Australia's not-for-profit sector is growing, with a whole new area of opportunity opening for lawyers with third sector expertise, Briana Everett reports.

"It's hard to keep up with the breadth of issues on a pro bono basis and I think a lot of them were finding that their needs had outgrown the capacity of the pro bono work that they were getting from pro bono lawyers" John Baxter, partner, Mills Oakley Lawyers

"They were living in ignorance and no one had actually picked up on the fact that they were not complying a lot of the time. It's only when you tell them what their obligations are [that they] say 'we definitely need to get some legal advice'" Vera Visevic, partner, Mills Oakley Lawyers

"In my [pro bono] experience... about 95 per cent of people who ask for help don't get it, which leaves a lot of organisations out there running around trying to do it themselves" Darren Fittler, lawyer, Gilbert+Tobin

Australia's not-for-profit (NFP) sector is made up of roughly 600,000 organisations, delivering services in areas well beyond the charitable including education, sport, art, religion and culture.

Growing at a rate of nearly 8 per cent each year between 1999 and 2007, the sector's "economically significant" organisations contributed just under $43 billion to Australia's GDP and accounted for around 8 per cent of employment in 2006-07, proving its viability and value as a market for legal services.

Aside from providing an area of growing opportunity for lawyers with NFP expertise, it also allows lawyers the chance to contribute to the community while still being a part of the commercial world.

Beyond pro bono

As NFP organisations become more sophisticated and complex, the demand for a greater level of legal expertise has gone beyond that of most firms' pro bono capabilities.

While many firms utilise their existing capabilities to address taxation issues affecting NFP organisations, there are still only a handful of firms that have developed stand-alone practice groups focusing solely on the third sector. But now, specialist NFP practice groups are slowly emerging within the Australian legal profession as the increased demand for fee-based legal services is recognised.

Lawyers working in the area have noticed an increased willingness of NFP organisations to devote a portion of their funds to legal fees and become less reliant on pro bono services.

According to Gilbert + Tobin lawyer Darren Fittler, who recently launched his firm's third sector advisory group, government and philanthropic organisations have begun to acknowledge that one of the avenues to a more successful project is to have high quality legal advice and this will require a certain level of expenditure.

"Apart from an increasing awareness or willingness by government and philanthropic givers to provide at least some dedicated money for legals, organisations themselves are starting to come to the realisation that they can't always depend on pro bono services," Fittler says, pointing out that many NFPs, such as universities, would fail to meet the criteria of law firms for the provision of pro bono advice.

"In my [pro bono] experience…about 95 per cent of people who ask for help don't get it, which leaves a lot of organisations out there running around trying to do it themselves."

Mills Oakley partner John Baxter, who this year launched the firm's new NFP practice with partner Vera Visevic, agrees, and says as the world of charities has become more complex, so has the law.

"It's hard to keep up with the breadth of issues on a pro bono basis and I think a lot of them were finding that their needs had outgrown the capacity of the pro bono work that they were getting from pro bono lawyers," she says.

But while NFPs are becoming more sophisticated, Fittler points out that many of them still run solely on passion. "You've got volunteer boards or volunteer management committees who may not really get it in terms of a legal compliance perspective or even a business perspective," he says.

As a result, a significant part of the work in this area, according to Fittler, simply involves bringing the important issues to the attention of those involved. "There might not even be a legal issue there at all but because they're being forced to think about it and come up with some ideas and thoughts about it - sometimes that's all you need to do."

Likewise, Visevic says many of the NFP organisations are unaware of their legal obligations and duties.

"I had to spend the first 12 months [of practising in this area] educating NFPs about the various legal obligations they had," she says. "They were living in ignorance and no one had actually picked up on the fact that they were not complying a lot of the time. It's only when you tell them what their obligations are [that they] say 'we definitely need to get some legal advice'."

Visevic says she noticed the increased demand for NFP legal expertise about three years ago when she took charge of charities at her previous firm. "I realised we had all this expertise. So many charities and NFPs out there were not able to find lawyers who knew about the particular issues they were facing," she says.

"Charities and NFPs get so excited when they find a lawyer that actually knows the issues - and also the answers - because many of them have really got the run around."

And while a significant part of the work provided by lawyers working in this space involves the application of general commercial expertise - in areas such as trademarks and intellectual property law - a substantial part of the work that NFP lawyers do is very specific and relates to issues only NFPs face.

"It's a growing sector and it's got very special needs," says Visevic. "We really think this is the thin end of the wedge and we'll be able to grow quite rapidly because of the size of the market."

Time for reform

The legislation regulating charities and NFP organisations is incredibly complex and lacks consistency and clarity, making it a costly burden for organisations that must comply with the multiple reporting requirements and taxation and fundraising obligations. NFP organisations continue to struggle to navigate the regulatory maze that differs from state to state, necessitating the need to retain a lawyer with specific NFP expertise.

"It's something of a mess and there have been a number of inquiries and commissions trying to make some sense out of it all and trying to make it easier for the NFPs to comply," says Visevic. "But so far there [hasn't been] much progress at all really."

While there has been plenty of talk about reform, Visevic admits it's hard to know where to start. "It's such a huge overhaul of all our different laws. Some of them are state-based and some are federal. And obviously, the state government doesn't necessarily want to hand over its powers to the Commonwealth," she explains.

In February this year, the Productivity Commission announced the need for wide-ranging reforms, including the introduction of a national registrar for NFPs, to remove the unnecessary burdens and costs faced by the sector.

"The idea of a charities commission, a lot like the UK and New Zealand, would bring under one umbrella what at the moment is about 28 or more pieces of law that separately manages the NFP and charitable sectors," Fittler says.

Also amongst the Commission's recommendations is the proposal to reduce reporting burdens associated with companies limited by guarantee, the introduction of a separate chapter in the Corporations Act to deal with NFP companies; a new definition of 'charities'; and the progressive extension of deductible gift recipient status to all charitable institutions.

"There are many exemptions and concessions out there but each authority has its own interpretation of what is a charity," Visevic says of the difficulties faced by NFPs attempting to comply with their various obligations.

"At the moment, every state and territory has its different application process, different rules about how you're supposed to conduct yourself when charitable fundraising," says Fittler. "So it becomes very difficult to comply with them and make sure [licences] don't expire. [The Commission] thinks that should be uniform and I agree."

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