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Should My Startup be a Not-for-Profit?
Should you launch your startup as a not-for-profit in Australia? There are a number of factors you should consider before getting started.
Depending on your company vision, you may be considering launching your startup as a not-for-profit. Many startups operate with charitable or humanitarian goals, but it’s important to perform some research and planning before starting a not-for-profit in order to identify potential challenges or risks.
Have You Done Your Research?
Before launching a not-for-profit in startup in Australia, it’s essential that you consider the goals you’re aiming to achieve and determine whether establishing a new charity is the best way for you to achieve your goals. It’s possible that there are already not-for-profit organizations or charities that are already performing similar work, or could potentially support your idea as an extension of their current work.
The Australian Charities and Not-for-Profit Commission, or ACNC, provides a search platform that allows users to find registered charities. Before getting started with your startup, check the ACNC search platform in order to search for similar charities.
Not-for-profit organisations that registered with the ACNC are able to access a range of benefits that include charity tax concessions. There are, however, a number of requirements and obligations that must be fulfilled in order to register with the ACNC.
What is the Purpose of Your Startup?
- If you’re planning on launching a not-for-profit startup, begin by outlining the purpose of your startup and the time frame in which you plan on achieving your goals. Establishing a concrete timeline and clear vision will provide you with a framework that can be used to determine the best way to launch your startup.
- What does your organisation aim to achieve?
- What activities will you perform?
- What services or programs will you provide?
- Who is the target audience of your organisation?
- Who will benefit from the services or programs you will provide?
- Is there a clear need for your not-for-profit?
- How long will your organisation operate for? Will your startup operate on a short-term basis for a single project, or on an ongoing long-term basis?
It’s important to note that charities can only be operated for a charitable purpose. If you decide to register with the ACNC, the purpose of your charity startup will affect the subtype classification it is designated with.
What Resources Will You Need?
- All startups require startup capital and resources in order to operate. When planning your not-for-profit startup launch, you’ll need to consider how much capital you will need to launch and assess the ongoing costs you will incur. Engaging the services of a professional accountant or financial advisor will provide you with critical insight at the planning stage of your organisation.
- Do you possess any capital or resources that you will use when launching your not-for-profit?
- What assets or capital will you need to launch? These assets can include real estate, equipment, and vehicles.
- What ongoing costs will you incur? These costs typically include rent, utilities, licenses, insurance, and salaries.
- How will your startup raise money?
- Will you need ongoing income in order to work on your not-for-profit?
- Will your startup need investors?
- Will your organisation need staff members or volunteers? If so, how many?
What Are Your Fundraising Requirements?
- Australian not-for-profit organizations and charities raise capital in a variety of different ways. These methods include:
- Membership fees
- Public fundraising appeals that include telemarketing, door-knocking, social media campaigns, and public collections
- Events such as fun runs and conferences
- Public auctions
- The sale of goods or services
It’s important to note that fundraising and gaming activities such as raffles aren’t regulated by the ACNC. Gaming activities performed by not-for-profits and charities are regulated by state and territory laws, as well as corporations and consumer laws.
If you’re considering running gaming or fundraising activities, it’s important to consult with state or territory regulators in the specific region in which you plan on fundraising. If you will need to send money overseas as part of your fundraising efforts, it’s necessary to understand the obligations your organisation will need to fulfil in order to reduce risk.
The Importance of Legal Structure
The legal structure you use to establish your not-for-profit will play an important role in the way your startup operates. There are many different ways in which a charity can be structured, such as incorporated or unincorporated structures.
The legal structure of a not-for-profit can impact its legal identity, which can determine whether or not it can be sued. Legal structure also affects the governance structure of an organisation, as well as who is liable for debt and the specific responsibilities it will have to government agencies.
Registering with the ACNC is important when operating a not-for-profit, but the ACNC doesn’t register not-for-profits based on legal structure alone. The ACNC does, however, require that registered not-for-profits provide information on the specific entity type of their organization when registering.
- When determining the best legal structure for your startup, there are a number of factors you will need to consider:
- How large will your organisation be? How complex are the activities you plan to undertake?
- Will your organisation have employees, or volunteers?
- What accountability will your not-for-profit have to members or the community?
- Will the members or office holders of your organisation have any potential personal liability for actions taken by them on behalf of the organization?
- Will you operate in multiple states or territories, or overseas?
- Will your not-for-profit seek any tax concessions?
A formal incorporated legal structure provides a number of advantages, such as allowing organisations to rent office space, seek finance, apply for government grants, or take out insurance in the name of the organization.
Incorporated & Unincorporated Structures
- Many not-for-profits choose to operate with an incorporated structure. Common not-for-profit incorporated structures include:
- Incorporated associations
- Companies limited by a guarantee
- Non-trading co-operatives
- Indigenous corporations
Not-for-profit organizations that operate with an unincorporated structure commonly operate as trusts, or unincorporated associations that provide a less formal legal structure with no separate legal identity.
Legal and Regulatory Obligations
- Setting up a not-for-profit is a complex process that has many legal implications and requirements. When setting up a charity startup you will need to comply with a broad spectrum of laws which include Commonwealth, state, and territory laws. You may want to consider seeking professional financial and legal advice in order to ensure you are fully compliant.
- Where will you operate?
- Will you seek charity tax concessions?
- What other legal obligations will your organisation be subject to? These obligations can include workplace health and safety laws, fundraising laws, and employment laws.
How Will You Manage Your Charity?
- The way your not-for-profit will be managed can impact the legal structure of the not-for-profit itself:
- Will your not-for-profit required a governing body such as trustees, a board, or a committee?
- What kind of governance processes will your not-for-profit establish? What rules or practices will be put in place?
- Will your not-for-profit establish formal processes for meetings and decision making?
- Where will your not-for-profit operate from? Not-for-profit organizations can operate from offices, home offices, or shared spaces with other not-for-profit organizations.
Organizations that seek to register with the ACNC are obligated to comply with the ACNC Governance Standards. Any not-for-profit that plans on operating overseas is also obligated to conform to the ACNC External Conduct Standards. These standards typically require not-for-profit organizations to establish specific policies and procedures.
How Will You Promote Your Not-for-Profit Organization?
- How will your not-for-profit capture attention from potential investors, donors, or the general public? It’s essential to consider how you will communicate the key goals, vision, and activities of your new organisation to the public.
- How will you promote your startup and encourage people to participate?
- How will you capture information from your target audience?
- How do you plan on publicizing your not-for-profit and sharing information with the public?
- Will you publish a website to promote your startup?
Consider Professional Advice
The various legal structure options available to prospective not-for-profits offer different advantages and disadvantages. When considering the legal structure of your not-for-profit, it’s essential to balance these factors against the goals of your organisation. The complex nature of not-for-profit legal requirements means it’s best to engage the services of legal and accounting professionals before getting started.
Setting up not-for-profit organization in Australian can be complicated. If you’re considering launching a not-for-profit startup, reach out to Fullstack today for detailed guidance.