Social enterprises, the ACNC register and protecting commercially sensitive information

Income tax exemption and other tax concessions can be attractive to many social enterprises.  They could be the difference between the success and failure of a venture.

However, they usually come with strings attached.  One common “string” is an obligation to register with the Australian Charities and Not-for-profits Commission (“ACNC”), and with that comes an obligation to lodge Annual Information Statements and Financial Reports (depending on the size of the organisation).  These documents then become freely available to the public on the ACNC register. 

For some social enterprises, this creates a dilemma.  It may mean that competitors will have access to commercially sensitive information.

There are a few strategies that social enterprises can adopt to deal with this issue.  Here are two examples:

1. Apply to withhold information from the ACNC register

The ACNC may withhold information from the ACNC register if it is commercially sensitive, and if it has the potential to cause detriment to an organisation.  This is provided for in the legislation establishing the ACNC.

However, it depends on the Commissioner exercising discretion, and there are a number of things that the ACNC will take into account.  These are set out in a Commissioner’s Interpretation Statement on Commercially Sensitive Information (CIS 2016/01). They include:

• Whether the information is used in the business
• The extent to which the information is known outside the business
• How wide-spread the information is known within the business
• The measures taken by the business to guard the secrecy of the information
• The value of the information to the business and its competitors
• The effort and money spent by the business in developing the information
• Whether the information remains current, or whether it is out of date
• The ease or difficulty with which others might acquire or duplicate the information

The starting presumption of the ACNC is that it is in the public’s interest to disclose information and not withhold it – so the onus falls on the business to show why it should be withheld.

We can help you with an application for withholding information from the ACNC register if you have concerns about this issue.

2. Establish a hybrid structure

Some social enterprises operate using a group structure that comprises both for-profit and not-for-profit structures.  This is known as a hybrid structure.

This is one way to utilise taxation concessions, as well as keep some information private.  Profits can be generated in a for-profit entity (where the information is private), and then distributed to the Not for Profit entity (where there are tax concessions, and information is published).

There are several factors that you need to consider before adopting a hybrid structure, such as putting in place mechanisms to ensure that everything is “above board” and that there is not improper use of Not for Profit or charitable assets for private benefit or business purposes.  However, it can provide a means to protect information and utilise valuable taxation concessions.

If you would like assistance with establishing a hybrid structure, or evaluating whether it is appropriate for your organisation, please contact us to discuss.  We would be pleased to assist.

Elizabeth Shalders