Duties & governance in the Not‐for‐Profit sector

Duties & governance in the Not‐for‐Profit sector

Directors’ duties & governance in the Not‐for‐Profit sector

Board members of a not-for-profit organisation are subject to the same statutory and common law duties as
directors of other companies. Of course, discharging those duties as a not-for-profit company director will be
very different to the way that is done when running companies that embark on highly speculative ventures or
could be exposed to much higher liability (e.g. a mining company in Africa). Nevertheless, threshold duties,
such as acting honestly, exercising care and diligence that a reasonable person would in the director’s position,
and acting in good faith and for a proper purpose, cannot be understated in any corporate context.
Following the introduction of the Australian Charities and Not-for-profits Commission (ACNC), some may be
forgiven for thinking all not-for-profit organisations fall outside the clutches of the Corporations Act. This is not
the case. The principal function of the ACNC is to register and regulate charities. From 1 July 2013, some
Corporations Act obligations will not apply to charities. However, for other not-for-profit organisations registered
as companies under the Corporations Act, many obligations will remain, including directors’ duties.

Corporate governance principles

Both Government and organisations like the Australian Institute of Company Directors (AICD) have endeavoured
to assist board members of not-for-profit companies to establish good corporate governance principles.
Minimum governance standards proposed by the Federal Government in December 2012 will apply to charities
only and cover things like accountability to members, compliance with the law and responsible management of
financial affairs.
The AICD has been mindful of the fact that other not-for-profit organisations must still meet a set of minimum
governance standards which are different to those applying to charities. The AICD’s suggested standards cover
the following areas:
• Roles and responsibilities
• Board effectiveness
• Board composition
• Integrity and accountability
• Purpose and strategy
• Organisation building
• Risk and mitigation
• Culture and ethics
• Organisation performance
• Stakeholder engagement.
With charities and other not-for-profit organisations now playing an influential part in the broader economy,
adherence to sound corporate governance principles can only be a good thing

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