Myth busting: when charities can run businesses
Published 24 February 2021
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2 minutes to read]
When we’re out and about, we often hear myths about what charities can and can't do.
Our Myth busting series is a regular feature where we address some misconceptions and bust some myths about the obligations of charities.
This month, we’re looking at when charities can run businesses.
Myth – Charities can’t run a business. They have to make all their money through donations.
Charities can run a business, but the profits must be used to advance their charitable purpose. The business doesn’t have to be connected to their overall purpose, as long as it’s funding their charitable mahi.
For example, many charities run opportunity shops. Although they aren’t connected to the mission of the charity running them, they advance that mission by raising funds for it.
This is a great way for charities to create ongoing funding opportunities, but it doesn’t work for all charities. We encourage you to look into what sort of fundraising activities suit you best(external link).
The key thing to remember is that charitable businesses can’t pay their profits to shareholders or owners. They also have to show their focus is their charitable purpose, and not the business activity.
Myth – Charities can’t pay people, or they can only pay low wages.
Charities are free to pay market rates to staff or contractors. This includes officers and people running businesses on behalf of the charity. But you can’t set up a charity just to create a job for someone. Your charity must only act to carry out its charitable purpose.
You do need to be careful if you’re considering paying an officer for something they’ve done for your charity. This will often create a conflict of interest that needs to be managed. We have guidance about managing conflicts of interest on our website(external link).
Got questions? Please get in touch!(external link) We want to bust more myths, and make it easy to be a charity in Aotearoa.