By Natasha Egan
Not-for-profit organisations need to identify new sources of income to survive into the new financial paradigm and that might mean changing to a for-profit legal structure, says a legal expert.
It is an option that retirement home developer Masonic Homes is already actively considering in its quest to raise capital.
As charities need to reduce their reliance on government funding coupled with a review of tax concessions, which could result in a loss of tax endorsements, the option warrants discussion, said Joanne O’Brien, partner, Carne Reidy Herd Lawyers.
“Organisations need to start thinking about more creative ways to identify sources of funding to achieve their purposes,” she said.
“If they want particularly large scale fundraising, they might need to change their legal structure to do that.”
Commercial viability hasn’t always been as high a priority for not-for-profits (NFP) as it is now, Ms O’Brien said.
“All of the indicators are that to be successful in delivering on your social objectives, you must be commercially viable,” she said.
“While you shouldn’t get into something that doesn’t fit into your philosophy, the focus should be on being a viable business.”
In the case of Masonic Homes, CEO Doug Strain (pictured) said they were actively considering the move to a for-profit entity, possibly a company limited by shares.
“We expect in May or June to make a decision to do it or not to do it,” he said.
Rather than a change in business model, Mr Strain said it was a change in tax assessment.
The discussion is part of the organisation’s 10-year strategy that takes into account where the sector is headed.
“The reality is that government can not afford to maintain support of the aged demographic as it has done in the past. And the community has to come to the realisation that there has been a fundamental shift in the wealth of our nation,” he said.
Masonic Homes is now focusing on retirement homes for people aged 75 and over who are looking at alternatives to nursing homes, following selling its care business to ECH Group last year.
The developer would like to expand its current two-state operations further around the country but Mr Strain said raising capital was a big problem because of its not-for-profit status.
The possible change of structure has been drawing positive feedback from members.
“People are understanding of it. People are saying it makes sense. Whether we’re for-profit or not-for-profit, it’s just a tax assessment,” Mr Strain said.
“It’s a back of house issue and people really care about our front of house,” he said.
Ms O’Brien said that Masonic Homes entertaining the move was the first case she had heard of in Australia.
“It’s an interesting development when you consider that most not-for-profits need to find alternative sources of income and/or capital,” she said.
“More and more organisations will look to broaden their horizons in terms of social enterprise, and this kind of thinking may become more prevalent.”