What to be or not to be - Incorporated Societies and Charitable Trusts

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Published 20 December 2019

[ 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:

  1. whether you want to incorporate your group, and
  2. 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 15 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. This is not a hard and fast rule because some membership organisations can set up as trusts, but, generally, an incorporated charitable trust is used when a few trustees have a great idea and want to put it into action, without a group of members.

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 1908**

MINIMUM NUMBER OF PEOPLE

One or more trustees (note: we recommend at least three so that there is less change of conflict of interest) A minimum of 15 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.

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).

* 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 1908 is currently under review. We will keep you updated through our all of our different communications channels.

 

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