NFP powers and duties – inseparable

Non-profit directors’ ‘powers and duties’ are comparable to the ‘rights and responsibilities’ we all hold as citizens. The two concepts are therefore aspects of one orientation or disposition, and just as rights should not be isolated from responsibilities, power should always be considered as only one side of the coin called ‘power and duties’ (as suggested in the header image above).

Non-profit directors have legal authority to exercise certain powers on behalf of the organisation they serve. This definition of power is about the ‘power to‘ take action, and is similar to the notion of personal agency. It is markedly different therefore to the concept of ‘power over‘ anyone or anything. ‘Power with‘ and ‘power within‘ are also useful concepts when considering organisational culture. (Later posts will discuss various types of power and reflect on their use and abuse in non-profit organisations.)

Induction and training programs should inform new directors that their powers are both complemented and constrained by their duties and the law (see previous posts linked below). This might include reminding them that power must be used responsibly – otherwise directors will be ‘held responsible‘ (i.e. liable). While the law and your constitution grant you certain powers as a director, they also limit those powers and impose certain obligations.

Whether operating as an incorporated association or a company limited by guaraantee, governing laws define the powers of non-profit boards in terms of their legal authority to act on behalf of the organisation.

Powers of an incorporated association

In Victoria, the ‘Legal capacity and powers of incorporated association’ are chiefly defined in Section 29 and Section 30 of the Associations Incorporation Reform Act 2012. Very similar provisions appear in each of the state laws governing incorporated associations.

While the legislation empowers the board to “do anything that is incidental or conducive to the attainment of the purposes and the exercise of the powers of the association“, the Model Rules emphasise that “the Association may only exercise its powers and use its income and assets (including any surplus) for its purposes“. Section 33 of the Act also provides that an incorporated association must not secure pecuniary profit for its members.

Powers of a company limited by guarantee

The ‘Legal capacity and powers of a company’ are defined in S. 124 of the Corporations Act 2001. Director powers are also addressed in sections 181 and 198A as follows:

S. 181 A director or other officer of a corporation must exercise their power and discharge their duties (a) in good faith in the best interests of the corporation; and (b) for a proper purpose.

S. 198A The business of the company is to be managed by or under the direction of the directors. The directors may exercise all the powers of the company except any powers that this Act or the company’s constitution (if any) requires the company to exercise in a general meeting. For example, the directors may issue shares, borrow money and issue debentures.

Know your limits

Section 140(1) of the Corporations Law states that a company’s constitution constitutes the terms of a contract between the members and the company and between each of the members. To avoid breaching that contract, it is important for directors to understand the limits on their powers, and to honour their duties.

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