Not-for-profit, Charity and Foundation – What are the differences?

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There is often of confusion as to what is the difference between a not-for-profit (NFP), a charity and a foundation. The starting point is that they are all entities which are NFPs.

What is an NFP?

A NFP must not operate for the profit, personal gain or other benefit of its members or any other people. Any profit that is generated must utilised  to further the aims and objectives of the organisation.

In simple terms all profits are put back into the organisation to continue to pay for its activities and to achieve its objectives.

The key determining factor is what the organisation does with any profit that determines whether it is an NFP. An NFP can employ people, borrow money, invest, buy, lease and sell land. An NFP can be regulated at both a State and Commonwealth level depending on the nature of the structure.

An NFP can be:

  • A company limited by guarantee
  • An incorporated association
  • A Cooperative
  • An organisation formed by Royal charter or special act of parliament
  • An Indigenous corporation
  • A non-government organisation

There are many statutory bodies involved in the regulation and governance of NFPs and for this reason expert legal advice is needed to ensure compliance.

A Charity

A charity is NFP set up under the Charities Act 2013 (Cth) and its purposes are:

  • charitable purposes that are for the public benefit; or
  • purposes that are incidental or ancillary to, and in furtherance or in aid of the charitable purposes of the entity.

A charity cannot be a person, political party or government entity.

The Australian Charities and Not-for-profits Commission (ACNC) is the national regulator of charities in Australia and all charities must register with the ACNC.

A Foundation

A Foundation is also an NFP and where charities operate solely for charitable purposes foundations primarily operate to supply funds.

There is no need to set up a foundation if you are a charity but there are some real advantages as it can be directly involved in the fundraising activities for and can assist in obtaining access to private sector and public funds.

The benefits are they can assist in accessing private and public funds, have dedicated staff who are focused on fundraising activities and is the public face of the organisation.

On the other side of the coin are costs associated with setting up a separate entity including separate regulatory and reporting requirements and the requirement for often specialist staff.

The are several types of foundations:

  • Public ancillary fund which fundraises form the and receive gifts from a wide donor group including  corporate foundations, community foundations, and ‘flow-through’ or fundraising foundations for individual charities and can allow donors to establish named sub-funds or management accounts within the foundation.
  • Private ancillary fund which is standalone charitable trust which allows you to create your own giving programme  that can operate during your lifetime and after passing. It is a trust fund for businesses, families and individuals. Family members can make tax deductible donations, but they cannot solicit funds from the public.
  • Sub-fund in a public ancillary fund provides an affordable and accessible way many individuals and families to organise their giving and suitable for those who are seeking guidance with their giving and don’t want to be involved in the administration and compliance
  • Private foundation or testamentary charitable trust are usually formed on the death of the founder and leave a lasting legacy with trustees being responsible for the administration, compliance and gifting.

What is Deductible Gift Recipient (DGR) status?

DGR is an entity or fund that can receive tax deductible gifts. There are two types of DGR endorsement:

  • An entity that has DGR endorsement in its own right
  • An entity that is only a DGR in relation to a fund, authority or institution it operates. In this instance, only gifts to the fund, authority or institution are tax deductible

To receive DGR for any foundation you must be approved by the Australian Taxation Office (ATO).

How can FC Lawyers help?

The team at FC Lawyers have assisted numerous clients in this space with all their not-for-profit and foundation needs and have dealt with the various regulators to obtain their relevant status.

Contact our team today to discuss how we can assist you with your not-for-profit, charity or foundation.

The information provided in this article is for general information and educative purposes in summary form on legal topics which is current at the time it is published. The content does not constitute legal advice or recommendations and should not be relied upon as such. Whilst every care has been taken in the preparation of this article, FC Lawyers cannot accept responsibility for any errors, including those caused by negligence, in the material. We make no representations, statements or warranties about the accuracy or completeness of the information and you should not rely on it. You are advised to make your own independent inquiries regarding the accuracy of any information provided on this website. FC Lawyers does not guarantee, and accepts no legal responsibility whatsoever arising from or in connection to the accuracy, reliability, currency, correctness or completeness of any material contained in this article. Links to third party websites or articles does not constitute any endorsement or approval of those sites or the owners of those sites. Nothing in this article should be construed as granting any licence or right for you to use that content. You should consult the third party’s terms and conditions of use in relation to any third-party content. FC Lawyers disclaims all responsibility and all liability (including liability for negligence) for all expenses, losses, damages and costs you might incur as a result of the information being inaccurate or incomplete in any way. Appropriate legal advice should always be obtained in actual situations.

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