We often help founders set up their charitable trust.  They often have the same questions as the previous person we helped – so we have typed out some responses to typical questions here.  If this helps you then feel free to share it with others as well and if you have a more detailed question not covered here then let us know and we can add the answer in.

Can a Charity Founder and the Board Chair also be the NGO Manager/CEO?

In theory this is possible but it is not best practise.  Management (CEO role) is different to Governance (Chair role) and so there is a danger of blurring of the two roles.  Also, if the founder is the CEO/Manager then they lose out on having a Chair who is able to advocate for them and provide good strategy.  If they are the Chair then they would lose out on having an engaged and activated CEO.  So it is best to split the roles up.  The IOD have produced a lot of good material on topics of governance in Charities here.

If the Founder steps down as Chair but remains Manager, how can they be protected from being made redundant or forced out from the Charity

Often in the Trust Deed the Founder – in that document called the Settlor or Donor – have certain rights which are different to other Trustees.  If they are a Trustee then they can usually not be removed as easily as other Trustees.  However if the Founder is no longer a Trustee and is employed by the Trust then ultimately it is up to the Trustees to decide if they are doing a good job or if a change is needed.  This may be a reason why the Founder would want to stay involved in the governance – but also underlines the importance of making the right choice of Trustees, but ultimately they have a duty to act in a way that helps the success of the Trust.

How can a Founder protect their connection to the Charity – for example does there need to be a clause that without them the Charity doesn’t continue? Or have a founding honorary role?

They could be appointed as Patron or a similar title for ongoing connection.  It seems unlikely that future Trustees would force such a person out but they need to act for the best interests of the Trust not the individual who founded it.  It is possible there could be good reasons for the Charity to move forward without a Founder eg criminal convictions or fraud by them.  Hopefully the Founder will have entrusted the vision and articulated it so well that the Charity is not entirely linked with the Founder so that it can go on beyond the person and last much longer.  Founders who hold on tightly to the entity can often find that this ultimately damages the overall potential – the Charity is more than a person and needs to be given room to grow and adapt in ways that are at present not known.

Would there need to be a process for recruitment for a Manager and the Chair so whoever would be a candidate couldn’t simply automatically become Manager?

This may come back to the distinction between management and governance mentioned earlier – Chair of the Board of Trustees should ideally be separate to the Manager/CEO role.  Each position should be recruited for separately.  In a small charity this may not be possible as the Founder/Chair/Manager can be blurred since someone – usually the one with the original vision – needs to actually drive it along at the start.

How to prevent conflicts of interest arising within the Charity and what are the risks?

Good practice is to have some independent Trustees involved in the Charity who will not be employed by the Trust or involved in other ways that the Founder might be.  Also, a conflict of interest register should be kept where any conflicts are noted.  Each meeting any conflicts should be raised as well.  The risks of not disclosing conflicts is that there could be negative publicity later on if a person acts in a way that benefits them personally but is to the detriment of the Charity.

If there is also a related company to the Charity then should it be owned by the Charity?

It depends.  Mainly the question to answer is about funding sources and use of money that comes in.  If the Company is owned by the charity then there can be no private gain to an individual.  Instead a Company can be owned separate to the Charity and the Charity can use the Company to perform some aspects of fulfilling the purposes.  If this is the case then there needs to be independence on the Charitable Trust so decisions made that benefit the Company are made by people who will not privately benefit as eg Shareholders of the company.  We described the options and considerations in more detail in a short podcast here.

We hope these responses are helpful and provide guidance on the interrelationship between a Founder, a Charity and other stakeholders.  If you have any questions then let us know

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact Steven Moestevenmoe@parryfield.com, Aislinn Molloy  – aislinnmolloy@parryfield.com or Michael Belaymichaelbelay@parryfield.com at 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.

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.

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

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

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

In part one, we looked at the reporting obligations of charities. In this article we will look at the obligations a registered charity has when certain changes are being made.

Notifying Charities Services

A charity must notify Charities Services of the following changes:

– Charity name
– Address for service
– Change in the officers (including when an officer is disqualified)
– Balance date
– Rules (ie under the trust deed, constitution or charter)
– Purpose of the charity
– The legal entity type of the charity

To notify Charities Services of such changes, you can complete this form, or log into your account and notify them online.

A charity must notify Charities Services of such changes no later than three months after:
– the changes take place; or
– the charity becomes aware of the change (whichever is later).

Notifying the Companies Office

Your charity also has an obligation to notify the Companies Office of certain changes. Changes that incur this obligation can be categorised as either ‘administrative’ or ‘substantial’.

Administrative changes include changes concerning officers, changes in procedures relating to appointments, resignations, meetings, and changes to the powers of a board. You can make such changes by completing this form, or logging into your account and notifying them online. You will be required to attach a copy of the requisite alteration(s) or resolution.

Substantial changes are more significant changes that involve trust property, also known as a ‘variation’ of the trust. Such changes have the same notification requirements as an administrative change (above) but must also be accompanied by a statutory declaration. Additionally, the variation must be certified as a correct copy by one of the trustees, or a member of the committee or governing body of the society.

A charity must notify the Companies Office of any administrative or substantial changes within one month of adoption of the alteration. Of note is that a charity does not have an obligation to notify the Companies Office of the addition or resignation of trustees.

These key obligations are just a few of the ongoing obligations charities should comply with. Charities should also ensure they operate in accordance with their own rules, the Charities Act 2005, and other relevant legislation.

We have helped many charities over the years and would be more than happy to discuss your situation with you. For more information, feel free to contact Steven Moe at stevenmoe@parryfield.com or Aislinn Molloy at aislinnmolloy@parryfield.com

We have published guidance about the requirements of registered charitable trusts and how to set up a charitable trust in New Zealand (here), as well as provided a practical checklist of next steps (here). However, charities also incur ongoing obligations. This article outlines the key ongoing obligations you should be aware of.

1. Reporting to Charities Services

All registered charities must submit an annual return to Charities Services within 6 months of their financial year end. The annual return requires you to check and update the following information:

– General Information: Your charity’s name, place(s), and contact details.
– Officer Details: Each officer’s name, date of birth, position and address.
– Purpose and Structure: What your mission is, your main activity or beneficiary, and how your charity is structured.
– Charity Relationships: The names of any entities that control or are controlled by your charity.
– Your People: The number of employees and volunteers you have, as well as how many hours they work.

As well as the above details, charities must also report a level of financial information. These reporting requirements differ depending on the tier of charity:

– Tier 1: Over $30 million annual expenditure;
– Tier 2: Under $30 million annual expenditure;
– Tier 3: Under $2 million annual expenditure; or
– Tier 4: Under $125,000 annual operating expenditure.

Of note is that these thresholds must be viewed in the context of the previous two financial years. This means that if you have a one-off fluctuation in the current financial year that would otherwise put you into a different tier, you would still have to report under the tier of the previous two financial years. This is to ensure that any one-off yearly fluctuations don’t change the tier the charity must report under.

Once you have worked out what tier your charity falls in, the reporting requirements are as follows:

– Tier 1: Full Reporting Standards
– Tier 2: Reduced Disclosure Regime
– Tier 3: Simple Format Report – Accrual based accounting
– Tier 4: Simple Format Report – Cash based accounting

Around 95% of charities fall under tiers 3 and 4. Charities under these tiers can report under simplified reporting standards, using either cash-based accounting (tier 3) or accrual-based accounting (tier 4).

What is the difference between cash-based accounting and accrual-based accounting?

Cash-based accounting requires transactions to be recorded at the time cash is received or paid. Cash-based accounting is typical in organisations where transactions are small in number and size.

Accrual-based accounting requires revenue and expenses to be recorded when they are earned or incurred, rather than when cash is received or paid. Accrual-based accounting is typical in organisations with more frequent and larger transactions.

Do I need to have my accounts audited?

If your charity’s total operating expenditure for each of the two previous financial years was:

– Over $500,000: financial statements must be either audited or reviewed by a qualified auditor.
– Over $1 million: financial statements must be audited by a qualified auditor.

You can find more about financial reporting standards here.

Charities Services have also provided this helpful guidance here as well.

Summary

These key obligations are just a few of the ongoing obligations charities should comply with. Charities should also ensure they operate in accordance with their own rules, the Charities Act 2005, and other relevant legislation.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. We have helped many charities over the years and would be more than happy to discuss with you. For more information, feel free to contact Steven Moe at stevenmoe@parryfield.com or Aislinn Molloy at aislinnmolloy@parryfield.com.

Our Partner Steven Moe has collaborated with Arts and Not for Profit leader Anne Rodda to co-write the White Paper, “Tomorrow’s Board Diversity: The Role of Creatives” which can be

downloaded here.

This is part of our ongoing initiative to support thought leadership regarding Governance and the Arts, NFP and ‘For Purposes’ initiatives in Aotearoa New Zealand. Other examples include the just released “Charting the Future: A Framework for thinking about Change” here. To find out more about us have a browse of this website and the free resources in the tab above. If you have comments on the paper we’d love to hear them, email stevenmoe@parryfield.com.

Advance readers of the White Paper have commented:

“This White Paper brings to light a topic which is often neglected: the role that creatives can play on boards. In our experience, directors who have a range of diverse and creative talent, capabilities and knowledge bring different perspectives to decision-making, planning and board culture – that will likely enhance an organisation’s performance, as well as better represent the stakeholders.”
Kirsten Patterson (KP), Chief Executive, New Zealand Institute of Directors.

“I have been fortunate to always have had a strong musical and artistic background that has become the pillar stone to my creative success in business.” Sir Michael Hill

“Simply by sailing in a new direction, you could enlarge the world…” Allen Curnow

Steven Moe has just collaborated with Craig Fisher to produce this paper, which can be downloaded here. The paper looks at challenges faced by the crisis, poses 7 hard questions we need to be asking and examines where the opportunities are.

From the Introduction: “Covid-19 is forcing us to  ask some hard questions. Our focus in this paper is on charities, NGOs, NFPs and community sector organisations as it has accelerated conversations for them about sustainability. However, many of these concepts will apply to other organisations as well in this unique moment in time.

Early explorers like those described in the quote who sailed to new placed relied on charts, maps, stars. We also are headed towards new locations as a result of the crisis and we need to be asking the right questions to get there. In this paper we want to dive deep into some key issues that we see organisations are facing in order to provide a constructive framework for considering the future.

We don’t have all the answers. But there are lots of fantastic minds, skills and experience within our sector. Hence, we hope that some of the questions and provocations that we pose within this paper will further assist firing up some lively neurons to help organisations change and thrive.” 

About the authors:

Steven Moe is a Partner at Parry Field Lawyers with 20 years experience and a focus on empowering impact.  He has worked as a lawyer in Wellington (3 years), London (3 years), Tokyo (4 years), Sydney (4 years) and since 2016 based in Christchurch.  He hosts the podcast seeds with 180+ interviews and wrote the book “Social Enterprises in NZ: A Legal Handbook.  He is Chair of Community Finance (impact investing with a social housing focus) and shared some of his journey here.  His profile has more: https://www.linkedin.com/in/steven-moe-0b3b008a/

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

Craig Fisher FCA: Craig is a Consultant with RSM and a professional director with a strong interest in governance, audit and assurance, and sustainability of impactful organisations.  He is a Fellow Chartered Accountant with nearly 30 years of public accountancy experience, a former Audit Partner, and the former Chairman of the RSM New Zealand group.  Passionate about a strong and healthy Aotearoa he holds a range of interesting governance roles.  More details of his experience can be found here: https://www.linkedin.com/in/craigfishernz/   

Craig can be contacted on:
craig.fisher@rsmnz.co.nz
T  +64 21 899 848