Summary of preliminary findings from the questionnaire on company law issues affecting not-for-profit companies

Thank you to those who completed our survey of not-for-profit companies in 2002. The numerical data has now been entered and much of the analysis is compete. We are still looking at many of the comments and, as the final stage of this three year project, are preparing a detailed research report with law reform recommendations. It is hoped that this report will help to engender debate about the regulation of 'not-for-profit' (NFP) organisations. We welcome feedback about the following finding and draft recommendations.

Response Rate

The data in this report is based on responses from 1,688 NFP companies limited by guarantee. Taking into account non-receipts, the response rate is estimated to be 39%.

Survey Results

Part A - General Company Particulars

Size
Respondents ranged from very small organisations (annual income of less than $500) through to large NFP companies (income of more than $10 million and assets of more than $10 million), with a good spread of all sizes. The majority could be said to be small to medium in size - 72% of respondents had less than 20 employees and 60% had less than 100 members. Interestingly, 88% of respondents could be said to be within the s 45A Corporations Act 2001 (Cth) definition of "small" (namely, had at least two of the following - consolidated gross operating revenue of <$10 mil, consolidated gross assets of <$5 mil and <50 employees). Thus, these organisations could, from a company law point of view, have chosen to be a proprietary limited company and, because of their size, they would have had minimal reporting obligations (for example, no requirement to prepare and lodge audited accounts).

Part B - Legal Structure

Part D & E - Board Composition, Experience, Structure and Procedures

• was comprised of 8 unpaid, non-executive directors: 77% had Boards comprised entirely of non-executive directors and 8% said that their non-executive directors (i.e. not employed by the company) received payment in addition to out-of-pocket expenses
• was predominantly male: only 26% of directors were female, although nearly three-quarters (74%) had at least one female director on their Board
• was comprised of directors aged between 40 - 72 years: only 3% had a male and 2% with a female, aged between 18-24 years
• spoke English as their first language: 2% of all female, and 2% of male directors, were Aboriginal, Torres Strait Islander or a descendant. Of all directors whose "first learnt language was not English", 10% were male and 6 % were female
• does not represent a particular stakeholder: 85% do not have any donors as directors; 79% said they did not have a director that represented the interests of stakeholders other than members
• makes decisions based on a consensus based style: only 9% vote without using consensus methods

Part F - Regulatory Framework

• 9% thought that no information should be made available to the public;
• 89% thought that a description of activities should be available to the public;
• only 39% agreed that fully audited accounts should be available to the public - that is, only 39% agreed that they should have to disclose what they are currently required by the Corporations Act to disclose,
• the majority (56%) were of the opinion that summary financial information was sufficient. Thus, this survey data shows a disparity between the level of disclosure that the majority of respondents believe should be available to the public (namely, summary financial information) and the level of disclosure that they are, in fact, required by the Corporations Act to make (namely, fully audited accounts).
  
  

Role of a new regulator Respondents were asked if the Charity Definition Inquiry's recommendation for the establishment of an independent administrative body was implemented, "which of the following roles do you think such an independent body should have?" Respondents were in favour of combining both compliance (58%) and determination of charitable status (58%) with advice (86%), sector advocacy (69%) and training (56%).

1. new NFP company structure under Corporations Law:
   Whether a company limited by guarantee is the most appropriate structure - is it time to introduce a specialist form of company structure instead of or in addition to incorporated associations? In 1995 the Industry Commission recommended a specialist form of company for "Community Social Welfare Organisations" and the United Kingdom Cabinet Office has recently recommended the establishment of two new types of company (the "Community Interest Company" and the "Charitable Incorporated Organisation"). The myriad of legal structures for NFP organisations hampers accountability and regulation which, in turn, have implications for donor confidence in the sector;
2. different company law reporting requirements for NFPs depending on their size and purpose:
   Whether the extent and nature of the disclosure should vary depending on factors such as size, member-serving vs public-serving and taxation status? The vast majority (91%) of NFP companies say they enjoy the privilege of income tax exemption. This gives rise to a public policy argument that, as consideration for this privilege, there should be a corresponding responsibility of public accountability and disclosure. But what is the balance between reporting obligations that meet the specific needs of NFPs and their stakeholders, and obligations that are unduly onerous or do not provide helpful information?
3. a new NFP regulator:
   Who is the most appropriate regulator - there is a level of dissatisfaction with ASIC. Should a specialist unit be established within ASIC to deal with the particular needs of NFP companies? Should simple steps such as a plain language guide for NFP companies and/or reduced fees be implemented? Is it time for the States to refer their powers over incorporated associations to the Commonwealth and rationalise the regulation of NFP corporate bodies?

Three options for a new NFP regulator:
In terms of regulation of both associations and NFP companies, it is suggested that there are three main options that warrant consideration and debate:

1. retention of the existing dual regime but with uniform state and territory based incorporated associations legislation (along the lines of what has been achieved for co-operatives);
2. retention of the existing dual regime but with uniform state
and territory incorporated associations legislation and legislative amendments enabling ASIC to assume jurisdiction over incorporated associations (however, this is likely to have constitutional law limitations like those experienced by the Corporations Act regime); or
3. introduction of a single, Commonwealth statutory regime for all corporate bodies (that is, 'for-profit' and NFP companies and incorporated associations) by referrals of power from the States to the Commonwealth (along the lines of what has been achieved for company regulation). This would ensure national regulation by ASIC and the development/refinement of specialist form (or forms) of corporate entity for NFP organisations generally.