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Governance and legal duties of office holders

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The governance of not-for-profits is undertaken by the board or committee (these terms can be used interchangably). The governance of an organisation is different to the everyday work of the organisation. Boards and committees make strategic decisions and management and staff/volunteers then action the governance decisions (for more information see the page Who runs the organisation?).

Decisions made by board and committees can include setting strategic directions, hiring staff, whether or not to take disciplinary action against a member, which contractors or service-providers to engage, and what activities to undertake.

Good governance means complying with the law and legal duties, and carrying out the governance role in the best interests of the not-for-profit. There are considerations beyond strict legal duties when thinking about good governance, such as how meetings are held, who is on your board and what skills they have, how new committee members are inducted, how frequently the board meets, how board papers are prepared and distributed and more.  There are many online tools and resources available to groups to help them improve their governance. These are set out at the bottom of this page. 

Introduction to the role of board members

The Not-for-profit Law fact sheet on the role of board members has been prepared to help new board members understand their roles, so they can contribute effectively to the successful running of their organisation from day one. 

The fact sheet covers:

  • role of a board member
  • legal oligations of board members
  • personal liability of board members, and
  • what board members should know about their organisation.

Inducting new board members

The following fact sheet provies general information about the process for inducting people to the governing body of a community organisation. It covers what should happen before an appointment is made to the board, why a board induction is important, who is responsible and what should be covered in a board induction. 

Legal duties of boards, committees and office holders

The law recognises that committee members (or directors) as well as some office holders in not-for-profit groups make important decisions about the strategic direction and activities of a group. Because committees have significant power, the law requires them to comply with legal duties like acting in good faith and in the best interests of the organisation. Where the standards set by legal duties are not met, penalties can apply (but this is very rare). Sometimes conflicts arise between the personal interests of a committee member, and the interests of the group. The law also provides a framework on how to deal with this situation.

The Not-for-Profit Law Duties Guide covers the key legal duties of the people who hold a position on the governing body of an Australian not-for-profit community organisation, including incorporated associations, companies limited by guarantee, cooperatives and indigenous corporations. It also covers the duties that apply to office holders, who may not hold an 'official' position, but based on their influence need to comply with the legal duties as well.

It is a plain-language guide which includes case studies based on common situations that arise in the not-for-profit sector, as well as tips to help committee and board members comply with their legal obligations.  The Guide can be downloaded by clicking on the link below. It specifically includes information regarding:

  • the duty to act in good faith and for a proper purpose
  • the duty to act with reasonable care, skill and diligence
  • the duty to not misuse information or position
  • the duty to disclose and manage conflicts of interest, and
  • consequences of breaches of duties.

Charities: If your group is a registered charity, the ACNC's Governance Standards apply in addition to other sources of duties. The ACNC's Guidance to the Governance Standards can be downloaded by clicking on the link below.

If your group is unincorporated, some legal duties may still apply to the leaders of the group, depending on the group's particular circumstances.

Insolvency and legal duties 

Some duties relate specifically to the financial management of an organisation. If you are concerned that your group is facing insolvency, it is important to act straight away.

Not-for-profit Law's fact sheet (below) on insolvency provides useful information for incorporated associations and companies limited by guarantee that are facing financial difficulties or are concerned about becoming insolvent. It covers the following topics:

  • what does it mean to be insolvent?
  • your duty to prevent insolvency
  • possible consequences of breaching your duties
  • how to protect against insolvency 
  • key warning signs of insolvency
  • what to do if you think you are insolvet or nearing insolvency, and 
  • finding insolvency experts.

Financial management and reserves

Reserves play an important role in the financial stability and long-term sustainability of a not-for-profit organisation. Managing reserves is an important aspect of the overall financial management of an organisation – a crucial element of good charity governance.

Not-for-profit Law has collaborated with the Australian Charities and Not-for-profits Commission (ACNC) to develop a fact sheet, 'Charity reserves: financial stability and sustainability', available on the ACNC's website.

The fact sheet covers:

  • what reserves are and where they come from
  • why it is important to have reserves
  • appropriate levels of reserves, and
  • who has responsibility for reserves.

While this resource is directed at charities, it is relevant to all not-for-profit organisations. 

 

Youth organisations

See the below fact sheet for information about setting up and governing an organisation which is either run by, involving or provididng services to youth. This fact sheet answers frequently asked questions by youth organisations including:

  • can we have 'youth' members and committee members?
  • what are MOUs and auspicing agreements?
  • can our organisation be a registered charity and access tax concessions?
  • what legal duties apply to youth-led governing bodies? and
  • what other laws apply to youth organisations?

Extra resources

  • Australian Institute of Company Directors - Good Governance Principles and Guidance for Not-for-Profit Organisations
    This publication outlines ten principles that promote good governance, and helps directors and boards consider the governance needs of their organisations.
  • This is a link to information about how to improve governance.
  • ACNC - Managing conflicts of interest guide
    This guide contains information on conflicts on interest, explaining what they are and how they can be managed. The guide also contains a template conflict of interest policy and register of interests. 

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