Kiwis are known for their generosity when giving to charities and New Zealand consistently ranks highly in studies as one of the most generous nations per capita. This helps explain why there are so many charities in New Zealand – over 28,000 are registered according to the Department of Internal Affairs.
If you have a vision for a not-for-profit to support a great cause, it can be confusing knowing where to start. Which legal structure is best? How do you set up a not-for-profit entity? What are your legal obligations? We discuss some initial considerations in this article.
Which not-for-profit structure is most appropriate?
It is important that you choose the right legal structure for your organisation, taking into account its purpose and how you want it to operate.
While there are various options available, the two most common not-for-profit structures in New Zealand are charitable trusts and incorporated societies.
Charitable trusts
A charitable trust is established under a trust deed and holds and manages assets for charitable purposes. Like family trusts, a charitable trust has trustees who are responsible for managing the trust's assets and activities according to the trust deed. However, unlike a family trust, a charitable trust does not have identifiable individuals as beneficiaries and, instead, benefits members of the community generally according to its purposes.
Key characteristics of a charitable trust include:
- Governance by trustees: Decision-making and asset management are carried out by the appointed trustees.
- Incorporation: A charitable trust can incorporate as a charitable trust board under the Charitable Trusts Act 1957. This gives the charitable trust its own separate legal identity, allowing it to hold property and enter into contracts in its own name, rather than in the names of individual trustees. Incorporation also limits the personal liability trustees could otherwise have for the charitable trust's debts and obligations.
Incorporated societies
An incorporated society is a member-based organisation with a common purpose or vision. It operates under its own constitution, which sets out its rules and governance structure.
Key characteristics of an incorporated society include:
- Member-based: Members typically have voting rights and play a decision-making role, often through annual general meetings.
- Two-tiered governance structure: Decisions are either made by members of an elected committee or the members themselves, depending on the type of decision required to be made.
- Separate legal identity: An incorporated society has its own legal identity, distinct from its individual members. This allows the society to enter into contracts and own property in its own name.
Both charitable trusts and incorporated societies must operate in accordance with the charitable purposes recorded in the governing document for the benefit of the community.
Should your charity be registered?
Once you have established your not-for-profit entity as either a charitable trust or an incorporated society, you should also consider whether to become a registered charity with Charities Services.
Benefits of registering as a charity include:
- Tax benefits: Registered charities are eligible for tax exemptions and other tax benefits.
- Credibility and funding: Registration can enhance your charity's credibility, making it easier to attract donations, apply for grants, and secure funding. Some funders will only fund registered charities.
- Public trust: Registration demonstrates a commitment to transparency and accountability. Registered charities must comply with specific reporting obligations and information disclosed is made publicly available on the Charities Register.
However, there are increased compliance and administrative requirements with registration, which are worth weighing up before deciding whether to apply for registration with Charities Services.
What are your review obligations?
Charitable trusts
Trustees of charitable trusts should be actively reviewing their trust deeds to ensure ongoing compliance with the Trusts Act 2019. Keeping your trust deed up to date is crucial for good governance so your trust can operate effectively and in compliance with the Trusts Act. Trustees should also ensure they know and are following their duties that are spelt out in the Trusts Act.
Incorporated societies
If your organisation is an incorporated society, you need to be thinking about re-registration under the Incorporated Societies Act 2022 (if you have not re-registered already). Re-registration must be completed by 5 April 2026. Failure to re-register will result in your incorporated society ceasing to exist.
To re-register, your constitution must be compliant with the 2022 Act. When reviewing and updating your constitution for compliance with the 2022 Act, it is also a good time to consider whether other provisions need to be updated so it is fit for purpose and reflects how you operate in practice.
Beyond re-registration, the 2022 Act introduces ongoing compliance standards including specific duties and eligibility criteria for officers. Getting your paperwork in order is now more critical than ever. This includes maintaining accurate accounting records, up-to-date AGM minutes, a register of members, and a robust conflicts of interest register for your officers.
Registered charities
The Charities Act 2005 was amended in 2023, introducing some notable changes for registered charities, particularly impacting governance and accountability.
Registered charities must now regularly review their governance procedures, including their rules (e.g. trust deeds or constitutions), at least every three years. This is to ensure those rules and procedures are fit for purpose, consistent with requirements under the Charities Act, and assist the charity in achieving its charitable purposes.
We can help
We understand that navigating the world of not-for-profits can feel complex and compliance obligations are continually increasing. Whether you are setting up a not-for-profit entity or want help with legal compliance for your existing charity, we can help you identify your next steps and provide support throughout the process. For advice tailored specifically to your circumstances, please get in touch.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
