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Registered Charities

Rules and the Charities Act

Updated February 2012

Charities Services does not require you to have any specific wording in your rules, but we must be satisfied that your organisation meets certain criteria.

On this page:

What do we mean by ‘rules’?

To be considered for registration as a charitable organisation, you must send us a copy of your rules with your application form.

Your rules are the documents that set out your purposes, what you do and how you operate.  For example, they may be your trust deed, constitution or charter.  (If your organisation was specifically set up under an Act of Parliament, your rules may be that Act.)

If your charity isn’t an incorporated society, a registered charitable trust or a company (that is, if it isn’t a legal organisation commonly referred to as ‘registered with the Companies Office’), the rules you send us should be signed and dated by either the original officers or the current officers.

When you apply for registration under the Charities Act, we read your rules to identify whether you have a “charitable purpose”.

Charitable purpose as defined in section 5(1) of the Charities Act includes:

“. . . every charitable purpose, whether it relates to the relief of poverty, the advancement of education or religion, or any other matter beneficial to the community.”

Read our guidance on charitable purpose for more details.

While we don’t require any specific wording in your rules, we must be satisfied that your organisation:

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Name

Your rules should clearly display the formal (legal) name of the applicant organisation. Your name must not be misleading or offensive. For more, read our information sheet The name of your organisation

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Purpose clauses

Purpose clauses, often called “objects” clauses, state what an organisation aims to achieve.

You should clearly identify a list of purposes in your rules and the list should begin with the organisation’s main purposes.

All purposes must be lawful, and should show a clear charitable aim. They shouldn’t say things like “to fulfil social needs” because this is too vague, general and uncertain to clearly show a charitable aim.

You may wish to show how your purposes fit with the four categories of charitable purpose like this:

as appropriate.

Your organisation may still qualify for registration even if some of its purposes are not charitable. This is the case as long as the non-charitable purposes are undertaken to further a charitable purpose and are not independent purposes.

For more details about ancillary (secondary) purposes see our guidance on charitable purpose.

We suggest you keep your purpose clauses separate from any “powers” clauses.

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Powers clauses

Powers clauses set out the things that your organisation may do to achieve its purposes - for example, employ people; borrow and invest money; purchase, lease and hire land, buildings and vehicles.

Powers clauses must not allow the organisation to undertake non-charitable activities. For example, the following clauses are unlikely to be accepted by Charities Services:

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Private profit clauses

To register your organisation under the Charities Act, we must be satisfied that it is not carried on for private financial benefit or profit to an individual.

Your rules should reflect this, and clearly show that your organisation may only act to advance its charitable purposes. The payment of reasonable salaries and other expenses to advance your charitable purpose is acceptable.

If a trust wants to be able to make payments or provide benefits to its trustees, its trust deed must clearly show that this is allowed.

Here is an example of a combination of clauses that would be acceptable:

  • All income, benefit, or advantage must be used to advance the charitable purposes of the organisation.
  • No member of the organisation, or anyone associated with a member, is allowed to take part in, or influence any decision made by the organisation in respect of payments to, or on behalf of, the member or associated person of any income, benefit, or advantage.
  • Any payments made must be for goods or services that advance the charitable purpose and must be reasonable and relative to payments that would be made between unrelated parties.

Your rules should not include clauses that would allow private pecuniary profit for individuals or other organisations.

For example, Charities Services is unlikely to accept clauses which would allow the organisation to:

Companies must have clauses in their rules that either:

Here is an example of a clause that prevents distribution of dividends or payments to shareholders:

  • No shareholders of the company shall be entitled to receive any benefit from the company by way of dividend or other payment from the company by virtue of a shareholder holding shares whether ordinary or any other class of shares in the company.

Here are examples of clauses that restrict the transfer and issue of shares to registered charitable entities or trustees of a trust for charitable purposes:

  • The directors shall refuse to register any transfer of shares unless the proposed transferee is a registered charitable organisation or a trustee who holds those shares in trust exclusively for charitable purposes as defined in section 5(1) of the Charities Act 2005.
  • No shares shall be issued to any person unless that person is a registered charitable organisation or a trustee who holds those shares in trust exclusively for charitable purposes as defined in section 5(1) of the Charities Act 2005.

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Winding-up clauses

We suggest all charities include a winding-up clause in their rules. This sets out what will happen to their assets if they cease to operate and are voluntarily or involuntarily wound up.

If your organisation is an incorporated society, you will already have a winding-up clause. This is required under the Incorporated Societies Act.

If your organisation is a trust, you are not required to have a winding-up clause in your rules. If your rules have a clause that refers to winding-up in accordance with section 27 of the Charitable Trusts Act, that is, as the court directs, this is acceptable.

To meet the requirements of the Charities Act, winding-up clauses must direct all assets to charitable purposes or charitable organisations.

Here are three different examples of winding up clauses:

1. A general winding-up clause:

  • If a decision is made to wind up or dissolve the organisation and any property remains after the settlement of the organisation’s debts and liabilities, that property must be used to further a charitable purpose or purposes as defined in section 5(1) of the Charities Act 2005.

2. A winding-up clause that distributes remaining property to another organisation:

  • If a decision is made to wind up or dissolve the organisation and any property remains after the settlement of the organisation’s debts and liabilities, that property must be given or transferred to another organisation for a charitable purpose or purposes as defined in section 5(1) of the Charities Act 2005.

3. A winding-up clause that distributes remaining property to another organisation that has similar purposes:

  • If a decision is made to wind up or dissolve the organisation and any property remains after the settlement of the organisation’s debts and liabilities, that property must be given or transferred to another organisation for a similar charitable purpose or purposes as defined in section 5(1) of the Charities Act 2005.

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Governance

Governance clauses explain how your organization is managed. They should include the following information:

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Amendment clauses

We suggest all charities include a clause in their rules that sets out the procedure for changing their rules.

If your organisation is an incorporated society, you will already have a clause in your rules that explains the way your rules can be changed. This is required under the Incorporated Societies Act.

Although a charity registered with Charities Services must notify us of any changes to its rules, we do not need to be consulted before a change is made. 

Please don’t put a clause in your rules saying that Charities Services must approve amendments.

Important note: if you are an incorporated society, a registered charitable trust, or a company and you wish to make changes to your rules, you must send the changes to the Companies Office for their approval before you send them to us.

When you notify us of a change, we will consider whether the change affects your registration status.

If it does, we will send a formal notice to your address for service and give you the opportunity to have your say on the matter.

Helpful tip - Do you have a clause in your rules that says you must get approval for changes to your rules from Inland Revenue?

If you do, please note that this is no longer required, because Inland Revenue has agreed to the removal of such clauses. Check their website www.ird.govt.nz for more details

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References

  1. ⇑ Molyneux v Fletcher (1898) 1 QB 648; In Re Pauling Settlement Trust [1964] 1 Ch 303, [1963] 3 All ER 1; Cowan v Scargill [1985] Ch 270

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