state, a territory or another country (where that change furthers or opposes one or more of the purposes above)

A charity can be operated through a range of legal structures such as:

• Associations either incorporated or unincorporated
• Charitable Trusts
• Company’s and often one limited by guarantee
• A cooperative
• Indigenous Cooperation’s
• Public or Private Ancillary Funds

The type of structure will depend on the organisation’s requirements, objectives and location of operation.

Social Enterprise

Social enterprises in contrast to charities do not have a legal definition. As a result, there are no legal requirements specific to social enterprises. Instead, social enterprises employ conventional business structures and must comply with the legal requirements applicable to all businesses.

Social enterprises can be operated to generate profits to fund charitable causes, or alternatively the business itself can be the charitable or community cause, or both.

Some examples of social enterprises are:

• commercial business developed as a method of training and providing work for the unemployed
• commercial business developed to provide employment for people with a disability
• businesses designed purely to benefit the local community
• businesses created to provide access to financial products for people who find it difficult to access mainstream financial services
• an income-generation arm of a charity.

What are the main differences?

Purpose

Social enterprises exist to provide a social benefit. There is no restriction on what the social benefit may be and it can include social, economic, cultural, educational, or environmental issues.

Charities must have only charitable purposes that are for the public benefit. (There are 12 charitable purposes listed in the Charities Act 2013 (Cth).)

Registration for status

There is currently no formal registration system in Australia for social enterprises.

Charities must be registered with the ACNC.

Profit status

Social enterprises can be for profit or not-for-profit.

Charities must be not for profit.

Legal structure

Social enterprises can use any legal structure.

Charities are restricted in legal structure choice they cannot be a sole trader, partnership, proprietary limited company, listed company or a government entity.

Tax concessions

For social enterprises it will depend on the legal structure and NFP or charity status.

Extra tax benefits may exist for charities, such as:

• Fringe benefits tax exemption;
• Deductible Gift Recipient (DGR);
• Public Benevolent Institutions (PBIs).

Our experience

At FC Lawyers our team not only has extensive experience advising organisations on these issues, but our team members have and continue to sit on numerous charities both at a chair and director level across a broad range of organisations with both national and international experience.

We can advise you on a range of issues including:

• legal structures
• corporate governance
• constitutions
• trust deeds
• employment and industrial law
• DGR applications and status
• fundraising documents
• privacy issues
• tax advice
• registration for the ATO, tax file, ABN, PAYG
• member disputes

Find out more information on Charities & Not-For-Profits.

Contact our team today to discuss your charity or social enterprise set up and how we can assist you.