The 'governance' of an organisation refers to the direction, control and accountability of an organisation.
Particular legal obligations apply to the governance of organisations. Governance is undertaken by the committee or board of the organisation.
Good governance practices are crucial to an organisation's ability to function, to achieve its objectives and to comply with all of the legal, ethical and operational requirements of a community organisation.
Governance can be distinguished from 'management' in an organisation. Generally, the role and responsibility of an organisation's board or committee is to govern the organisation, and the role and responsibility of the management or executive team is to manage the organisation.
Some community organisations that may not have paid employees, or few members, can struggle to distinguish between the governance roles and management roles in an organisation. This distinction is very important.
The Not-for-Profit Law Guide
The Not-for-Profit Law Guide to legal duties covers the key legal duties of the people who hold a position on the governing body of a not-for-profit community organisation. It also covers the duties that apply to office holders, who may not hold an 'official' position, but based on their influence need to comply with the legal duties as well. The guide can be downloaded by clicking on the link above. It specifically includes information regarding:
- the duty to act in good faith and for a proper purpose
- the duty to act with reasonable care, diligence and skill
- the duty to not misuse information or position
- the duty to disclose and manage conflicts of interest, and
- consequences of breaches of duties.
A legal duty is an action that you are required by law to take.
Do people involved in not-for-profit organisations have legal duties?
Yes! There is a mistaken view that people who volunteer their time in not-for-profit community organisations do not have to comply with any legal duties. This is wrong. The legal duties outlined in the Not-For-Profit Law guide apply to all people who sit in a governance position in all not-for-profit organisations.
It does not matter how small or informal your organisation is, how many members it has, or how many days or years of experience you have as a Committee member. The legal duties apply to all Committee members regardless of your organisation’s purpose or size.
Most not-for-profit organisations don’t come across any legal problems and the legal duties are easy to meet. Nonetheless, it is important to remember that the duties are ‘legal’ requirements. This means you must comply with the duties and if you do not you could be legally responsible and penalties can apply.
Are there legal duties that committee members have to comply with?
The four main legal duties are:
- the duty to act in good faith in the best interests of the organisation and for a proper purpose
- the duty to act with reasonable care and skill (including the duty to prevent insolvent trading)
- the duty not to improperly use information or position, and
- the duty to disclose and manage conflicts of interest.
Boards and committees
As office bearers for a not-for-profit, members of the board or committee of management have regulatory and legal responsibilities.
Governance Capability Framework
The Governance Capability Framework (pdf, 1.40MB) can assist not-for-profit organisations understand the knowledge and skills that are critical for the stewardship of an organisation, including the additional capabilities needed for the Office Bearer roles of Chair, Secretary and Treasurer. Additional resources include:
What is a committee, board, management committee etc.?
Managing an incorporated association is the responsibility of an elected committee (pdf, 140KB). Sometimes other names are used for this governing body, such as the “board”, “council”, or “management committee”.
Role of the committee and committee members
The committee (sometimes referred to as the ‘management committee’ or ‘board’) looks after the association’s affairs and has legal duties under the Associations Incorporation Reform Act 2012 (the Act).
Committee members are appointed according to your association’s rules. Depending on the rules, their duties may include:
- maintaining the association’s financial viability
- ensuring the association's purposes are being achieved
- keeping up to date with legal requirements
- signing contracts on the association’s behalf.
Specifically, committee members’ functions under the Act include:
- ensuring an annual general meeting is held within five months after the end of the association’s financial year
- submitting a financial statement that covers the full financial year, which gives a ‘true and fair’ view of the association’s financial affairs, to members at the annual general meeting
- overseeing the association’s financial affairs. This includes making sure the association does not continue to operate if it is insolvent
- appointing a new secretary within 14 days, if the position becomes vacant
- returning all documents that belong to the association within 28 days of ceasing to be a committee member.
Positions in an incorporated association
Commonly, there are a number of special positions (pdf, 140KB) on a committee. The people who take on positions on the committee are sometimes called “officers” or “office bearers” or “the executive” of the association. The titles of positions within a committee will vary between associations, however some common positions and their traditional roles are explained briefly below:
- the chairperson (or president) runs meetings and usually represents the organisation at public events
- the deputy chairperson (or vice-president) takes on the role of the chairperson when that person is not available
- the treasurer (or financial officer) deals with the financial affairs of the organisation, though note, the financial affairs of the association is the responsibility of all committee members, and
- the secretary reports to CAV, organises meetings, deals with documents and maintains records of the association. The position of secretary is an important one within any incorporated association in Victoria, and secretaries have special legal responsibilities.
The committee may have other members who are not office bearers. These are sometimes called “ordinary committee members”. These members must also meet the duties that apply to members of the committee.
Your leadership team (board, committee of management or directors) also has responsibilities for the organisation's finances. While a board member might not be involved in day-to-day transactions or maintaining the accounts, they are responsible in the eyes of the law. This means that the leadership team has an obligation to understand the organisation's finances. Read more about this at Managing your finances - Financial reporting and auditing.
The holders of formal position in a not-for-profit organisation have special . The law recognises that committee members (or directors) as well as some office holders in not-for-profit groups make important decisions about the strategic direction and activities of a group.
Decisions made by committees can include hiring staff, whether or not to take disciplinary action against a member, which contractors or service-providers to engage, and what activities to undertake. Because committees have this power, the law requires them to comply with legal duties like acting in good faith and in the best interests of the organisation.
Where the standards set by legal duties are not met, penalties can apply (but this is very rare). Sometimes conflicts arise between the personal interests of a committee member, and the interests of the group. The law also provides a framework on how to deal with this situation.
Further legal responsibilities are outlined in the Australian Charities and Not for Profit Commission’s Governance Standards Guidance (pdf, 556KB) book.
Incorporated association rules
The rules or constitution of a not-for-profit are a roadmap for running the organisation. It is also a legal requirement that an organisation and its members follow the rules.
Every incorporated association must have rules.
- are a written document
- guide how your association operates
- are a contract between the association and its members
- set out your association's purposes
- list the rights and responsibilities of members and office holders.
Members should know the rules. They have the right to inspect the rules and obtain a copy on request.
Model rules vs own rules
An association may use the model rules, or create its own rules. Either way, unless an existing association decides not to change its own rules, the rules must address every item listed in Schedule 1 of the Associations Incorporation Reform Act 2012 (the Act).
Using the model rules can save an association the time and expense of drafting its own rules. There are three items than can be specified to suit an association’s particular circumstances:
- the association's name
- its purposes and
- its financial year.
If an association changes any other items in the model rules, then the association has made its own rules.
Your association may develop its own rules to suit its particular circumstances.
Statement of Purpose
Since November 2012, an association's statement of purposes is no longer a separate statement, but is automatically included as part of its rules. Associations with their own rules are not required to make changes to adapt to the new laws, but if an association does change its rules, it must include its statement of purposes in the proposed new rules.
Meetings and constitutional obligations
Incorporated not-for-profit organisations all have a defined process for meetings and other regulatory obligations. There are a number of different types of meetings not-for-profits hold including:
Organisations must conduct meetings in accordance with legal requirements that apply to the type of meetings being held, and also follow requirements set out in organisations rules (but note that if requirements in rules are inconsistent with the law, the legal requirements apply).
The main legal considerations for holding meetings include:
- whether there are strict requirements to hold meetings or special rights to call a meeting
- providing proper notice (time periods, content of notice and required recipients)
- meeting quorums (minimum number of people present to make a meeting valid)
- how and when to adjourn meetings
- voting rights (and proxy rights)
- meeting resolutions, and
- keeping and storing meeting minutes.
In addition to complying with the legal requirements for running a meeting, there are also a number of 'best practice' procedures that can be followed to ensure meetings are run efficiently, and in a way that assists the organisation to achieve its objects.
Keeping and accessing documents, records and registers
Documents, records and registers (pdf, 340MB) are key assets of an incorporated association. They should be kept up-to-date and stored securely by the management committee and other officers of the organisation. Both members and Consumer Affairs Victoria (CAV) have rights to access an organisation’s documents and records in certain circumstances.
Documents that are submitted to CAV or are intended for the public must contain certain details about the incorporated association.
An association must keep and maintain a register of members.
- The Secretary’s Satchel (pdf, 3.20MB). A comprehensive Guide to the Secretary's role in running an incorporated association. It includes tool kits, samples and precedents, and examples.
Not-for-Profit Compliance Support Centre: