Transcript Slide 1

How to Kick Start a Social
Enterprise
Joanne O’Brien
Carne Reidy Herd Lawyers
Level 10, 193 North Quay
Brisbane Qld 4000
P: 07 3236 2900
E:[email protected]
CONTEXT
•
•
•
•
•
Sourcing finance
Delivery of products & services
Marketing
Employees & Volunteers
Legal structure to support desired aims
outcomes
LEGAL COMPLIANCE
Carne | Reidy | Herd
WHAT IS SOCIAL ENTERPRISE?
• NFP organisations were engaged in social enterprise
long before it had a name
• Economic and social factors have created an increased
need
– Reduced government funding
– Increased focus on profit in the market
• Growing field of academic study & research
• Plethora of definitions
Carne | Reidy | Herd
WHAT IS SOCIAL ENTERPRISE?
• A more creative capitalism that can adapt business
and the market to better address unmet social
needs.
• Non-loss businesses with social objectives
• Profit for purpose
Carne | Reidy | Herd
Carne | Reidy | Herd
LEGAL STRUCTURE
• What legal structure will you use?
• Options:
– Operate within your existing structure
Possible regardless of whether you are a company
limited by guarantee or an association
Establish a separate business unit
Its own reporting lines
– Establish a new separate legal entity
Carne | Reidy | Herd
IN HOUSE OPTION
• Advantages
– Minimal establishment costs
– Utilises existing staffing & financial reporting
frameworks
– No changes at Board level
– Surpluses become part of general revenue &
can be utilised for core purposes
Carne | Reidy | Herd
IN HOUSE OPTION
• Potential problems
– Impact on charitable status
– Impact on tax endorsements
– Risk to core business
Carne | Reidy | Herd
CHARITABLE STATUS
• Distinction between being a charity and being
entitled to tax exemptions
• ACNC determines charitable status
• ATO determines entitlement to tax exemptions &
concessions
• But if an entity is not registered with ACNC as a
charity, it is not entitled to ATO endorsement
• Must maintain registration with ACNC
Carne | Reidy | Herd
MAINTAINING REGISTRATION
• Entity must continue to:
– Operate on a NFP basis;
– Pursue charitable objectives;
– Meet requirements of sub-type;
e.g. PBI
– Report to the ACNC;
– Keep records; and
– Comply with governance standards
Carne | Reidy | Herd
CHARITABLE STATUS
• Charities Act 2013
• Passed by both houses of Parliament on 27
June 2013
• Commences 01 January 2014
• Query impact of Federal election
Carne | Reidy | Herd
CHARITIES ACT 2013
• Statutory definition of Charity
– Not for profit
– All of its purposes are charitable purposes or
– Purposes incidental or ancillary to & in furtherance
or in aid of charitable purposes
– No disqualifying purposes
– Not an individual, political party or government
entity
Carne | Reidy | Herd
CHARITIES ACT 2013
• Charitable purpose
– Advancing health, education, social or public
welfare, religion, culture
– Promoting reconciliation, mutual respect & tolerance
– Promoting or protecting human rights
– Advancing the security or safety of Australians or
the Australian public
– Preventing or relieving the suffering of animals
Carne | Reidy | Herd
CHARITIES ACT 2013
• Charitable Purpose (cont’d)
– Other purpose beneficial to the general
public that may reasonably be regarded as
analogous to or within the spirit of the above;
– Promoting or opposing change to law, policy
or practice in Australia or another country.
Carne | Reidy | Herd
CHARITIES ACT 2013
• Public Benefit
– Satisfied by purposes directed to benefit the
general public or a sufficient section of the general
public
– Tangible or intangible
• The aim is that the benefit should be widely available
and not directed to people closely connected with the
entity e.g. founders, trustees, employees
Carne | Reidy | Herd
IMPACT ON REGISTRATION
• Issues to consider:
– Is the enterprise an activity undertaken in pursuit of
the entity’s charitable purposes?
– Does the entity’s Constitution need to be amended
to allow for this activity?
• If the enterprise does not fit within the charitable
purposes as set out in the constitution then other
structures will need to be considered
Carne | Reidy | Herd
UBIT
•
•
•
•
•
Unrelated Business Income Tax
Better Targetting of NFP Tax Concessions
Start delayed to 1 July 2014
Response to the Word Investments Case
Profits generated from business activities
must be directed to charitable purposes
Carne | Reidy | Herd
OUT HOUSE OPTION
• Set up a new separate legal entity to operate
the social enterprise
• Alternatives:
– Company limited by guarantee
– Proprietary Limited company
– Incorporated Association
– Trust
Carne | Reidy | Herd
COMPANY ALTERNATIVES
• Minimum requirements:
– Public Company (Ltd)
3 Directors
1 Member & that can be a corporate member
– Private Company (Pty Ltd)
1 Director
1 Shareholder
– Both can be NFP but that would negate the main
advantage of a Pty Ltd company
Carne | Reidy | Herd
COMPANY ALTERNATIVES
• The main distinction between the two
company types in this context is the ability
for a private company to distribute dividends
• A company limited by guarantee can only
use its income to further its objects
• One of those objects can be “To contribute
funds to XYZ Foundation/Ltd”
Carne | Reidy | Herd
COMPANY ALTERNATIVES
•
•
•
•
Issues:
Registration as a charity with ACNC?
Entitlement to tax concessions?
Who will be the Directors?
– The whole Board of the parent; or
– Sub-set of the parent Board; or
– Individuals with particular skills + a representative of
the parent Board
Carne | Reidy | Herd
COMPANY ALTERNATIVES
• How those issues are resolved depends
on:
– The nature of the enterprise; and
– Its dominate objective:
To generate funds; or
To provide social outcomes
Carne | Reidy | Herd
CASE STUDY 1
•
•
•
•
•
Aged Care Provider Ltd
PBI
Operating a construction business
Building for itself & other Providers
Builder’s Licence required minimum asset ration that
could not be met because of the accommodation
bond liabilities
• Large cash reserves
Carne | Reidy | Herd
CASE STUDY 1
• The Solution:
– Amend Constitution to allow the entity to set up an
enterprise
– Register a Pty Ltd company
– Issue shares equal to the cash injection required –
minimum amount to secure BSA Licence
– CEO became the sole Director
Carne | Reidy | Herd
CASE STUDY 2
•
•
•
•
•
Endorsed environmental organisation
Incorporated Association
Aim was to reduce reliance on government funding
Used expertise to secure private contracts
Delayed establishing a separate entity until
satisfied it would be successful
• Costs associated with financial reporting became a
burden
Carne | Reidy | Herd
CASE STUDY 2
• The Solution:
– Amend Constitution to allow the entity to set up an
enterprise
– Register a Ltd company
– Objectives included providing funds for the Association’s
charitable fund
– Association became sole member
– Lent the capital built up in the parent to the new company
Carne | Reidy | Herd
CASE STUDY 2
• The Solution (cont’d):
– Association continued to provide
administration functions
– Documented arrangements through loan
agreement & service agreement
Carne | Reidy | Herd
Thank You
Joanne O’Brien
Carne Reidy Herd Lawyers
Level 10, 193 North Quay
Brisbane Qld 4000
P: 07 3236 2900
E:[email protected]