What to be or not to be - Incorporated Societies and Charitable Trusts
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. 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:
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:
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 Incorporated Societies Act 1908 is currently under review. We will keep you updated through our all of our different communications channels.
** The Trusts Act 2019 replaces the Trustees Act 1956 and Perpetuities Act 1964 and comes into force on 21 January 2020. Until then, the Trustees Act 1956 remains the law in New Zealand.