Contractual – the constituent document
An organisation’s constituent document (that is, the constitution, rules, trust deed or charter) is in effect, a legal contract between the organisation and its members. It is also a contract between the organisation, its members and its governing body (that is, the board, management committee or trustees).
As the constituent document is a legal contract, it can be sued upon. Failure by a party (being the organisation, the members and the governing body) to comply with the terms of the constituent document can give rise to legal action.
The constituent document and the ACNC and ATO
For your organisation to be registered as a charity and subsequently endorsed by the ATO to access tax concessions or as a deductible gift recipient, then the constituent document must contain three clauses (appropriately worded):
the object clause;
the clause prohibiting the distribution of any profits to the individual members or governing body; and
the dissolution or winding up clause.
Once registered, the organisation must review its activities, objects and operations to ensure they are consistent with those clauses. Any inconsistency with those clauses may have the effect of the organisation’s charity registration or tax endorsements being revoked.