The right legal structure for your charity or organisation – tax, risk and beyond

Picking the wrong legal structure in any industry or field can cause significant detriment to a business. However, when done right, will benefit your business’ legal and operational risk, asset protection, tax obligations and even legal costs!

 A large US charity organisationhad decided to expand its operations to Australia and New Zealand. The organisation had registered a subsidiary company as a charity with the Australian Charities and Not-for-profits Commission (ACNC). However, the organisation had failed to recognise the significant differences in setting up a charity between the US and Australia.

Ultimately, the company had launched its Australian website and intended to host a number of nationwide fundraising events. However, the organisation had not chosen the right business structure to enjoy the best tax and legal benefits, particularly when they intended to filter money back to their charitable operations overseas.

In the end, our advice was to restructure the organisation by setting up a new company limited by guarantee and register it as a public benevolent institution (PBI). A PBI is one of the categories or ‘subtypes’ of charity that can register with the ACNC. PBIs’ can apply for charity tax concessions and may be eligible to be endorsed as deductible gift recipients (DGRs) by the Australian Tax Office (ATO). Gaining registration as a PBI can be an arduous task, particularly when the ultimate holding company is based overseas.

Overall, your charity’s legal structure will affect many things, such as its legal identity (can it be sued?), its governance structure (who makes the decisions?), and who is liable for specific responsibilities or debts, such as reporting or other compliance obligations.

If you have any questions regarding the set-up or operations of a charity, or the legal structure of an organisation, call Angus Ferguson for a free case evaluation.

By Angus Ferguson,
Associate Solicitor