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Related Party Transactions and Conflicts of Interest

Corporations Act, Australian Accounting Standards and ACNC rules for Australian charities and Companies Limited by Guarantee — who counts as a related party, what must be disclosed, and how the ACNC expects conflicts to be managed.

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Once a not-for-profit incorporates — and especially once it registers as a charity or becomes a company limited by guarantee — related party transactions and conflicts of interest become a distinct compliance area, governed by three overlapping regimes: the Corporations Act 2001 (Cth), the Australian Accounting Standards (AASB), and the ACNC Governance Standards.

Key legislation at a glance

  • Corporations Act 2001 (Cth) — Chapter 2E regulates financial benefits given by a public company (including most companies limited by guarantee) to a related party.

  • Australian Charities and Not-for-profits Commission Act 2012 (Cth) (ACNC Act) and Regulation 2022 (Cth) — set out ACNC Governance Standard 5, which requires every registered charity’s Responsible People to manage conflicts of interest, regardless of legal structure.

  • Australian Accounting Standards Board (AASB) standards — AASB 124 Related Party Disclosures and AASB 1060 General Purpose Financial Statements – Simplified Disclosures require medium/large charities to disclose related party transactions in their financial reports.

This list is provided for orientation. Always check the current, in-force version of each Act/Regulation/Standard, as amendments occur regularly.

1

Corporations Act 2001 (Cth) — Chapter 2E

Chapter 2E regulates financial benefits given by a public company (which includes most companies limited by guarantee) to a related party, to prevent related parties being unfairly favoured at the company’s expense.

Who counts as a ‘related party’ (s 228)

  • Directors of the public company and their spouses, parents and children.

  • Entities the public company controls, or that control the public company (and, per s 228, entities that make up a controlling entity where that entity is not itself a body corporate).

  • Directors of an entity that controls the public company, and their close family.

  • Spouses, parents and children of any of the persons above.

  • Anyone who has been a related party of this kind in the previous six months, or who acts on the understanding that they may receive a related-party benefit.

Note: if the public company holds a s 150 licence permitting it to omit ‘Limited’ from its name (common for companies limited by guarantee, including many charities), a modified related party test can apply — this is a point worth checking with an adviser for the specific entity.

The core rule (ss 208-209)

Section 208 requires a public company (or an entity it controls) to obtain member approval before giving a financial benefit to a related party, in the manner set out in the Act. Section 209 sets out the consequences of breach — including that a related party who receives an unapproved benefit may need to repay it, and officers involved in the contravention can face civil penalty proceedings. The benefit must be given within 15 months of member approval being obtained.

What counts as ‘giving a financial benefit’ (s 229)

  • Giving or providing finance or property.

  • Buying or selling an asset.

  • Leasing an asset.

  • Supplying or receiving services.

  • Issuing securities or granting an option.

  • Taking up or releasing an obligation.

The concept is deliberately broad — it covers indirect benefits and benefits given through an interposed entity, not just direct cash payments.

Exceptions to member approval (ss 210-216)

  • Arm’s length terms — the transaction is on terms a reasonable person would expect if dealing at arm’s length (s 210).

  • Reasonable remuneration — payment or reimbursement to an officer or employee for their role (s 211).

  • Indemnities, insurance premiums and legal costs for officers, within limits (s 212).

  • Small-scale or de minimis benefits, and benefits given to related parties in their capacity as members, on the same terms as other members (ss 213-216).

The ACNC Governance Standards

1. Board considers whether the transaction is a related party transaction and whether an exception applies.

2. If not, the board prepares a notice of meeting and explanatory statement and lodges the material with ASIC.

3. Members vote to approve the financial benefit; the related party and their associates cannot vote.

4. The benefit must be given within 15 months of approval.

Chapter 2E does not apply to proprietary (Pty Ltd) companies or incorporated associations, but directors of those entities still owe common-law and statutory duties to act in good faith, avoid conflicts between duty and personal interest, and not profit at the organisation’s expense. Directors must also disclose a material personal interest in a matter being considered by the board and, in most cases, are not permitted to vote on it.

Source

Corporations Act 2001 (Cth) ss 207-216, 228, 229 (Chapter 2E)

2

Australian Accounting Standards Board (AASB)

Separately from the Corporations Act, medium and large charities preparing financial reports must comply with the accounting standard governing related party disclosure.

AASB 124 Related Party Disclosures

Defines a related party for financial reporting purposes as, broadly:

  • A person (or a close family member) who has control or joint control over the charity.

  • A member of the charity’s key management personnel (people with authority and responsibility for planning, directing and controlling its activities), or their close family.

  • An entity that controls, is controlled by, or is under common control with the charity (e.g. a parent or subsidiary, or fellow subsidiaries in the same group).

  • An associate (an entity over which the charity has significant influence) or a joint venturer.

AASB 124 (or the simplified-disclosure equivalent, AASB 1060, for Tier 2 entities) requires disclosure in the financial report of: the nature of relationships with related parties; the amount of related party transactions; outstanding balances and their terms (including whether secured); details of guarantees given or received; and provisions for, and expenses relating to, doubtful debts owed by related parties.

AASB 1054 Australian Additional Disclosures

Also relevant to not-for-profit reporting more broadly, requiring disclosure of matters such as the reporting entity’s basis of preparation, alongside the specific related party requirements in AASB 124/1060.

Source

AASB 124 Related Party Disclosures; AASB 1060 General Purpose Financial Statements — Simplified Disclosures, paragraphs 189-203 and Appendix A; AASB 1054 Australian Additional Disclosures

3

ACNC Governance Standard 5

Administered by the ACNC (not ASIC), Governance Standard 5 requires a charity to take reasonable steps to ensure its Responsible People:

  • Act honestly and fairly in the best interests of the charity and for its charitable purposes.

  • Do not misuse their position or information gained through it.

  • Disclose any actual or perceived conflict of interest.

  • Ensure the charity’s financial affairs are managed responsibly.

Related party transactions do not need Corporations Act member approval if the charity is not a public company — but Governance Standard 5 still applies to every registered charity regardless of structure. The ACNC’s stated position is that it is best practice to disclose related party transactions in a charity’s financial reports even where not strictly required, and from the 2023 Annual Information Statement onward, disclosure of material related party transactions became mandatory for all charities except Basic Religious Charities.

Source

ACNC — Related party transactions; Australian Charities and Not-for-profits Commission Act 2012 (Cth) s 45-10; Australian Charities and Not-for-profits Commission Regulation 2022 (Cth)

4

What counts as a related party transaction — examples

Per the ACNC, a related party transaction is any transfer of resources, services or obligations between the charity and a related party — it doesn’t have to involve money changing hands. Examples the ACNC gives include:

  • Purchases, sales or donations between the charity and a related party.

  • Receiving goods, services or property from a related party.

  • Leases (e.g. renting office space from a board member).

  • Transferring property, including intellectual property.

  • Loans and guarantees.

  • Providing employees or volunteers to or from a related party.

  • A Responsible Person providing professional services (accounting, legal) at a discount or for free.

Illustrative case studies (ACNC)

Generally NOT material (and so usually don’t need separate disclosure): reasonable out-of-pocket expense reimbursements; a small thank-you gift to board members; donations received from related parties; volunteer work on the same terms as other volunteers; or a related party buying goods on the same public terms as anyone else.

Source

ACNC — Related party transactions

5

What counts as a conflict of interest — examples

The ACNC divides conflicts of interest into three categories:

Actual

You are, right now, being influenced by a competing interest (e.g. voting on a grant to an organisation your own child attends).

Potential

A competing interest could arise depending on how a situation unfolds (e.g. you sit on the boards of two charities that might apply for the same grant).

Perceived

A reasonable outside observer would think you might be influenced, even if you are not (e.g. approving a contract with a company a family member merely used to work for).

Common real-world examples

  • A director awarding a contract (catering, construction, web design, IT, professional services) to their own business or a family member’s business.

  • A board member’s relative being hired, promoted or given a pay rise by the charity.

  • A director sitting on the boards of two organisations that compete for the same funding, clients or beneficiaries.

  • A responsible person using confidential charity information (e.g. donor lists, grant strategy) for personal or another organisation’s benefit.

  • A board member renting property to, or leasing property from, the charity.

  • Gifts, hospitality or personal favours from a supplier or grant applicant to a decision-maker within the charity.

  • A staff member’s outside volunteering or board role with another charity that shares members, beneficiaries, or competes for the same grants.

Source

ACNC — Small Charities Library: Managing conflicts of interest; ACNC — Managing conflicts of interest; ACNC — Conflicts of interest and related party transactions (webinar); ACNC — Conflict of interest policy template

6

How the ACNC says these should be managed

1. Maintain a register of interests — every Responsible Person’s actual, potential and perceived interests are recorded and kept up to date.

2. Maintain a separate register of related party transactions, with enough detail on the party and the transaction to support required disclosures.

3. Adopt a written conflict of interest policy and procedure — clarifying who must disclose, when, and who is excluded from related decisions.

4. Disclose early — a Responsible Person identifies their conflict and notifies the rest of the board as soon as they become aware of it.

5. Exclude the conflicted person from the decision — they should generally not take part in discussion or voting on the matter.

6. Test fair value — for example, obtain multiple quotes before awarding work to a related party, to evidence the price reflects market/arm’s-length terms.

7. Record the outcome — the conflict, how it was handled, and (if it proceeds) the related party transaction itself, are all minuted and entered in the relevant register.

The ACNC notes that failing to manage conflicts and related party transactions properly is a live enforcement focus — it has formally investigated charities over related party disclosures in financial reports, and poor management of Governance Standard 5 duties can lead to regulatory action, reputational damage, or in serious cases loss of charity registration (and the tax concessions that come with it).

Source

ACNC — Related party transactions; ACNC — Conflict of interest policy template; ACNC — Small Charities Library: Managing conflicts of interest

General information: for general questions about charity registration or ACNC requirements, you can contact the ACNC directly on 13 22 62.

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Sources

ACNC (acnc.gov.au)

  • Related party transactions

  • Managing conflicts of interest

  • Small Charities Library — Managing conflicts of interest

  • Conflict of interest policy template

  • Conflicts of interest and related party transactions (webinar)

  • New rules to reinforce transparency of related party transactions

Legislation and standards

  • Corporations Act 2001 (Cth) — Chapter 2E (ss 207-230)

  • Australian Charities and Not-for-profits Commission Act 2012 (Cth) — s 45-10

  • Australian Charities and Not-for-profits Commission Regulation 2022 (Cth) — Governance Standard 5

  • AASB 124 Related Party Disclosures

  • AASB 1060 General Purpose Financial Statements — Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities (paragraphs 189-203, Appendix A)

  • AASB 1054 Australian Additional Disclosures

Legislation current at legislation.gov.au and austlii.edu.au. This document is general information for orientation purposes.

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