Not-for-profit Law
Legal help for community organisations

Governance and legal duties of office holders

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The governance of a not-for-profit is undertaken by the board or committee (these terms can be used interchangeably). The governance of an organisation is different to the everyday work of the organisation. Boards and committees make strategic decisions and management and staff or volunteers action the governance decisions (for more information see the page Who runs the organisation?).

Decisions made by board and committees can include setting strategic directions, hiring staff, whether to take disciplinary action against a member, which contractors or service providers to engage, and what activities to undertake.

Good governance means complying with the law and legal duties and carrying out the governance role in the best interests of the not-for-profit. There are considerations beyond strict legal duties when thinking about good governance, such as - how meetings are held, who is on your board and what skills they have, how new committee members are inducted, how frequently the board meets, how board papers are prepared and distributed and more.  There are many online tools and resources available to groups to help them improve their governance. These are set out at the bottom of this page. 

New to a board or committee? An introduction to your role

The Not-for-profit Law fact sheet on the role of board or committee of management members has been prepared to help new board members understand their roles, so they can contribute effectively to the successful running of their organisation from day one. 

The fact sheet covers:

  • role of a board or committee of management member
  • legal obligations of board or committee of management members
  • personal liability of board or committee of management members, and
  • what board or committee of management members should know about their organisation

Inducting new board members

The following fact sheet provides general information about the process for inducting people to the governing body of a community organisation. It covers what should happen before an appointment is made to the board, why a board induction is important, who is responsible and what should be covered in a board induction. 

Legal duties of boards, committees and office holders

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. Because committees have significant 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.

The Not-for-Profit Law Duties Guide covers the key legal duties of the people who hold a position on the governing body of an Australian not-for-profit community organisation, including incorporated associations, companies limited by guarantee, cooperatives and Indigenous corporations. 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.

It is a plain-language guide which includes case studies based on common situations that arise in the not-for-profit sector, as well as tips to help committee and board members comply with their legal obligations. The Guide can be downloaded by clicking on the link below. It specifically includes information regarding:

  • the duty to act in good faith and for a proper purpose
  • the duty to act with reasonable care, skill and diligence
  • the duty to not misuse information or position
  • the duty to disclose and manage conflicts of interest, and
  • consequences of breaches of duties

Charities: If your group is a registered charity, the ACNC's Governance Standards apply in addition to other sources of duties. You can find more information on the Governance Standards on the ACNC website. The ACNC has also produced Governance for Good, a guide for charity board members. 

If your group is unincorporated, some legal duties may still apply to the leaders of the group, depending on the group's particular circumstances.

For more about how to run a community group, including incorporated associations and Companies Limited by Guarantee, see our Toolkits page.

Payment of committee or board members

A common question asked by not-for-profit organisations is whether they can or should pay their committee or board members. There are important matters that an organisation will need to consider before deciding whether or not to pay a committee or board member. Our fact sheet below covers these issues, including steps to follow if an organisation does decide to pay its committee or board members.

Protections for board members of not-for-profit community organisations

Board members are accountable (individually and collectively) for their actions and the decisions they make on behalf of the organisation and there are certain consequences when a board member fails to comply with their legal duties or legal responsibilities.

Not-for-profit Law's fact sheet (below) covers off on the legal protections for a board member if they breach a duty or responsibility even though they took all reasonable steps to comply with their duties and responsibilities, as well as the practical steps that board members can take to protect themselves.

Insolvency and legal duties 

Some duties relate specifically to the financial management of an organisation. If you are concerned that your group is facing insolvency, it is important to act immediately.

Not-for-profit Law's fact sheet (below) on insolvency provides useful information for incorporated associations and companies limited by guarantee that are facing financial difficulties or are concerned about becoming insolvent. It covers the following topics:

  • what does it mean to be insolvent?
  • your duty to prevent insolvency
  • possible consequences of breaching your duties
  • how to protect against insolvency 
  • key warning signs of insolvency
  • what to do if you think you are insolvent or nearing insolvency, and 
  • finding insolvency experts

Financial management and reserves

Reserves play an important role in the financial stability and long-term sustainability of a not-for-profit organisation. Managing reserves is an important aspect of the overall financial management of an organisation – a crucial element of good charity governance.

Not-for-profit Law has collaborated with the Australian Charities and Not-for-profits Commission (ACNC) to develop a fact sheet, 'Charity reserves: financial stability and sustainability', available on the ACNC's website.

The fact sheet covers:

  • what reserves are and where they come from
  • why it is important to have reserves
  • appropriate levels of reserves, and
  • who has responsibility for reserves

While this resource is directed at charities, it is relevant to all not-for-profit organisations. 

Make an enquiry

Our lawyers are experts in governance and not-for-profits. Your organisation may be eligible for our free legal advice service. To find out, please complete the online enquiry form below. Using the online form is the quickest and easiest way for us to deal with your enquiry and means that we can respond to you sooner (usually within 48 business hours) and let you know how we might be able to assist. Find out more information about eligibility on our Legal Advice page

Additional resources

  • Australian Institute of Company Directors - Good Governance Principles and Guidance for Not-for-Profit Organisations
    This publication outlines ten principles that promote good governance, and helps directors and boards consider the governance needs of their organisations.
  • ACNC - Managing conflicts of interest guide
    This guide contains information on conflicts on interest, explaining what they are and how they can be managed. The guide also contains a template conflict of interest policy and register of interests.
  • Get Mutual – Governance for Co-operatives and Mutuals
Last Updated: 11 June 2021

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