Business Archives | Parry Field Lawyers

Charities can be a powerful vehicle for bringing change. We have been fortunate to have helped and worked with many clients in this space and can testify to the positive impact they can produce. Given our experience with charities we have produced a handbook on Charities in New Zealand. You can download it here.

The handbook is intended to serve as a practical guide to help start-ups and existing charities from a legal and practical perspective. It is divided into several key sections and provides information on establishing your charity, operating your charity and much more.

If you have further enquires please contact Steven Moe at stevenmoe@parryfield.com or on 021 761 292 or Kris Morrison at krismorrison@parryfield.com.

Be sure to check out our other free guides too, such as Startups: Legal Toolkit and Social Enterprises in New Zealand: A Legal Handbook. We also provide free templates for resolutions, Non Disclosure Agreements and other resources on our site as well as many articles on key topics you should know about.

Business can be complicated but it doesn’t have to be. We have helped thousands of clients and know about the key legal areas that will affect you and have just released our fully revised and updated “Doing Business in New Zealand” free handbook. You can download it here.

New Zealand consistently ranks as one of the most business-friendly nations in the world. Given this appealing status and the interest we receive both from local and international investors, as well as form businesses and entrepreneurs, we produced the “Doing Business in New Zealand” handbook a few years ago and now have fully updated it. It is intended to introduce and provide information for those who may be unfamiliar with how business is done here. The handbook provides introduction on business structures, investment rules, employment, disputes, property, intellectual property, immigration, privacy and social enterprise, just to name a few examples.

If you have further enquires please contact Steven Moe at stevenmoe@parryfield.com or on 021 761 292 or Kris Morrison at krismorrison@parryfield.com.

Trustees frequently ask us whether they would be personally liable if someone is injured on a course run by a trust where they are a trustee. For example, imagine a youth focussed trust and they employ Jane, she takes a group of children on a hiking trip. During this a child is injured in an accident. Could the parents of the child make a claim against the trust or even the trustees personally? Let’s look at what could happen in New Zealand.

The role of ACC

The accident to the child would most likely be covered by the Accident and Compensation Act 2001 as a personal injury. This means that the parents would be prohibited from bringing independent proceedings against the trust and the trustees. Therefore, trustees are protected from third party claims relating to accidental personal injury where ACC would cover the accident. For more on this see ACC’s guidance here. This would not be the case in other countries where a claim might be possible.

What about WorkSafe?

Trustees may have proceeding brought against them by WorkSafe New Zealand if they find that the trustees breached the Health and Safety at Work Act 2015. This is because the trustees are ultimately in control. WorkSafe may pursue action against trustees if they find the trust failed to ensure, so far as was reasonably practicable, the health and safety of workers and others, such as those attending courses they organise. For example, in 2017, WorkSafe accepted an enforceable undertaking from a Trust Board following its investigation into an accident in which students were injured during a school production. The accident occurred during Saint Kentigern School’s performance of Sweeney Todd when two students were hospitalized after their necks were slit with a sharp shaving razor which was wrapped in duct tape. Despite the numerous incidents there was a failure to report and investigate these incidents. WorkSafe launched an investigation into the incident and concluded that the school failed in its duty to students and the school Trust Board accepted these findings.

Conclusion

Trustees may be liable if they are found to have breached their duties to ensure the health and safety of those they are responsible for. For more on these issues and the Health and Safety at Work Act 2015, as it applied to PCBU’s (a person conducting a business or undertaking) see our article here. Ultimately it may be wise for trusts to get a specialist Health and Safety advisor to provide guidance in this area.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. We would be happy to assist you, please feel free to contact Steven Moe stevenmoe@parryfield.com

There is often confusion over Health and Safety – the rules have been around for a while now but we still get some common questions. Below we set out some of the key points to consider to ensure compliance around volunteers. Check out our other guidance on these topics as well.

Is your organisation a PCBU?

Under the The Health and Safety at Work Act 2015, a PCBU has the primary duty to ensure the health and safety of its workers and others, so far as is reasonably practicable.

Reasonably practicable means that “which is, or was, at a particular time, reasonably able to be done in relation to ensuring health and safety.” A PCBU is not expected to guarantee the health of safety of their workers but they must do what can reasonably be done to ensure health and safety. Factors that will affect what is reasonably able to be done include:

The hazards and risks associated with the work and the likelihood of the hazard or risk occurring;
The severity of the injury or harm to health that could result from the hazard or risk;
What the person knows or reasonably should know about the hazard or risk and the ways of eliminating or minimising it;
What can be done to eliminate or minimise the risks and how available and suitable these risk controls may be;
The cost associated with eliminating or minimising the risk, including whether it is grossly disproportionate to the risk.

What about Volunteer organisations?

Section 17 of the Act states a “volunteer association” is not a PCBU. The Act defines a volunteer association as “a group of volunteers (whether incorporated or unincorporated) working together for 1 or more community purposes where none of the volunteers, whether alone or jointly with any other volunteers, employs any person to carry out work for the volunteer association”.

If your organisation has no employees then it will be known as a volunteer association under the Act. As a volunteer association your organisation would not be a PCBU and therefore the Act would not apply to your organisation. However, frequently this exemption would not apply to organisations.

If your organisation has one or more employees then it is likely it will be a PCBU and thus the Act will apply.

If your organisation is a PCBU

If your organisation is a PCBU, it will have a duty to ensure the health and safety of others so far as is reasonably practicable.

So what about Volunteer officers?

Officers have a duty to exercise due diligence to ensure the PCBU complies with its duties and obligations under the Act. In exercising due diligence, officers must take reasonable steps to:

Know about work health and safety matters;
Gain an understanding of the operations of the PCBU and the hazards and risks associated with those operations;
Ensure the PCBU has appropriate resources and processes to eliminate or minimise risks;
Ensure the PCBU receives information about incidents, hazards and risks;
Ensure there are processes for the PCBU to comply with the Act.

Volunteer workers

Under the Act a “volunteer worker” is a volunteer who carries out work in any capacity for a PCBU on a regular basis, with the PCBU’s knowledge and consent and is integral to the PCBU’s operations. A PCBU would owe a duty to ensure, so far as is reasonable practicable, the health and safety of volunteer workers.

The volunteer worker would also have duties under the Act. While at work they must:

Take reasonable care for his or her own health and safety;
Take reasonable care that his or her acts or omissions do not adversely affect the health and safety of other persons;
Comply, as far as the worker is reasonably able, with any reasonable instruction that is given by the PCBU to allow the PCBU to comply with the act or regulations; and
Co-operate with any reasonable policy or procedure of the PCBU relating to health or safety at the workplace that has been notified to workers.

“While at work” is not defined but likely means while at the workplace or at an event run by the PCBU.

Casual volunteers

A volunteer is not a “volunteer worker” if their voluntary work includes:

Participating in a fund-raising activity;
Assisting with sports or recreation for an educational institute, sports club or recreation club;
Assisting with activities for an educational institution outside the premises of the educational institution; or
Providing care for another person in the volunteer’s home.

Even though this volunteer would not be a volunteer worker, the PCBU would still have a duty to them to ensure their health and safety is not put at risk from the PCBU’s work.

The casual volunteer would not have duties under the Act.

If your organisation is a PCBU and something goes wrong the penalties can be high. It is therefore very important that you are aware of whether your organisation is a PCBU or not. In some cases this may be unclear. We would be more than happy to talk with you about your particular situation to help you determine whether or not you are a PCBU.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. Please feel free to contact Steven Moe at stevenmoe@parryfield.com

There is often confusion over Health and Safety – the rules have been around for a while now but we still get some common questions. Below we set out some of the key points to consider to ensure compliance. Check out our other guidance on these topics as well.

Top 10 things to know

Be aware
- The Health and Safety at Work Act 2015 has been in force for a few years and it has introduced greater accountability for Health & Safety for your organisation if you employ staff.
Are you a ‘PCBU’?
- If you are a “Person Conducting a Business or Undertaking” then you are a PCBU. A PCBU can operate in a voluntary way without primarily being set up to make money. It has the primary duty of care in a workplace. See below for more on this.
Officers of PCBUs
- Directors, managers and leaders of the PCBU also face significant penalties under the Act for failing to exercise due diligence in ensuring the PCBU carries out its duties.
To start: Identify risks
- Ensure all risks and hazards are in your organisation are identified. Start by looking at the facility, entry and exit points, stage areas, equipment used, the people, the weather … what are the risks where you are?
Control & Eliminate
- Put procedures in place to control or eliminate risks to health and safety so far as is reasonably practicable.
Prepare
- Maintain a health and safety policy with the help of your employees. Put it into action and ensure your employees and contractors are aware of it and follow it – don’t just hide it in a drawer!
Tailor your documents
- Customise your documents so they are practical for you. One size does not fit all. It may be that a consultant is worth hiring to help you prepare documentation as well.
Check your visitors
- If other contractors or other entities come on to your property you must ensure they have proper health and safety procedures in place and provide you with a copy. Ask for it and check it!
Standing item
- It is good practice to have this topic as a standing item at your board meetings.
Remember the penalties are high
- Fines of up to $3 million and imprisonment of up to 5 years can be imposed. “She’ll be right” is no longer OK. Think about these issues now, not later

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. Please feel free to contact Steven Moe at stevenmoe@parryfield.com

A. Introduction

In a gentle way, you can shake the world. Mahatma Ghandi

Governance for faith based organisations is not the same as for other entities. We have dealt with both types of structures for many decades and wanted to set out some key thoughts in this article. This was originally prepared as a paper presented at the Legalwise “Religion and the Law” conference held on 30 October 2021. The paper was written and presented by Steven Moe, a Partner at Parry Field Lawyers.

Faith based organisations have their own unique dynamic that can be distinguished from other Not for Profits. Albeit this being an important issue, there has not been much written about it in Aotearoa New Zealand to support leaders of faith based organisations. This article stipulates the unique nature of faith based organisations and provides practical recommendations for their governance.

This article addresses the following issues faced by faith based organisations:

What are the usual legal structures where these boards operate?
What are the key functions of boards of faith based non-profits?
How does the legal framework affect these boards?
What added dimensions shape governance?

Should you have any questions or comments about this article please feel free to reach out.

B. What are faith based organisations?

In New Zealand there are approximately 115,00 Not for Profits, with around 27,500 being registered charities. Of those, 8,000 are listed as advancing religion with Charities Services. Charities Services, as the regulator of charities, provides the following description of organisations which advance religion:

“The term “religion” includes many different faiths and belief systems (for example, Christianity, Judaism, Islam, Hinduism, and Buddhism). Generally, however, to be religious there needs to be a body of doctrines that:

concern the place of humankind in the universe and its relationship with the infinite
go beyond that which can be perceived by the sense or ascertained through the scientific method
contain canons of conduct around which adherents structure their lives.”

They go on to provide that the doctrines involved and the conduct expected must be structured and serious enough to be capable of advancing religion. For example, a Jedi Society was denied charitable status. This promoted the ideology found in the Star Wars films.

C. Common legal structures

There are a range of legal structures that can be adopted by faith based organisations – from Charitable Trusts to Incorporated Societies to Unincorporated Associations. This article focuses on registered Charitable Trusts because in our experience it is the most common entity type for a faith based organisation.

A registered Charitable Trust has a written trust deed and trustees that advances its charitable purpose. Most often the purpose concerns advancing religion, however there may also be purposes concerning relief of poverty, education or purposes beneficial to the community. Moreover, it is understood that faith based organisations perform various functions within the communities that they operate. They may have associated initiatives that come under the umbrella of the main faith organisation or as a separate entity. For example, a faith based group may have itself, or have members that started, initiatives such as a preschool, counselling service, aged care, mental health services, teaching English as a second language, immigrant services, school related work, food banks and the like.

A Charitable Trust Deed is flexible in that there is no industry standard. Nevertheless, the common elements are set out in Annexure 1.

D. The bigger picture

A faith based organisation is founded on a very different paradigm of thinking than other organisations, such as a company. This is a fundamental point accounted for when framing our discussion on governance for faith based organisations. There is something much bigger involved with faith based organisations whereby the way of operating or describing entities in the legal sense does not touch on the “spiritual” side of what faith based organisations really represents.

This may be difficult to grasp so let’s consider this dynamic using a word picture:

Imagine a tree standing in a field. The leaves and branches are moving. We can talk about the tree because we can see it easily. However, that is not all that is at play. We may come to realise that what is being considered is not just the tree itself but also the wind. In other words, we cannot easily see and explain some aspects of the dynamics that are relevant when we turn to look at a faith based organisation. In this picture, the organisation is the tree and the wind represents other aspects such as faith, eternity, God and the spiritual. These are often unseen dimensions of life. A purely objective person might say “you are talking about a tree” whereas in fact we may be “talking about the wind”.

We often use the English word “Church” to describe certain types of organisations. Legally we might consider them to be entities that exist and are registered within our law. However, through the eyes of Christian faith the word “church” is something bigger and more profound than a registration number filed with a Government department. In fact, the term used for Church in the Bible falls on the Greek word used in the New Testament of ekklesia which refers to “a calling together”, that is people gathering to worship and serve God. Other religions have similar deeper conceptions about what is going on in the World than can be explained just with legal entities and formal documents. For example, in Hinduism there are concepts like Atman (eternal self – the self as spitirual rather than a material being).

These examples show that we must delve deeper than what exists at law. This is because for faith based organisations there is a lot more going on at a spiritual level.

E. Unique aspects of governance for faith based organisations

Let’s turn now to some of the aspects which make governance for faith based organisations a bit more unique than other forms of entity.

1. Purpose

The purpose of faith based organisations will likely be evident that they are about advancing religion. However, the issue is that sometimes such organisations get involved with activities that no longer align with their original purposes. As a result, it is often appropriate for those in governance to consider whether they are still within the remit of the original purposes or whether they need to revise those purposes (if possible) or set up another entity to perform the activities that they have since taken up.

2. Unincorporated associations

It is common for faith based organisations to have a long history. Therefore, it is also common that these organisations do not have a trust deed or governance in the same way we would today. Many entities are in fact unincorporated associations without the formality of a constitution or document setting out how they will operate. This can introduce challenges for governors today to govern in an acceptable way, such as appointing and removing people, decision making and liability. Therefore, it may be appropriate to look at the existing structure and determine whether it is the right one or if a new entity should be created or new rules adopted.

3. Statements of belief

It is common for a faith based organisation to have a statement of faith or belief set out in the schedule to the trust deed. This introduces an additional set of criteria which Board members need to be aware of. Anyone that proposes to join the board would usually be required to confirm that they adhere to those beliefs. As such, a statement of faith may add an extra level regarding who can qualify to join the Board. Further, it may be that on a yearly basis, or when requested, a Board member may be asked to reaffirm or sign that they agree to the statement of faith.

4. Conduct of Board members

As well as affirming a statement of faith it is likely that in the rules there may be reference to criteria to remain a trustee. While this is also common in other organisations it may be heightened in a Church organization with the ability to remove a trustee if, in the opinion of more than three quarters of the other trustees, doing so is in the best interest of the Trust. In other words, it is likely that the standard expected of trustees may be different to those in a different context. Therefore, the impact of conduct will be particularly important for those on Boards of faith based organisations.

5. Relationship to the Bigger Group

It is common for churches to be affiliated to a denomination. This can provide real benefits such as in the form of training, conferences, sourcing of content and decision making at a national level. It may also mean that the individual Church and the governing body will relate to the Denomination. This is different to a normal “independent” charity. It introduces interesting dynamics to discussions which will differ depending on the strength of the relationship. For example, some trust deeds will simply refer to assets going to the denomination on wind up. Others will have more direct relationships, particularly if the denomination holds the legal title of the land on behalf of the Church. This can affect ventures that the Church wants to take on, such as developing part of the site for social housing, taking on more debt to fund expansion or even selling the land. Some denominations will be very involved in the decision making process while others are not so involved. The context is critical. As such, it must be understood how the entity relates to the domination and when approvals are needed at that level.

6. Relationship with international bodies

Sometimes a faith based organisation will not have a New Zealand based body which it relates to. This may be because the organisation was set up by an overseas based charity to do work in New Zealand. Consequently, the same considerations in relation to a denomination mentioned above may apply here to the overseas entity, in that it must be fully understood how the board relates to any overseas groups. For example, trustees may need to be approved by the overseas body, big decisions may need to be brought to them for approval and they may continue to have international board members that they appoint. This raises interesting dynamics for the New Zealand entity over time, particularly if those involved locally may want to align more with local culture and trends. For example, this could relate to wanting to partner on Treaty matters or other areas not familiar to the overseas based charity.

7. Interaction with other Trusts

Often a religious group will have members that wish to do good in the local community. It is common for them to approach the Charity and seek to set up a new Charity that has the blessing of the original group. Sometimes the old Charity itself controls these new initiatives. For example, if the trustees of the older Charity itself have the right to appoint and remove the trustees of a community focussed trust then it is likely that this will count as ‘control’ for tax and accounting purposes, and the accounts will need to be consolidated with those of that original Charity. Trustees of a faith based group should consider if this is the right solution because it may be that these new initiatives should be given their own wings to fly independently of the original group. Accordingly, the organisation will have to be aware of accounting implications when they have control over other trusts.

8. Duties of Trustees

The Trusts Act 2019 imposes on trustees mandatory and default duties. It is essential for trustees of a charitable trust to know and understand the terms of the trust deed so that they can be sure of meeting their obligations and duties to the beneficiaries. The various duties of trustees are set out in other articles we have written, such as this.

9. “Special Character” and Governance standards

Sometimes there will be some unique considerations when it comes to this type of organisation. It must be considered whether those “called” by God are employees. Also relevant will be considerations in relation to schools that a Church may be associated with.

With regards to governance standards there are overseas resources that may be of interest. For example, the CMA Standards Council in Australia have produced Principles and Standards. Further, the “Nine Principles of Ministry Accountability” provide a unique framework for thinking about governance for faith based groups. Their focus is on accountability. It is helpful to look for resources that deal with faith based groups and consider what might be suitable for the particular organisation.

10. Back to the bigger picture

As mentioned earlier, for faith based organisations there is another factor at play: A higher power. This means that there will often be extra dimensions to decision making and process. For example, it is common for faith based boards to start meetings with prayer or a devotional reading. In addition, it is likely that all those involved will feel that the Trust and entity is a vehicle to achieving a much higher calling. Therefore it is essential to understand that there is more at play that just the words in a trust deed.

Conclusion

We have a great deal of experience in dealing with faith based organisations and in our experience none of them are the same as the next. If you’d like to talk about your situation then let me know by email to stevenmoe@parryfield.com. To come full circle with how we began this article, it is clear that there will be unique aspects of governance for faith based organisiatons. Being aware of those will help – whether you are in governance or providing advice to such an organisation. Those different drivers and stakeholders will be vital when taking action and ensuring that the organisation is successful.

ANNEXURE 1: USUAL CONTENT OF A CHARITABLE TRUST DEED

There is no industry standard for a charitable trust deed. Also, there is no particular format required in the Charitable Trust Act 1957, but it is normally expected for a charitable trust deed to cover the following key points:

That a settlor is setting up the trust by donating to create a fund (often $10)
The purpose of the trust
The name of the board
Who is on the board, such as min and max number of the trustees
How trustees are appointed
How they can be removed
Any process around how long they serve
How the property will be controlled by the board
Powers of the trustees
What funds will be used for
Conflicts of interest and how they are dealt with
Common seal (it is required)
Meetings of the board and quorum and notices
Preparation of financial accounts
How contracts entered into
Variations of the trust deed
How to wind up and what happens to assets

Sometimes we see clients getting confused between what an assignment is and what a novation is. This article answers that. Both are often used where one company wants another to step in and fulfill its role in a contract.

How does an assignment work?

In an assignment, the person assigning the contract to another person is called the “Assignor”. The person being assigned the contract is called the “Assignee”. It is the Assignee that receives the benefit of the contract. Some contracts cannot be assigned without the consent of the other party to the contract, and some contracts may expressly prohibit assignment. If there is no provision concerning assignment, then the general position is that the contract can be assigned to another. If the contract is assigned to the Assignee, they must perform their part to the contract. As such, the other party will usually want to check that the proposed Assignee has sufficient skill and finance to carry out the contract. Therefore, it is common for there to be an assignment provision in the contract that accounts for this, so that the other party can withhold consent if the proposed Assignee fails to meet those criteria.

It is important to note that although the Assignee is expected to perform the contract, they do not carry the burden of the contract. In other words, if the Assignee fails to perform their part of the contract, the Assignor remains liable. As a result, if the Assignee is insolvent then the other party can seek recourse from the Assignor or demand that they perform the contract. However, it may be that the Assignor is no longer able to meet a demand made under the assigned contract. Thus, it is best practice to perform due diligence on the proposed Assignee before the contract is assigned to them.

What about a novation?

In a novation, the new party, known as the “Novatee”, does not take over the existing contract. Rather, the Novatee enters into a new contract with the other party/continuing party. The original party that has exited the contract between them and the other party is called the “Novator”. Unlike an Assignor, the Novator is released from their obligations under that contract. As such, they do not carry the burden of the contract. It is the Novatee that carries the burden of the contract entered into subsequently. Consequently, if the Novatee fails to perform the contract, the continuing party cannot seek recourse from the Novator. Thus, a novation is of higher risk to the continuing party than an assignment.

In forming any contract, you should ensure that the contract does not allow the other side to novate the contract prior to obtaining your consent. Prior to entering into a novation, the continuing party should do due diligence on the proposed Novatee to certify that they are sufficiently capable of performing the contract.

Generally a good option is for a contract to be novated – it is then like the new party steps into the shoes of the old and there are fewer questions about who is doing what. However, there can be reasons why an assignment is better. If you have any questions about this then we would be happy to discuss.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. Please feel free to contact Steven Moe at stevenmoe@parryfield.com

On 1 December 2020, the new Privacy Act comes into force. One of the significant changes is the requirement to report serious breaches to the Privacy Commissioner and the affected individuals.

What is a privacy breach?

A privacy breach is defined as:

1. unauthorised or accidental access to, or disclosure, alteration, loss or destruction of, the personal information; or
2. an action that prevents the agency from accessing the information on either a temporary or permanent basis.

When do I have to report a privacy breach?

A privacy breach becomes notifiable when it is reasonable to believe that the breach has caused serious harm to those affected, or is likely to do so.

How do I assess whether a privacy breach will cause serious harm?

When assessing the seriousness of a privacy breach, you will need to consider the following:

• any action you have taken to reduce the risk of harm following the breach;
• whether the personal information is sensitive in nature (e.g. financial/health information);
• the nature of the harm that may be caused to affected individuals;
• who obtained or may obtain personal information as a result of the breach (if known);
• whether the personal information is protected by a security measure (e.g. was the information encrypted?); and
• any other relevant matters.

How do I report the privacy breach?

As soon as practicable after becoming aware of the privacy breach, you must notify the Privacy Commissioner. You can do so at the Privacy Commissioner’s ‘NotifyUs’ page here.

You must also notify the affected individuals as soon as practicable after becoming aware, unless an exception applies.

What are the Exceptions?

You do not need to disclose the breach if disclosure would prejudice the security or defence of New Zealand, prejudice maintenance of the law, endanger the safety of a person or reveal a trade secret.

You may delay notification if you believe disclosure would risk the security of the personal information and those risks outweigh the benefits of informing the affected individuals. As soon as the grounds for delay no longer pose a risk, you must inform the affected individuals of the breach.

Even if you rely on an exception, you must always notify the Privacy Commissioners of the breach as soon as practicable.

What happens if I don’t comply?

Failure to notify the Privacy Commissioner of a notifiable privacy breach may result in a fine of up to $10,000 or the issue of a public compliance notice.

How can I prepare?

You should use this opportunity to make sure your privacy policy will comply with the Act. You should also consider the following:

• Make sure you have internal procedures in place to deal with how you become aware of a privacy breach;
• Assess the personal information you hold, the reason you collect it, where it is stored and who has access to it;
• Make sure your staff are aware of the new requirements.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. If you think your privacy policy is insufficient (or non-existent!), we would strongly encourage you to get in touch with us. Contact Steven Moe at stevenMoe@parryfield.com or Aislinn Molloy at aislinnMolloy@parryfield.com.

In this article I want to tell you some key points that I have learned about setting up an impact driven organisation in Aotearoa New Zealand. This applies whether that ends up with a charitable structure or a for profit structure or some form of hybrid. The reason that I know about this is my job is as a Partner at Parry Field Lawyers where I have a unique practise of law focusing on helping purpose driven people achieve their mission. Also, with more than 200 interviews for seeds (www.theseeds.nz) I have spoken with some of the best entrepreneurs in New Zealand and gained their perspectives.

So to download all this information to you I am going to share here about three things I think are key to know. I would be curious if you agree with me, and it might be that you know others who would appreciate the challenges because I am going to give it to you straight. I commonly go through these points – probably 2 or 3 times a week – with people who are wondering about setting something new up so this is also going to be a lot more efficient as I can get people to listen to it before speaking about the specifics of their situation.

• First, I will discuss the three key questions to ask before considering the detail of what structure is best.
• Second, we will look at three of the most commonly used legal structures for impact driven people.
• Third, some reflections on the way to enshrine impact within those structures and the key things needed.

So let’s turn to the high level questions you need to get right from the beginning. Don’t skip over this part…

Part 1: The Three High Level Questions to ask first

What is your purpose?

The first thing to remember is that the purpose and mission needs to come first. What is it that you really want to do? The detail of what legal vehicle to choose then becomes a secondary consideration that is about how you best fulfil your purpose. I encourage you to clearly articulate your mission and your purpose because that will drive all other decisions. This is the “power of why” and will be what you come back to when things get blurry and you wonder why you started on this journey. Also I want to know what that is in just 30 seconds – not the 5 page version, just the three short bullet point version. If you can reduce it down to that then you will be able to convey it clearly to others as well.

So why is getting the purpose important?

The purpose is the first key consideration. Why? Well I like to think of it like this – if you go buy a car there are many options. You might want to get an off road 4×4, or a convertible, or a 7 seater – there are a range of vehicles that depend on what your purpose is. In the same way when choosing a legal vehicle we need to understand the purpose of what you want to do. Think of a limited liability company as one type of special purpose vehicle, the same with cooperatives, incorporated societies or charitable trusts. So we need to know the direction you want to head in order to decide on the right vehicle.

What fuel is driving the vehicle?

The second key consideration comes from Jerry Maguire and the phrase “Show me the Money!”. Money is like the fuel that is needed for the vehicle to run – whatever type is chosen. There are two parts to this which affect the decision. Where is the money coming from – sales of product or services, private investment by issuing shares, loans, donations or grant funding? And also, where is the money going to – will there be private profits for individuals or will the funds be reinvested back to promote the mission? All of these factors are critical to work out what structure is best.

Replication?

The third question is a bit different. But before we get into the legal structure options I think it is important to ask this: Is there someone out there already doing what you plan to do? We see in New Zealand a lot of replication where people want to do good and assume that to do so a new initiative is needed. I don’t think that is always the case. If the mission and purpose is most important then strip away any ego associated with founding something new and ask the hard question: for the good of the cause am I better to come in as a strong supporter and work with others already doing the mahi? This may sound like a strange thing to be proposing since my job is to act for people setting something up so I am doing myself a disservice by advocating this thinking – instead I could fan the flames of starting something new. But there is a bigger picture here and if I can encourage one person to not start something new and instead come in as a big advocate and supporter of a struggling initiative that just needs some volunteers then that will be better overall. So please do look around and have conversations about collaboration before going off and setting up something new.

Part 2: The three best types of legal structures to consider

There are many possible structures but I am going focus in on the ones I think are the simplest and easiest ones. There are basically three options. They are:

Set up a Company: This is a commonly understood vehicle for running a new initiative. As a positive you can privately benefit through dividend return to shareholders, you can more easily access investors by issuing them shares, people understand the structure over other options. The key ingredients are a director, a name and a shareholder. The downside is that you will be less likely to get grant funding or donations, people make assumptions that what you do is driven by profit rather than purpose, so there can be a lot of explaining needed, and if taken over the company might lose the essence of why it was originally founded. I am setting up many impact driven companies so am happy to discuss all this in more detail if anyone would like to know more.

Set up a Charity: Setting up a charity provides a nice vehicle because you are forced to write down you purposes – I think that is a good thing. You need to fulfil one of four charitable purposes: Advancing education, reducing poverty, advancing religion or purposes beneficial to the community. So just because what you want to do is “good” doesn’t necessarily mean that it will be charitable. Becoming a charity results in significant tax benefits because you are helping society – for example, you can issue tax deductible receipts to donors. However you will not be able to privately benefit (apart from market rate salaries), will not be able to issue shares that return dividends to shareholders (unless to another charity) and will have difficulty raising capital funding. One common misconception is that a charity must be a Trust – in fact, companies can be charitable as well it is just that they must clearly articulate that there is no private benefit and state what the purposes are. I am setting up several charities each month across the full range – recent examples include an ocean focussed charity, one setting up Buddhist temples, one working with children on design thinking – a very large range.

Hybrid option: Remember the “show me the money” point earlier? Well this is where it kicks in – if funding is coming from private investors, this option is preferred over a charity. Whereas if funding is likely from grants or donations, then the charity option may be preferred. There is no one template that will apply for all. While it involves some duplication of having two entities, sometimes what I see people end up considering is a hybrid option. This involves having a company while also setting up a Foundation which is a charity. How closely aligned they are will depend on the circumstances. If setting up a charity then part of the thing to consider is having independence in that charity so there is no chance of a conflict of interest. Ultimately this is all about finding the best way to have maximum impact. Increasingly I am seeing pull from either end – private companies wanting to give back through creating a charity, while charities are looking to commercialise some aspect of what they do in order to generate another income stream. I think the lines will continue to blur as we increasingly move towards discussions of impact being the most important thing. Like I said at the start it then is down to the detail as to the type of legal structure used as the overarching point is that mission and purpose and impact are being implemented.

Part three: Enshrining impact

I want to finish off with a few thoughts about how we started – a focus on impact. Thinking about each of the structures discussed I would just comment that for a charity you are required to set out the purpose you want to achieve, which I think is a really good thing.

For a company, it is not legally required to set out what your mission is – which I think is an oversight that one day will be corrected – but it is possible to enshrine your impact by setting out your mission in a constitution. That is a public facing document and if I get involved I try to have clients articulate their mission and purpose right at the start so that they are open and clear with the world about what they are there for.

I would encourage you that whatever entity type you end up choosing that you really come back to the mission and purpose and clearly set out what it is. I can guarantee that will be the most valuable point to get straight. Once that is done then it will help you to decide on the detail of which type of entity to choose. You may notice that this summary focusses more on the high level questions than the detail – that is on purpose.

My final thought is to consider how you report on impact – wouldn’t it be great if we all started measuring and talking about impact in ways that get beyond financial metrics. It is really hard to do but research it and get amongst it to lead the way in how you measure and talk about the impact you are having. If you can do that then I am confident your venture will be more assured of success.
I’ve enjoyed reflecting on this topic and would be happy to discuss further with you – and if I directed you here to listen before we have a phone call then I look forward to chatting sometime soon.
Until next time.

Note: This is a short overview of issues – inevitably situations will be different for each context and you need to consider a variety of issues such as Financial Markets Authority rules, Tax considerations, employment, shareholder dynamics, among many other things. But the point of this is to provide some high level thoughts to get you started.

Steven Moe is a Partner at Parry Field Lawyers with 20 years experience and a focus on empowering impact

Steven can be contacted on:
E stevenmoe@parryfield.com
T +64 21 761 292

We recently attended a webinar by the Overseas Investment Office (OIO) on 20 July 2020. The purpose was to discuss some reforms to the rules and in particular the new “Urgent Measures Act”.

The purpose of the new changes are to support the Government as part of its business response to COVID by encouraging growth through investment. So there are some simplifications made to the normal OIO process– while also ensuring there are rules in place in relation to sensitive land and other categories of assets.

Before we get into detail it is worth noting that the guides on investing in New Zealand at the OIO website are quite helpful, for example, this one on which transactions need consent.

Overview

There are four key changes:

1. Temporary Emergency Notification Requirements;
2. New national interest assessment;
3. Simplified screening; and
4. Stronger enforcement powers.

In this article we will set out the key points for each of them.

1. Temporary Emergency Notification Requirements

Notification is required in relation to ownership/control there are (no monetary thresholds) and will be needed for increases above 25%, ownership beyond 50%, 75% or to 100%. They said that this is a deliberately broad approach they said. This is a temporary regime which will only apply for a limited time.

Who needs to notify? This should be done by any person who has more than 25% overseas ownership, are non-citizens and non-residents, and have more than 25% control of a board, as well as those who are associates.

What needs to be notified? Purchase of more than 25% of a business, increases in key thresholds (above) and purchase of more than 25% of the property of an NZ business (including land interests that would not be sensitive).

When to notify? 16 June is when legislation came into force, so only for those deals after that.

What do you not need to notify? If you already have consent, or if you need consent under another criteria.

Examples of when notice is needed:

• Direct: An overseas entity buying all shares of an NZ company – needs to be notified, even if a shell company.

• Indirect: Overseas person buying an Australian company that has an NZ entity – need to notify (ie even though already overseas owned).

• Notification of property: If a company is being bought that has property, then you need to notify. If a lease to an overseas person, then it depends if that is more than 25% of the value of the NZ companies property at the NZ Company.

There is no cost to notify and there is a form online. There is a much higher level of information needed than normal. It will take around 35-40 minutes to fill in the form. The type of information required includes type of transaction, if there is a target entity, the investor themselves etc.

Once submitted, they will assess if more details are needed or if the transaction can be approved. Generally this takes around 10 days (if the transaction can proceed). A few applications may be allowed to proceed subject to conditions. A few applications may be denied or need more information.

If more information is required, then you will need to allow a total of 40 working days and the aim is to resolve all within 70 working days.

If a transaction is not notified, there can be serious implications. The highest penalty would be civil penalties of up to $10million.

2. National interest assessment

The OIO emphasised that they want investments to proceed. So the question they ask is going to be: “Is the transaction is contrary to the national interest?” This test will be applied:

• If further assessment is needed;
• If it is a strategically important business; and
• If the Minister of Finance wants to ask more questions about an application.

The OIO will look broadly at factors such as competition, social impacts, character of the investor, national security, public order, international relations, alignment with NZ values and interests as well as broader policy settings. The factors are very broad. As an example, they would look more closely at military technology investments than other investments.

An application could have conditions added to manage risks, or it could be prohibited or it could just proceed without conditions.

3. Simplified Screening

This simplified screening includes that low risk transactions that do not need consent eg small increases in shareholding. There are also automatic standing consents for eg listed entities that are not more than 50% owned overseas, land adjoining sensitive land, managed investment schemes and some debt transactions.

As an example, if an overseas person is buying land next to sensitive land, that may qualify for the automatic standing consent. Also, some loans and debt can qualify for automatic consent.

4. Enforcement powers

These are increased, such as adding enforceable undertakings as a possibility as well as maximum penalties including (changing from $300,000 to $500,000). For a company, it could range from $300k to $10 million. The reason for this is that breaches are serious and so the penalty reflects that.

Conclusion

Overall it appears that the intention is to allow easier investment in New Zealand. However, as you can see from the detail in this short update it is worth speaking with advisors about the particular context as there are likely to be additional points to consider to ensure you qualify for the simpler regime.

For more information the OIO website has a lot of detail. For example, the above is discussed here https://www.linz.govt.nz/overseas-investment/changes-overseas-investment-act.

Please note that this is not a substitute for legal advice and you should contact your lawyer about your specific situation. Please feel free to contact us on 03 348 8480 or by email to Steven Moe – stevenmoe@parryfield.com or Kris Morrison – krismorrison@parryfield.com

Christchurch

Hokitika

Rolleston

Make an enquiry

Newsletter signup