Introduction on collaboration arrangements
Many charities and not-for-profits explore opportunities to work with other organisations as they pursue their purpose(s). There are many reasons to enter into collaboration arrangements, including the desire to improve collective impact, increasing operational efficiency, leveraging resources and networks, and diversifying service offerings and reach. Collaborating with like-minded organisations and groups can be an excellent way to achieve certain goals, particularly where one party does not have the necessary resources or expertise by itself or where an issue may be better addressed or resolved by taking a multi-disciplinary approach.
There are many types of collaboration arrangements, including:
A partnership arrangement between two or more parties carrying on a business in common with a joint receipt of profit and liabilities.
An informal agreement of memoranda of understanding which establishes a framework for collaboration to create cooperation opportunities and/or share information, suited for smaller scale, periodic or short-term collaboration.
An alliance of two or more parties to create a unique organisational entity, in which each party retains its individual identity and internal control but share benefits and managerial control over the performance of assigned tasks.
A joint venture of two or more parties which agree to share resources for the purpose of completing a specific project or task, e.g., a special service delivery or advocacy.
A merger of two or more parties, either with one absorbed into the structure of another or where two or more organisations merge to create a brand new entity.
Head agency and auspicing agreements which involve one party taking responsibility for managing funds on behalf of another. Head agency agreements often involve a party having responsibility for delegating government funding to other parties, whereas auspicing often involves one party stepping in to receive funding on behalf of a smaller party.
This article dives deeper into au spicing to understand the legal and commercial benefits and risks of this particular collaboration arrangement.
What is auspicing?
Auspicing is where an organisation (the auspicor) agrees to enter into an arrangement to provide funding, support or sponsorship on behalf of a less established and sometimes unincorporated party (the auspicee). Auspicing is often used to meet the requirements of various funding bodies by working through a third party or recipient to receive funds, where a party does not have the legal structure or accounting and banking systems to receive funding directly.
While an auspicing arrangement may be conceptualised as similar to a sub-contracting arrangement, whereby one party enters into a funding agreement for a project and then sub-contracts their obligations for the project under the agreement to another party - In reality the project and deliverables are run by the auspicee who would then approach an auspicor to assist with the receipt of funding.
Common auspicing arrangements include:
one-off events such as art exhibitions, concerts, fairs or festivals by arts organisations;
pilot projects or program trials (e.g., youth-run projects);
incubating start-up groups;
local playgroups and study groups; and
sporting programs or competitions.
What are the benefits of auspicing?
When assessing the risks associated with entering into an auspicing arrangement, it is worth keeping in mind the benefits for both the auspicor and the auspicee.
From the perspective of the auspicor, entering into an auspicing arrangement will allow the organisation to support new projects, diversify activities and bring a fresh perspective and energy. It may also be a satisfying way to promote the objects and charitable purposes of the auspicor and support important work in the charity and social sector, while fostering relationships with both funders and less established groups.
For the auspicee, an auspicing arrangement can be a great opportunity to benefit from the auspicor’s legal status, relationships and operational and administrative support. Through access to the auspicor’s resources, the auspicee is able to obtain the benefit of additional expertise, experience and reputation in order to successfully obtain funding grants and deliver a project, which is particularly useful for pilot projects or one-off projects, where the group or individuals may not yet be ready, or may not even need, to incorporate. The auspicee may also be able to access certain legal and insurance protections from the auspicor, while expanding their eligibility to obtain certain funding grants.
What is an auspicing agreement?
In an auspicing arrangement there may be multiple legal documents outlining the obligations of the parties involved. There will typically be a funding agreement between the funder and the auspicor which details the use and reporting obligations associated with the funding. However, there should also be a legally binding contract between the auspicor and the auspicee (typically an auspicing agreement) setting out the legal obligations of each party toward each other and in relation to any specific funding conditions (including non-compliance with such conditions) or other agreements.
An auspicing agreement should generally detail how intellectual property brought to the project or created by are dealt with, how each party’s branding and logos will be used, and protections against reputational risks.
What are the considerations before entering into an auspicing arrangement?
Auspicing can introduce new reputational risks, additional personalities, and extra administrative burdens for an organisation. These commercial considerations should be weighed up against the benefits of an auspicing arrangement, by both the auspicor and auspicee. Both parties will need to have in place a solid auspicing agreement and appropriate insurance, risk management protocols and other guidelines (e.g., policies around releasing funds to the auspicee in tranches as the project progresses) to mitigate such risks.
There can also be significant or unforeseen organisational costs and resourcing requirements arising from auspicing arrangements, in terms of managing donations or funds, funder reporting, governance, administration and relationship management. Many auspicors charge a fee reflective of the support provided, resources and personnel involved, and administration required to receive and distribute funding.
Are there risks to our charity registration compliance?
Registered charities must satisfy and maintain compliance with certain requirements associated with the definition of charity, codified under the Australian Charities and Not-for-profits Commission Act 2012 (Cth) and Charities Act 2013 (Cth) , including being a not-for-profit, and all its purposes being charitable for the public benefit. Any non-charitable purposes must be incidental or ancillary to, and in aid of its charitable purpose(s).
To reduce risk of non-compliance, and in certain circumstances revocation of charity registration by the Australian Charities and Not-for-profits Commission (ACNC), both parties must be confident and comfortable any proposed auspicing arrangement and programs or projects which come out of the arrangement are in furtherance of its own charitable purpose and are for public benefit.
Are there risks to our deductible gift recipient endorsement?
Auspicing arrangements are often used in situations where a potential funding recipient cannot satisfy one or more requirements imposed by a funder, particularly where the applicant is required to be a registered charity and be endorsed as a deductible gift recipient (DGR).
If an auspicor is endorsed as a DGR it will need to be extra careful and vigilant the relationship with and activities of the auspicee, and the deliverables of the project, are consistent with its own DGR requirements and otherwise permissible. For example, environmental organisations and harm prevention charities are required as a condition of their own DGR endorsement, to have a policy of not acting as a mere conduit to pass through donations of money or property to other non-DGR entities in accordance with Australian Taxation Office (ATO) requirements.
How can we help?
If your organisation is considering entering into an auspicing agreement or learning more about how they could benefit from formalising a collaboration arrangement, please get in touch with our specialised Charities + Social Sector lawyers.