Please review this page and the linked documents and submit any questions, issues or concerns to governance[AT]efa.org.au.
One or more conference calls will be scheduled to allow for an open discussion with current Board members about this project. Details of these calls will be posted here and circulated to the Members mailing list.
This consultation period is initially scheduled to last until the end of June 2017, but may be extended, if required. Responses to any frequently asked questions will be posted here.
EFA was founded in Adelaide in 1994 as a South Australian Incorporated Association. This corporate structure is no longer appropriate for an organisation with a national focus. As such, a project has been initiated to reincorporate the organisation as a nationally registered Company Limited by Guarantee.
The Limited Company structure is quite common for nationally-focused non-profit organisations in Australia. Some examples are the .au Domain Administration, Oxfam Australia, the Law Council of Australia and GetUp.
This project also includes applying for Deductible Gift Recipient status and other tax concessions, and registering with the Australian Charities and Not-for-Profits Commission. These tax concessions will significantly enhance EFA's fund-raising capacity and will help to ensure the organisation's long-term financial sustainability. Although obtaining these tax concessions does not require the Limited Company structure, there would still need to be some changes to the organisation's constitution. The Board has therefore decided to complete the transition to the Limited Company structure before applying for these tax concessions, simply to avoid having to make two sets of changes to the organisation's constitution.
Impact of changing structure
The governance and reporting requirements for a Limited Company are higher than those for a South Australian Incorporated Association, however these requirements are not particularly onerous and are at least partly contingent on annual revenue, rather than organisational structure. The Board is comfortable that the organisation is well-placed to meet these additional requirements.
In order to reincorporate as a Limited Company, a new constitution is required that is compliant with the Corporations Act 2001. We have received pro bono assistance from Maddocks Lawyers to draft a new constitution, which you can view below.
You can also view the existing Rules of Incorporation here
Discussion of changes
There are essentially four different sets of potential changes, though they are not completely separate. These are:
- changes that are intrinsic to the change from one form of legal structure to another
- changes that are not strictly required, but reflect changed expectations in corporate governance
- changes that are due to our intention to seek registration as a charity and gain Deductible Gift Recipient status; and,
- updates to EFA's role and mission that reflect changes over the two decades since EFA was founded.
Purpose and goals
The primary purpose of the organisation in the draft constitution has changed from promoting ‘civil liberties’ to promoting ‘human rights’. There are a number of reasons for this change. The human rights objective provides a broader remit to campaign for improvements rather than simply preserve existing rights. It also covers a very broad range of issues that are potentially within EFA's mission, while still definitely containing primary focus issues such as free expression, and the right to privacy.
An explicit goal of maintaining a library of publications has also been added as this is the mechanism through which we intend to seek DGR status. In practice, EFA has always provided this service, so this new goal simply acknowledges and formalises that reality. This goal will require some changes to operational processes, such as ensuring that any money raised under Deductible Gift Recipient status is kept separate to funds relating to advocacy work, as well as the need for an expert Advisory Committee to oversee the library function.
The next three purposes (educating the Australian community, supporting, encouraging and advising on the development and use of technology, and researching and advising on the application of the law) are unchanged. These purposes continues to use civil liberties rather than human rights to describe the organisation's goals.
A new purpose relating to international human rights treaties has also been added because these are recognised by Australian law. It gives us a broad remit to raise issues relating to any of the human rights described by those treaties as they relate to digital rights.
The last purpose clause makes EFA's advocacy role EFA explicit. It expands on the corresponding clause in the Rules of Incorporation by clarifying that our advocacy role includes policy development even when that policy may not lead to the direct amendment of any laws.
While the clauses are very different, there should be relatively limited change to the powers of the organisation. While the Rules of Incorporation seeks to define all the powers of the Board, the new constitution simply says that the Board has all the powers of a corporation, except the issuing of shares. In practice, all the powers listed in the existing Rules of Incorporation are still available, such as opening bank accounts, investing money, appointing agents to act on its behalf, and so on.
The membership clause changes are notable, but just what this change will mean isn’t obvious from reading the Draft Constitution. The Rules of Incorporation has three classes of membership, though currently only one class is in use. The membership of EFA is currently entirely made up of ‘natural persons’, that is to say individual human beings, but the Rules of Incorporation allows for organisations to join, and then their members become Affiliate members. The EFA board has not been accepting organisational members for some time, and we have none (and thus have no Affiliate members either). Part of the reason why is a small number of organisational members would have, under the Rules of Incorporation, a disproportionate level of control.
The Draft Constitution is deliberately much less explicit. It mentions only members, with no distinction into classes. It allows for the board to set different categories within the single class of membership, with differing fees. It is therefore anticipated that the Board will set appropriate membership fees for organisational members. It should be noted however that each member, regardless of whether they are an individual or an organisation, will have a single vote.
Both the Rules of Incorporation and the Draft Constitution allow for the board to expel a member. The conditions under which it may do so will change slightly. It will become more difficult for the Board to vote to expel a member — there is a high voting threshold to do so (75%). Under the Rules of Incorporation, the member had an automatic right to appeal to the membership via a Special General Meeting, and this right will no longer be available in the Draft Constitution - rather, expulsion of a member will occur immediately on being informed that they have been expelled. Both sets of rules require that a member who is subject to a vote for expulsion be given the opportunity to present their case, thus satisfying that requirement of the principles of natural justice.
It should be noted that expulsion from the organisation has been very rarely used, possibly only once and certainly not within the last decade.
The Draft Constitution sets a minimum of 3 Directors, and a maximum of 11, though the Board may vote to increase this number, and may co-opt additional Directors.
Directors who are elected are appointed for a term of 3 years, and must face re-election after that point. Directors who are co-opted by the Board to fill a casual vacancy must always face re-election. The Draft Constitution also adds optional term limits. A Director can normally only be elected three times, for a total period of 9 years. But the Directors can allow them to seek a fourth or later term by unanimous agreement.
In theory, therefore Board renewal is likely to be slightly slower under the Draft Constitution as currently written. Generally, re-election takes place over a three year cycle rather than two. In practice, it was not uncommon for members to serve only one year of a two year term, it may well remain true that elected directors often choose not to serve the full three year term.
The ‘term limit’ clause does limit long term Board membership, so this will probably serve as a valuable lever to force Board renewal. It should not significantly limit the institutional memory however — members who have served three terms as Director are still able to serve other roles within the organisation. And of course some Directors can go on past the term limit if there is unanimous agreement (for example, this is likely to happen if we have a long term Managing Director who we wish to retain, or if the board needs someone qualified to fill a special role such as Secretary).
The Rules of Incorporation require a Chair, Vice-Chair, Secretary and Treasurer. The Draft Constitution says that the Board may nominate a Chair (who has a number of specified powers) and must nominate at least one Secretary (it can nominate more) and may nominate a number of Managing Directors. It does not specify a Treasurer (generally, some of the duties of the Treasurer become the duties of the Secretary), or a Vice-Chair.
Both the Rules of Incorporation and the Draft Constitution specify that the Chair does NOT have a casting vote, only their normal vote - a vote that is tied is held to have been lost.
The Rules of Incorporation specify some rules of procedure in how to deal with polls and rulings of the chair, and a few other points -(21.8-10). The Draft Constitution does not specify such things in detail, and quite explicitly gives the Chair a fair bit of power over the conduct of General Meetings (11.3.1-2), and notably makes decisions of the Chair final (11.2.3).
Quorum for Board meetings changes from 4 Board members, including one Office-Holder to simply 4 Directors.
Note: under the Draft Constitution, if there are fewer than 4 directors, the meeting has very limited powers outside of an emergency - but one of them is to increase the number of Directors.
The Gift Fund is required for EFA to obtain Deductible Gift Recipient status, ie so donors will be able to claim a tax deduction. The primary practical effect of this is that the organisation will need to operate two units - the Public Library, which will be able to attract tax-deductible donations, and the advocacy part of the organisation, which will not.
The organisation's existing CRM (CiviCRM) and accounting software (Xero) are both easily able to handle this functional separation, although new bank and merchant accounts will need to be established.
The Gift Fund will require a separate committee of management, with the majority of committee members being ‘responsible to the general community’ in the eyes of the Commissioner of Taxation. The constitution sets the minimum on the committee at 3, which suggests that 5 might be a useful minimum in practice. This committee would be separate to the Board, and appointed by it. There is no reason a member of the EFA board can’t also be a member of the Gift Fund Management Board, as long as the majority of responsible persons rule is always in operation. It is anticipated that this committee's duties will be fairly light, primarily relating to policy-setting and oversight, rather than managing day to day operations and expenditure.
Questions and Answers
The following questions have been submitted by members with answers supplied by the Governance Team. Any future questions received (and answers) will also be published here.
Q. What is a Company Limited by Guarantee?
A public company limited by guarantee is a company structure for non-profits where upon winding up, the liability of each member is limited. The amount of this limited liability is set at no more than $1 in clause 6.2 of the new Constitution.
Q. Why are both past and present members liable if EFA winds up?
This provision is required in the Constitution because past and present members are liable under s515 of the Corporations Act. The Corporations Act says that the liability survives for one year after a person ceases to be a member (s521). If EFA is wound up, present members must contribute first (s522) but under s517 no person will have to pay more than they undertaken to contribute. We have set this undertaking to the nominal amount of $1 in clause 6.2 of the Constitution. This amount is a maximum contribution and the actual contribution may end up being less than $1.
Q. What will happen to EFA’s current assets?
All of EFA’s current assets will be transferred to the new entity. This will require the Board and Executive Officer to contact relevant organisations (e.g. banks) and change the details they have on file. For more information on the process, visit NFP Law. The board will also transfer other intangible assets such as domain names and intellectual property rights, with an aim to make no significant changes but to transfer all assets to the new entity.
Q. If the new EFA is technically a new company, what will happen to my membership? What if I am a life member?
Because being a member of a company limited by guarantee involves additional liability (even though it’s only $1) we are on the safest legal ground by asking you to agree to be a member of the new entity. We will try to make this process as seamless as possible so that all you will have to do is login to your member account online and indicate your agreement.
Should you agree to transferring your membership there will be no change to your membership expiration date, nor will you be charged any additional membership fees. If you are a life member, your membership will not expire, and you will become a life member of the new entity.
Q. What are the privacy implications for members? Will I need to provide additional information or identification? Will other people be able to access my details?
There are some privacy implications for members. Under s169 of the Corporations Act, EFA will have to maintain a register of members including your name, address and date that your membership began. Former members’ names and details must be retained for 7 years after they cease to be a member. The current rules require us to record name, email address, and address, but do not require that we retain records of ex-members.
Like other charities that are companies limited by guarantee, there will be no requirement to provide identification. How you register or pay for your membership fees will not change.
The Corporations Act provides members with the right to inspect the register of members (s173). Members may have this right under the current constitution, but it is not automatic (see section 39D of the South Australian Incorporations Act). It also provides others with the right to inspect or request a copy of the company’s various registers. However, to receive a copy a non-member must state and pay a prescribed fee of $250 as prescribed in Schedule 4 of the Corporations Regulations 2001 (Cth). They also may not obtain a copy if it is for an improper purpose described by Regulation 2C.1.03 such as soliciting donations or selling financial products.
Q. Why does clause 12.1.1 require 3 Directors, but quorum is set at 4? Won’t this create problems if there are ever less than 4 Directors or if EFA is ever to wind up?
Clause 12.1.1 requires 3 Directors because that is the minimum required for public company under s201A of the Corporations Act 2001 (Cth). In practice however, EFA will be required to have 4 Directors in order for meetings to reach quorum. There is also a rescue provision in clause 12.10.3 which says that if there are not enough Directors to reach quorum the remaining Directors can act in (a) an emergency, (b) to increase the number of Directors so that a quorum can be reached, and (c) to call a general meeting.
If EFA were to ever wind up, hopefully the Board would act before it became too difficult to hold a quorate meeting. However, if EFA ceases operations for more than a year or has no members, s461 of the Corporations Act gives the Court the power to wind up the company upon application by creditors, contributories (i.e. anyone who is or was a member within the past year) or ASIC.
Responses to Survey Feedback
How will the funds and activities be split/separated between the ‘Public Library’ and the rest of the organisation?
Funds will be split between the two parts of the organisation depending on their source. This will require separate bank accounts and payment facilities (eg additional merchant and PayPal accounts). Our existing CRM and accounting systems are ready to manage this separation.
It is anticipated that the Deductible Gift Recipient (DGR) account will receive a modest income from certain specified sources that require DGR status, primarily corporate giving schemes (where employees choose to make regular donations through their payroll system) and grants from philanthropic trusts.
It is expected that the majority of DGR income will be in addition to current income, and will therefore result in both more resources being available for the organisation’s educational and research work and more resources being available for the organisation’s advocacy and campaigning activities.
The income received by the DGR account will be allocated to the following types of activities:
- Curating and updating of existing content such as legislation reviews, overviews of particular policy issue areas and research papers;
- New policy development;
- Research activities; and,
- Management overhead – it is expected that the DGR account will contribute a proportion (likely less than 50%) of the salary of the Executive Officer.
All other, non-DGR, income will therefore be available to support the advocacy activities of the organisation. This other income will include membership subscriptions and any donations generated through campaigning activities.
It is therefore anticipated that, with additional sources of income resulting from attaining DGR status, the organisation will be able to achieve long-term financial sustainability including at least two part-time staff. The overall capacity of the organisation therefore should increase significantly.
Will Deductible Gift Recipient status limit EFA’s ability to advocate?
We have been advised that attaining DGR status for a Gift Fund to support the Public Library function will not, in itself, impose any particular conditions relating to advocacy.
Registering the organisation as a charity with the Australian Charities and Not-for-Profits Commission will however result in certain limitations relating to advocacy, however these limitations are aligned with EFA's existing approach.
Specifically, the following activities would potentially threaten EFA's registration as a charity:
1. promoting or opposing a political party or candidate for political office.
This is entirely in line with EFA's existing approach to maintain a strictly non-partisan position. It would also not prevent our practice of publishing 'Election Guides' that rate parties and candidates on their policy positions.
2. engaging in, or promoting, activities that are unlawful or contrary to public policy.
This is qualified by a note in the Charities Act that says "Activities are not contrary to public policy merely because they are contrary to government policy".
The obvious example here would be last year's Census. In our communications on this issue we carefully avoided promoting the idea of boycotting the Census or providing false information, however we did provide advice on the potential consequences if people chose to do so. Such a position would be compliant with this limitation and is, as noted above, in line with EFA's existing approach.
The new Constitution refers to ‘human rights’ rather than ‘civil liberties’. Is EFA planning to become some generic social justice group or to change its focus from digital rights, privacy and censorship?
Since EFA was formed in 1994, the significance of civil liberties in the digital context (or ‘digital rights’) has changed, and the appropriate way to frame that conversation has also consequently changed. While in the mid-1990s, digital rights seemed of direct relevance only to a minority of technology early adopters, they are now of direct relevance to a majority of the world population and certainly of direct relevance to all Australians.
EFA is not alone in proposing to adopt a more ‘human-rights’ based approach to digital rights issues. Expert technological groups such as the Internet Research Task Force also now feel it is appropriate to approach digital rights issues as human rights issues (see https://irtf.org/hrpc for more on this).
To be clear, under the Draft Constitution, EFA will remain concerned only about human rights “in relation to digital rights” (4.1.5), or the law as applied to communications systems and related technologies (4.1.4).
Human rights that are largely unaffected by communications systems and associated technology or are not digital rights will remain outside of EFA’s remit.
Further, the references to ‘human rights’ rather than ‘civil liberties’ ensures that the purposes are within categories recognised by the Australian Charities and Not-for-profits Commission. Promoting ‘human rights’ is a charitable purpose as defined by law, but promoting ‘civil liberties’ is not. ‘Human rights’ are further defined by specific international conventions and covenants that include some human rights that are relevant to EFA and some that are not. This is why the new Constitution lists the International Covenant on Economic, Social and Cultural Rights and the International Covenant on Civil and Political Rights (4.1.5).
To be clear, it is not intended that EFA will campaign on each of the human rights enumerated in these covenants, and will continue to be focused on what are generally termed to be digital rights issues including privacy, encryption, censorship and equity of access.
This seems like an unnecessary distraction. Why is all this effort being spent to transfer to a Company Limited by Guarantee?
Choosing the right legal structure for the organisation might appear to be a distraction, but the Board is convinced that it will be worthwhile, even in the short-medium term. Although the reporting requirements for a Company Limited by Guarantee are slightly higher than for an Incorporated Association, this is offset by the fact that Companies Limited by Guarantee with charitable status are only required to report to one regulator – the Australian Charities and Not-for-Profits Commission (ACNC). Were EFA to remain as an Incorporated Association and seek charitable status, this would require reporting to both the ACNC and to South Australian Consumer and Business Services.
In addition, Companies Limited by Guarantee are generally perceived to be better organised and more professional, particularly from the perspective of the corporate and philanthropic sectors.
The Board therefore believes that becoming a Company Limited by Guarantee is the most appropriate legal and governance structure for EFA into the future.
Protecting member privacy
A number of members have expressed concern about access to the Members Register for third parties as is required under section 173 of the Corporations Act.
Members should be assured that the Board intends to do everything it can to appropriately protect member privacy.
It should however be noted that:
- maintaining a member register has always been a legal requirement for EFA.
- maintaining a members register that is accessible to other members is a vital safeguard for democratic governance of the organisations, allowing members to organise a special general meeting or otherwise organise among themselves if they are unhappy with the board or the organisation.
- The only real change that will result from the transition to a Company Limited by Guarantee is that non-members will have the potential ability to request access to the member register. The Board feels that the likelihood of any such request is quite remote and is taking legal advice on how members may be able to limit the information they provide, while still complying with the requirements of the Corporations Act.
- there are certain protections set out in the Corporations Act and associated Regulations which prohibit information from the member register being used for 'an improper purpose', which includes unsolicited marketing and investigating the personal wealth of a member.
Members should of course consider for themselves how to best protect their personal information. Using a PO Box rather than a home address is certainly recommended in this and many other contexts. Our legal advisers are available to provide advice to individual members in this regard.
What happens next?
In order for EFA to transfer to a Company Limited by Guarantee, a resolution will need to be approved by members at a General Meeting. As a ‘Special Resolution’, 75% of votes cast will be required for approval.
The Board is currently finalising a few minor details in consultation with our legal advisers and will then announce the date on which the General Meeting will be held. It is likely that these matters will be added to the agenda for the Annual General Meeting, which can be held no earlier than late September due to the notice periods involved.
On 8th June, the following message was received from Michael Baker.
Subject: New Constitution
Having read the Board's background paper on the New Constitution for EFA, and having been partly or wholly responsible for the initial suggestion that EFA be incorporated as an association in South Australia, I am happy to support the Board's proposals.
Please feel free to let others know of my support and recommendation that the New Constitution be adopted.
Michael Baker (founder and member of the first board of EFA).