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What to be or not to be - Incorporated Societies and Charitable Trusts
What to be or not to be - Incorporated Societies and Charitable Trusts
Updated 13 May 2024
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5 minutes to read]
If you’re thinking about starting a charity you will need to turn your mind to what kind of structure your organisation will have. It pays to think about this carefully as it will affect a number of aspects of your charity. Is this an easy or straightforward decision? The short answer is no!
The Community Toolkit(external link), developed by Community Law, provides a range of legal information and resources for community groups. There is also a Charities Services webinar(external link) that provides information on the different types of structures a charity can have. This blog provides a summary of their information on choosing the right structure for your group.
There are many different types of structures that charities and other not-for-profit groups in New Zealand can choose to be. You could decide to form an unincorporated or an incorporated group. You could also choose to form a society, a trust or a company. To keep things simple, we’re going to call all of these different structures “groups”.
In this blog, we focus on:
- whether you want to incorporate your group, and
- what legal structure you want your group to take.
You’ll also need to decide whether you want to register as a charity with Charities Services. This is a separate decision. Charities Services and Te Rātā Atawhai, the independent Charities Registration Board, do not make decisions on your legal structure.
Although we’re not discussing whether to register as a charity in this blog, you can learn about the benefits and obligations of being registered as a charity with Charities Services here(external link).
To incorporate, or not
If you want to incorporate your charitable trust board, society or company you can do that through the Companies Office(external link), who are part of the Ministry for Business, Innovation and Employment (MBIE).
The main advantage of being incorporated is that your trust board, society or company has separate legal status. This means that it is not the trustees, members or directors who personally enter into any obligations for the group (e.g. signing a contract) but rather the incorporated group itself.
Incorporation does not impact on the charitable tax status of the group, but some funders require groups to be incorporated.
If you want to incorporate and register your group as a charity, the process goes like this:
STEP 1 |
Decide what kind of group you want to be: Trust, society or company |
STEP 2 |
Apply to the Companies Office |
STEP 3 |
Apply to be a registered charity with Charities Services |
Incorporated society or incorporated charitable trust board
The fundamental difference between an incorporated society and an incorporated charitable trust board is that a society has democratic processes.
Incorporated societies are often used for community membership groups like ethnic and religious groups, residents’ associations, parent-teacher associations, or sports clubs. In an incorporated society everyone gets the chance to vote and have their say about leadership and the direction of the society. An incorporated society needs to have at least 10 members, all of whom must consent to being members, so this type of entity won’t suit everyone.
An incorporated charitable trust board holds funds for a specific charitable purpose and is usually established when there isn’t a membership base. Generally, an incorporated charitable trust is used when a few trustees have a great idea and want to put it into action.
There are many things to consider, and compare, when making the decision to become an incorporated society or an incorporated charitable trust board:
THINGS TO CONSIDER |
CHARITABLE TRUST |
INCORPORATED SOCIETY |
LEGISLATION |
- Charitable Trusts Act 1957 - Trusts Act 2019* |
Incorporated Societies Act 2022** |
MINIMUM NUMBER OF PEOPLE |
One or more trustees (note: we recommend at least three so that there is less chance of a conflict of interest) | A minimum of 10 members |
DECISION MAKING |
By trustees, in accordance with the trust deed | By members/committee in accordance with the constitution |
MEMBERS |
No members, the trustees operate the trust for the charitable purpose | Membership is determined by the constitution |
LIABILITY OF MEMBERS OR TRUSTEES |
No liability unless the trustee does not comply with the trust deed or the Trusts Act 2019* | Limited liability unless members run the society to make profit for themselves (this is not charitable) |
ACCOUNTABILITY |
Trustees are accountable to the public, through the Attorney General, and must comply with the trust deed and the Trusts Act 2019* | The committee is accountable to the members |
MEETINGS |
Trustees should meet to make decisions in accordance with their trust deed | The members/committee must hold an annual general meeting once a year |
PROFITS |
Used to run the charitable trust to achieve its purpose; profits can be accumulated | Used to run the society to achieve its charitable purpose; profits cannot be distributed to members |
WINDING UP |
The trust can wind up according to the trust deed, but any money or assets must be left to charitable purposes | The society can wind up but must distribute any money or assets left in accordance with its rules and the Incorporated Societies Act 1908** |
ADVANTAGES |
- Control is in the hands of a few trustees rather than a wider membership - Trustees usually remain the same so there is some stability around succession |
- An easy to manage structure for democratic membership based organisations - There is opportunity for diversity and new voices on the committee each year |
DISADVANTAGES |
- Sometimes the same trustees can remain involved over several years which may have a negative effect on the charity - There should be a consensus in decision making between trustees; trustees disagreeing can result in challenges |
- It can be hard to govern a charity that has changing officers as people need to be trained on running the society each year - The democratic structure means that groups can seize control from established leaders |
Incorporation of trusts, societies and companies are all done with the Companies Office, but are governed by different Acts.
- If want to incorporate a trust under the Charitable Trusts Act, visit the Charitable Trusts Register.(external link)
- If you want to incorporate a society under the Incorporated Societies Act, visit the Incorporated Societies Register.(external link)
- If you want to incorporate a company under the Companies Act, please visit the Companies Register(external link) for more information.
For more information we recommend checking out the information on the Community Toolkit(external link).
Once you have decided what group structure you will use and you have registered with the Companies Office(external link), you can apply for registration as a registered charity with Charities Services(external link).
If you are a registered charity and you want to change your legal structure you will need to tell us, please visit the Update charity details(external link) page for more information.
* The Trusts Act 2019 replaces the Trustees Act 1956 and Perpetuities Act 1964 and came into force on 21 January 2020.
**The Incorporated Societies Act 2022 replaces the Incorporated Societies Act 1908, and came into force from 5 October 2023.
