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1 Thank you for joining the webinar. The webinar will start shortly. You will not need a microphone 1

2 PO Box Melbourne VIC Tel Fax justiceconnect.org.au/nfplaw Kate Fazio (NFP Law), Mizu Ardra (Allens), Adam Cusick (NAB) 14 April 2015

3 Website Phone (Melbourne) (Sydney) Justice Connect may provide the following assistance to community groups: legal information factsheets on common legal issues legal training for community groups limited legal advice or legal information over the phone free legal service from a law firm (limited service) Check our eligibility criteria here 3

4 What we will cover today: Funding approaches the spectrum Legal status and structures the impact on funding options Hybrid structuring to maximise available options Overview of traditional funding approaches Overview of new or emerging funding approaches and players 4

5 Presentation key Resource on NFP Law Information Hub Definition or explanation of a concept Symbol indicates an example 5

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7 Philanthropic & Gov t donations Venture Philanthropy Impact Investment Financial First General Investments Donations grants Focussed on purpose of recipient New outcomes focussed philanthropy greater focus on outcome than purpose Seed Capital Focussed on purpose Aim to create sustainable delivery Used to fund start-up social enterprise Bonds, Equities, Debt, Hybrids, Deposits Focussed on impact, but with consideration of return Bonds, Equities, Deposits Focused on financial return, but with consideration of impact Bonds, Equities, Deposits Focussed only on return (or very substantially) 7

8 Potential funding sources Funding options available are contingent on whether organisation is for-profit or not-for-profit 8

9 Not-for-profit organisations For-profit organisations Use of profits Winding up rules Profits are only used to further the aims of the organisation, no distributions Assets must be given to a similar organisation (must be written into governing document) Profits can be divided or distributed to members, investors or shareholders Money is distributed to creditors, members, investors or shareholders Tax status Funding options Tax concessions available (exemptions and rebates) Donations, grants, philanthropic funding, debt, membership fees Company taxes apply to company profits, GST applies etc Mostly equity (investors) and debt (loans), occasionally some grants 9

10 Access depends on following: NFP legal structure (some exceptions) purposes and activities of org rules or constitution charity status (determined by ACNC) ATO determines DGR and Tax Concession Charities Common Tax Concessions Income tax exemptions GST concessions Fringe benefits rebate or exemption Deductible gift recipient status (DGR) Other state-based tax concessions (eg stamp duty exemption) Visit our Information Hub and read our tax resources Also check out the ATO s Gift Pack online publication 10

11 Structure Ownership For profit or Not-forprofit? Sole Trader Self For profit No Separate legal entity? Simple Incorporated Association Proprietary Company, limited by shares Public Company, limited by guarantee Members Not-for-profit Yes Shareholders For-profit Yes Members Not-for-profit Yes Co-operative Members For-profit or Not-for-profit Yes Complex 11

12 Hybrid legal structures Hybrid structures are a way for NFPs to set up an enterprise that can return profits to the NFP, but also attract funding options available only to for-profit organisations Not-for-profit entity (can be charity but does not have to be) Outside Investors (eg for-profit impact investor) Distributes profits Owns shares Distributes profits Owns shares A new for-profit private company operates enterprise and can distribute profits to investors Trading enterprise 12

13 Overview of legal structures on the Information Hub Incorporated association vs CLG? Social Enterprise Guide 13

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15 Traditional funding approaches Donations Grants Debt Equity Other & all (blended) Grant Funding 15

16 Advantages No repayment obligation Low complexity May be used for a wide range of charitable purposes Disadvantages Provide a very small proportion of the total funding need May involve organising time consuming fundraising events Fundraising licence required Fundraising and Events 16

17 Advantages No repayment obligation One-off or ongoing Readily available for some target areas Disadvantages Sources/timing/availability uncertain Use is limited to a highly prescribed set of activities Most project-focussed Eligibility: some foundations (eg PAFs and PuAFs) can only make donations to DGR 1 orgs Grant Funding 17

18 Advantages No loss of control/dilution of ownership (compared to equity investment) Generally flexibility in use of loan money Interest payments linked to risk of loan Disadvantages Can be difficult for NFPs to forecast income into mid-long term future Track record typically required Regulation of financial institutions Security often required creates risk of loss of that asset Repayments regular/structured and often immediate Cultural change required for NFPs 18

19 Advantages Flexibility not conditional on delivering particular projects Patient returns can be delivered over long period Sharing of risk ( but also reward) Disadvantages Managing investor expectations / a seat at the table In impact space, tension between profit maximisation and impact maximisation issue for directors Some organisations are not able/prepared to take on equity (eg. restricted by legal structure remember hybrid option) 19

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21 New approaches and players Types of funding: Crowd Funding Venture Philanthropy Impact investment ( blended value ) Peer-to-Peer Lending Payment for Outcome/SIB New players: Ethical investment funds Foundations looking to invest corpus with impact Government Individuals wishing to do more than donate 21

22 SIB Newpin Bond 22

23 Today we have covered Funding approaches the spectrum Legal status and structures the impact on funding options Hybrid structuring to maximise available options Overview of traditional funding approaches Overview or new or emerging funding approaches and players Visit the NFP Law Information Hub for more resources 23

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26 Justice Connect NFP Law Setting up and running a NFP 26

27 Justice Connect (Melbourne office) (Sydney office) Check our eligibility criteria here Regulators Australian Tax Office (ATO) Australian Charities & Not-for-profits Commission (ACNC) Australian Securities & Investment Commission (ASIC) Consumer Affairs Victoria (CAV) Fair Trading NSW 27

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