Not-for-profit associations are associations that are formed to pursue some purpose other than to seek financial gain for the organisation’s individual members. Such associations may elect to incorporate as a company limited by guarantee under the Corporations Act 2001 (Cth). As not-for-profit entities are predominantly funded by public donation it is fundamental for their activities to exemplify transparency. Furthermore, their administrative burden needs to be limited so the association can focus its resources on pursuing the organisation’s activities.
In order to assess the effectiveness of current legislative schemes underpinning reporting arrangements of not-for-profit companies ...view middle of the document...
During the financial year the company cannot be a deductible gift recipient. Revenue must be under $250,000 for the financial year or if the company is required to be included in the financial statements then the combined revenue must be less than $250,000.
Small companies limited by guarantee are not obligated to prepare an annual financial report, a directors’ report nor do auditor’s reports need to be acquired. Moreover, none of these reports need to be sent to members without specific request. However, a small company limited by guarantee must prepare an annual financial report and a directors' report if members with at least 5% of the votes, or ASIC, gives the company a direction to comply with these requirements.
A company limited by guarantee will fall into the second tier if the company generates less than $1 million of annual (or consolidated) revenue, or if the company has an annual revenue of less than $250,000, but it is exempt from the first tier due to its endorsement as a deductible gift recipient.
Companies within the second tier are obligated to prepare annual financial reports and directors’ reports.
Furthermore, only ‘Commonwealth companies’ (for the purposes of the Commonwealth Authorities and Companies Act 1997) within the second tier are obligated to have their annual financial report audited. A financial report review is conducted when a second tier company nominates not to have their financial report audited.
There is no requirement for the company to provide financial reports, directors’ reports or auditor’s reports to members unless the documents are specifically requested.
Companies limited by guarantee are within the third tier if their annual (or consolidated) revenue is $1 million or more.
Third tier companies must prepare an annual financial report and a directors’ report (meeting the same requirements as second tier companies), which must be audited. Annual financial reports or directors’ and auditor’s reports do not need to be available to members unless a member makes a specific request.
Directors’ Reports Requirements
The requirements of the directors’ report for a company limited by guarantee are less stringent than those requested of other companies. Under Corporations Act 2001 (Cth) s 300B, the annual directors’ report for a company limited by guarantee must specify the following information about the company:
• short and long term objectives;
• strategy for achieving those objectives;
• principal activities during the year;
• the relevance of the activities to the objectives; and
• measures of performance and performance indicators.
Additionally, under Corporations Act 2001 (Cth) s 300B(3) the directors’ report must indicate:
• names and length of office of any directors of the company during the year;
• each director's qualifications, experience and special responsibilities;
• frequency of meetings of the board of directors and the...