Restructuring charities and NFPs
In recent years, many charities and other NFPs have found themselves in a position where they need to consider restructuring.
Common reasons we have seen for this are:
- the charity or NFP may now be operating outside of the state or territory in which it was originally incorporated
- the charity or NFP may have increased its activities and outgrown its original structure
- the charity or NFP may have been originally set up incorrectly (for example, as a proprietary company rather than a public company limited by guarantee)
- the structure of the charity or NFP may no longer be suitable in light of the objects and purpose of the charity or NFP
- the charity or NFP may wish to merge its activities with another charity or NFP.
We would suggest that a charity or other NFP familiarise itself with the potential issues it faces in respect of a proposed restructure and the steps required before it commences this process rather than attempt to overcome hurdles after it has already started down the path to restructuring.
Some important factors that a charity or other NFP should consider are:
- what steps will need to be taken on the restructure – for example, when will meetings of members need to be called to approve the proposed restructure
- what resolutions will members be asked to pass
- will the restructure result in the creation of a new entity
- if so, how will property owned by the original entity be transferred to the new entity (and what steps will need to be taken to minimise any transfer duty (stamp duty) that may be payable on that transfer)
- will regulators such as the ACNC recognise the change of structure or will the new entity need to re-register as a charity
- will a new governing document need to be prepared
- will the restructure result in a change to the objects and purpose of the charity or NFP.
Charities and other NFPs are also reminded that there is no one size fits all structure and that planning ahead means that they will be able to put in place a structure that works best for their individual needs.