A governing instrument is a formal document which sets up a charity and contains information about:
- what the charity is set up to do (objectives)
- how the charity will do those things (powers)
- that the funds of the charity cannot be distributed to members of the charity (a non-distribution of profits provision)
- who will run the charity (the management)
- what happens if changes to the administrative provisions need to be made (amendment provision)
- what happens if the charity wishes to wind up (dissolution provision)?
It should also contain the following administrative provisions:
- how management will run the charity
- internal arrangements for membership, meetings, voting, looking after money, etc.
A governing instrument is extremely important. It’s not just something that an organisation must have when it applies for an authority to fundraise under the Act. It’s essentially the ‘instruction manual’ for the charity, as well as a legal document. Members of the management should refer to it regularly to remind themselves what the charity’s purposes are and how it should be run.
Go to the starting a charity page for more information about organisations or visit the Australian Charities and Not-for-profits Commission website.
Types of governing instruments
There are four main types of governing instruments:
- constitution or rules as an incorporated association
- trust deed
- constitution or rules as an unincorporated association
- the constitution (previously known as the memorandum and articles of association) of as a company limited by guarantee.
Your governing instrument
If you governing instrument is drafted wrong, it can cause problems in the future. Unless you are following the model, it is essential that you make sure that your constitution fits what you want it to do. It is also a requirement that a fundraising appeal is to be conducted in accordance with the organisations charitable purpose. If not clearly defined and aligned, this can affect your application for an authority. We recommend getting some help in preparing your documents.
Governing instrument components
We’ve put together some of the major components of a governing instrument to make sure you’re on the right track.
This defines what the organisation is in existence to do and should include its charitable purposes. When drafting the objectives, avoid defining them narrowly so if the organisation evolves or circumstances change, the proposed activities are still within the original objectives. It’s also important to avoid the temptation to draw up your objectives clause as a statement of social commitment to a particular cause or object. For example, it’s better to have an objective that is more focused like providing accommodation facilities for homeless youth rather than just focus on youths.
The constitution should clearly define the powers. A power is a discretion that needs not be exercised. But is best to provide the members of the governing body or directors with sufficient room for action. Subject to the wording of these powers, the members of the governing body or directors can make internal rules or guidelines for the day-to-day management of the charity not suitable for inclusion in the constitution. These may specify standing orders for meetings, or rules about the use of property. It is also worthwhile considering whether the constitution should include the ability for the governing body or directors to delegate the exercise of their powers to others.
The governing body or the directors run the organisation. The scope of their authority should be clearly defined.
Most organisations have members. You should define what the rights and obligations of the members are, and how new members can be made and existing ones removed. For the purposes of the Act, all organisations must have at least three members on the governing body of the organisation. You can have more and preferably an odd number.
Altering the constitution
It’s a good idea to give the power for the constitution to be changed. This provides against unforeseen future circumstances. However, it is important to consider the conditions which must be satisfied in the process. This will avoid problems and conflict.
It’s important to define the way elections should be handled.
It’s important to define investment powers.
The arrangements for banking and use of funds of the organisation need to be outlined.. For example, who can operate the bank account (signatories do not have to be on the governing body).
Put together a process for how the organisation can be wound up.
Dispute and complaint resolution
Put together a process for how to resolve internal disputes within the membership and to properly and effectively deal with complaints made by members of the public and employees.