An angel investor is an individual (usually high net worth) who provides financial backing for small start-ups or entrepreneurs, typically in exchange for ownership equity in the company. They are high risk investments, but essential to getting new inventions to market.

The Federal Court had previously decided in Commissioner of Taxation v Triton Foundation [2005] FCA 1319 (Triton) that a non-profit organisation established for“the promotion of a culture of innovation and entrepreneurship in Australia, particularly among the young, by visibly assisting innovators to commercialise their ideas” was charitable. George Lewin, the inventor of the Triton workbench, discovered on the ABC’s New Inventors program, had generously funded the organisation. Triton provided advice to inventors on marketing, intellectual property, business planning, etc, by telephone, facsimile, e-mail or in person without any fee.

That legal authority has now been distinguished in a recent Administrative Appeals Tribunal case.

Angel Loop Ltd (Angel Loop) is a public company limited by guarantee that applied for charity status with the Australian Charities and Not-for-profits Commission (ACNC).

The Constitution of Angel Loop set its objects as:

Angel Loop is a facilitator encouraging knowledge transfer, sharing, promotion of a code of conduct, and delivering education within the broader community to ensure long-term sustainability of Angel Investors. All Angel Loop activities foster knowledge transfer between Angel Investors, entrepreneurs and the broader community.

By a series of branches of like-minded people, Angel Loop facilitated the introduction of inventors and investors to each other to encourage mentorship and investment. Angel Loop did not charge fees and did not have any interest in any investments made.

Angel Loop spent 50% of its time on presentations at roadshows which were Angel group meetings as well as educational sessions with entrepreneurs and investors; 25% of its time on training/screening/mentoring sessions including individual discussions with entrepreneurs and coaching for presenters helping them to present their pitch, as well in screening business ideas; 5% of its time connecting with national Angel groups; 20% of its time probably associated with planning and booking Angel roadshows and working out the logistics of who would be pitching where.

Angel Loop, which was self-represented, contended that its facilitation of private investment through the roadshows, screening, coaching, and combination of groups was simply part of its objective of promoting a culture of innovation and entrepreneurship and should be considered as similar to the organisation which was accepted as charitable in Triton.

The ACNC argued that the facilitation of inventors receiving funding were benefits that were not just a by-product of Angel Loop’s activities, but that they are at the centre of the whole enterprise. The ACNC claimed that the result of the activities of Angel Loop was to confer a benefit on both the investors that chose to take up particular investment opportunities and the owners of the business ventures that were the beneficiaries of those investments. This was properly characterised as an independent and substantial purpose of Angel Loop.

The Tribunal distinguished Triton by noting that (at [25]):

The facts in the present case are somewhat different from those in Triton. In Triton all of the help was given to the inventor. In the present case help is not only given to the inventor; [Angel Loop] brings the inventor and the investor together, screens the proposals, and assists the Angel group or groups to put together the necessary finance to fund the proposal in the hope of obtaining a huge commercial benefit for both inventor and investor.

The Tribunal upheld the ACNC decision to refuse registration of Angel Loop as a charity.

Angel Loop Ltd v Commissioner of Australian Charities and Not-for-profits Commission [2021] AATA

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