The Addington Farm is a not-for-profit urban farm that seeks to support the people and place of Addington so that it flourishes and grows in tūmanako (hope).  Located in the suburb of Addington they have converted backyards of houses into places that grow vegetables for the community with volunteers helping to grow them.

Wilby Le Heux is the Farm Manager and he invited Steven Moe of Parry Field Lawyers, who has a focus on assisting purpose driven organisations, to help Addington Farm become a charitable trust. Steven and the Impact Team at Parry Field assisted Wilby to consider the different legal structure options and sources of income and then develop a trust deed that suited The Addington Farm’s structure and purposes.

The Farm had started in 2018 under the umbrella of another organisation but it was time to create their own identity legally and start something fresh.  After considering the context and background, it was decided that a charitable trust would be best (how to set one up is set out in this article here).

Within a week Steven and law clerk Sophie Tremewan were visiting Addington Farm to have a tour of the urban farm and witness Wilby signing documents to incorporate the charitable trust (the visit is shown in the picture).

The Addington Farm involves the community to care for the mana of the whenua to promote principles of kaitiakitanga (stewardship), all the while allowing people from diverse backgrounds to connect and learn together https://addington.farm/

Farm manager Wilby Le Heux says “Parry Field Lawyers were incredibly supportive of our journey to set up a new charitable trust. They provided us the legal services and guidance to help us set up our own entity after outgrowing the umbrella services of another organisation.”

We enjoy collaborating with clients like this to help them set up and adopt structures that will suit them the best to achieve maximum impact.  If you would like to talk with one of our team about how we could help you drop us a line.

For more information on charities, take a look at our handbook on Charities in New Zealand here.

Introduction

An organisation may do good work but not be eligible to get tax donee status in New Zealand.  That could be because most of their funds flow offshore.  An option in that case is establishing and maintaining a fund as if it were a tax donee organisation. This article describes the steps to set up a fund as a tax donee organisation and the key points to consider.

Advantages

Not for profits that cannot obtain charity status may be able to get donee status for a particular fund. Donee status means the not for profit could issue receipts for donations to the fund of $5 or more, which allows donors to claim tax credits from the IRD. For more information on Donee Status, see chapter 4 of our Charities Legal Handbook.

Requirements

A fund is eligible to apply for donee status if it is established and maintained by a not for profit entity and exclusively used for the purpose of providing money for one or more of the charitable, benevolent, religious, philanthropic or cultural purposes within New Zealand of the not for profit entity. For more information on charitable purposes, see our article.

For a successful application to obtain donee status, the application must meet the section LD 3(2)(c) of the Income Tax Act 2007 requirements. Put simply in an IRD briefing, an application to obtain donee status must show that the fund:

  • is an actual stock of money or other assets
  • set aside on a firm and permanent basis
  • for the required purpose.
  • Additionally, the establishment and maintenance of the fund must be within the powers of the not for profit entity.

So what documents are needed?

While the Commissioner does not require written documentation, it is unlikely the Commissioner will conclude the requirements of section LD 3(2)(c) are met without written documentation.

A fund is “established” by making book entries in the financial accounts, but it is important to ensure the entries are supported by a fund and show that the fund has been set up on a “firm or permanent basis” for the specified purpose within New Zealand. A “fund” in the context of section LD3(2)(c) is an actual stock of money or other assets set aside for charitable, benevolent, philanthropic or cultural purposes within New Zealand.

The Commissioner would also prefer that more than just book entries are included in the application. This is where a founding document that sets out the establishment, operation and winding up of the fund becomes relevant, as a founding document shows the requirements of section LD 3(2)(c) are met. This document could be part of the rules of the not for profit entity, or a stand-alone document.

What would a Fund’s rules cover?

Pages 10-11 of the IRD briefing set out an example of what a founding document may look like. This is where we come in – we can help you to create a founding document. A founding document helps satisfy the Commissioner that the section LD 3(2)(c) requirements are met. The IRD also notes a founding document may increase the confidence of potential donors to the fund.

The Commissioner must be satisfied the requirements of section LD 3(2)(c) are met for the fund to be included on the list of donee organisations published by the Commissioner under section 41A of the Tax Administration Act 1994. The onus is on your entity to ensure the fund meets the requirements of section LD 3(2)(c) to obtain and maintain the listing.

Once you are happy your application meets the requirements of section LD 3(2)(c), your application can be sent through myIR or by mail.

When you have successfully established a fund, that fund must be maintained for the required purpose. Generally speaking, this involves record keeping around the composition of the fund and how the fund’s money is being used for the required purpose. It is preferable to keep the fund, particularly the fund’s money, separate from that of the not for profit entity. Additionally, it is preferable for donations to clearly state whether the money is for the fund or for the not for profit entity. Details on maintaining a fund are set out from paragraph 37 of the IRD briefing.

Summary

A fund with donee organisation status is a great option for a not for profit entity that cannot obtain tax donee status. We have helped may not for profits over the years and would be happy to discuss your situation with you.

For more information or if you have any questions you can contact Steven Moe stevenmoe@parryfield.com,  Aislinn Molloy aislinnmolloy@parryfield.com, Michael Belay michaelbelay@parryfield.com or Sophie Tremewan sophietremewan@parryfield.com at Parry Field Lawyers.

Paper for Legalwise session at Religion and the Law Conference
12 November 2021

By Steven Moe, Partner at Parry Field Lawyers

“I alone cannot change the world, but I can cast a stone across the waters to create many ripples.”  Mother Teresa

Introduction

Religious groups are filled with people who want to have positive impact on the world.  Often this is motivated by their faith.   In meetings and study groups, seminars and workshops individuals may learn a lot about examples in their faith tradition of people who helped others or gave back in some way in acts of service.  Common across different religions is themes of generosity, supporting others, helping the poor and acts of service.

While the reason for those individuals to do something positive usually has their faith as the foundation, we often find that the outworking of the new initiative may not necessarily be about advancing religion.  Instead it could relate to youth education, community services, environmental protection or mental health.

So if the religious group wants to encourage their members then how might it do so?  What are the key points to consider?  Should there be a link back to the religious group, or not?

In this paper we are going to discuss different legal structure options for new initiatives and how they can relate back to the religious group.  We will also talk about the reasons why it may be best if there is no such link.

The reason for preparing this paper is that we often see confusion on this point and what should be considered.  It doesn’t need to be that way though.

Structure of this paper

We have divided this paper into three parts:

Part 1:   Initial considerations and questions

Part 2:   Legal entity types

Part 3:   Setting up as a registered charity

Part 4:   Links back to the religious group

There are several cross links throughout this paper to others which have been written on specific topics but they key elements of those are also summarised here.  In particular we draw your attention to the “Charities in New Zealand : A Legal Handbook” downloadable here as well as a guide for Churches which is similar but with specific information here and this paper on governance for religious groups here.

Part 1:           Initial considerations and questions

The leadership of a group which is approached by an individual can help to empower them to achieve something good for the community.  Some of the key questions which could be asked include the following:

  • Who will be involved?

    • Is it one person with a concept or are there more people who see a need?
    • Can a team be developed?
    • Will this be a membership based organization where people are involved in that way or an initiative providing services or how will it work?
    • What role do you see our religious group as playing in the future?
  • What do you want to do?

    • Can you define in three bullet points the objectives?
    • What sort of business plan can be created to show how it would work?
    • Have you talked with the people you want to help – do they see the same need?
  • Is the name already taken?

    • Check if others are already using the name that is preferred because it might already be trade marked or in use by others – find that out early.
  • Assuming the person would like charitable status then which of the following four heads of charity would they aim to be involved in?

    • Reduction of poverty
    • Advancing education
    • Advancing religion
    • Purposes beneficial to the Community
    • Do you want to have a religious element or will it be secular? If there is to be a religious element then consider this
  • What funding streams might be available for this initiative?

    • Who will provide the seed funding to get the idea off the ground?
    • What sources of funding in the community are available?
    • Have you spoken with a funder – either private or community based?
    • Direct them to this information from Kate Frykberg on funding sources in NZ.
  • Could investors be interested in the idea and provide some impact investing?

    • On this topic of accessing impact investing funding sources see this overview here.
  • Is there a social enterprise type income stream where a business can also have impact?

    • This model is increasingly used to combine both purpose and profit in a sustainable way.
    • On this topic have a read of “Social Enterprises in New Zealand: A Legal Handbook” which is available here.
  • Have you performed a SWOT analysis or other testing of the idea?

    • There are lots of resources for entrepreneurs and templates – for example while written for a business audience this free business plan guide can help get ideas on paper, see here.
  • How will the impact be measured?

    • Can the idea be linked to objective criteria such as framing in terms of the Sustainable Development Goals (SDGs).

Asking some of these questions early on in the journey of the person who wants to start something will pay big dividends later.  They will not know all the answers right away but it will help to refine for them what it is that they are wanting to achieve which will be very useful for the next stage.

Part 2:           Legal entity types

“One of the great liabilities of history is that all too many people fail to remain awake through great periods of social change. Every society has its protectors of status quo and its fraternities of the indifferent who are notorious for sleeping through revolutions. Today, our very survival depends on our ability to stay awake, to adjust to new ideas, to remain vigilant and to face the challenge of change.”  Martin Luther King Jr.

There is an easy to understand metaphor when it comes to legal vehicles that can be used.  Without this it can seem a bit overwhelming to try and choose what type of entity will be best.  That is, imagine that you are wanting to buy a new car.  You wander around looking at all the different size cars, colours and features.

The most important question is to think about what you will use the car for.  Are you planning to go up skiing?  Well maybe get the 4×4.  Do you want to cruise around town in the summer?  Well maybe get the convertible.  Do you have 3 children?  Maybe get the seven seater van.

In the same way that you consider a new vehicle it is important to think about the legal vehicle you want to use in the same way.  Depending on where you want to take it and what you want to use it for should determine what legal entity type you want.

Let’s imagine we are now at the legal vehicle lot.  A few of the options to consider would be:

  • Charitable Trust: A simple and easy structure which we find often works the best for a new initiative the key ingredients are to decide on a name, who the trustees will be (usually 3-5 of them) and what the purposes are. The benefit of this is also that people generally understand that a charitable trust is set up to advance charitable objects so there can be less explanations required.  We’ve done a guide here on how to set this up.
  • Incorporated Society: While an option we find these can become very political as there are elections and members so we do not recommend this structure. It may be appropriate in a very member driven group such as sports clubs.  There are new changes coming in (finally) which will affect incorporated societies soon.  As a side point some people are confused thinking those changes will affect all charities – they won’t.
  • Company: Well understood, the limited liability structure is an option although there are certain assumptions that people will make about them – in particular that they are for profit. In fact, a company may be used to advance charity and be registered as a charity itself.  You will need to have a name, shareholder and directors.
  • Combination of Charity and Company: Increasingly we are seeing this combination of structures being used. It could be that the charity owns 100% of the company (in which case both need to register as a charity) or it could be that they are aligned and work together.  It is possible that the company be for profit and for purpose.

Of course it may be that the situation of a particular group has a certain way of arranging things – for example, it could be that they use unincorporated associations.  Some denominations may have ways of organizing the ownership of property as well which is unique to them (this is the case for the Baptist, Anglican, Presbyterian denominations).

It may also be that a religious group is part of an international movement and that they will want to have input on the structure as well and how leadership is chosen.

When it comes to a Founder and how they relate to the new charity we have written an in depth article about common issues we see, which is here.

While we have not focused on it there are other options as well such as the idea of a bare trust – this can be a helpful way for assets to be held, depending on the context.

Getting the legal vehicle chosen is really important as we have seen too many people set up an entity and then a year later be looking to switch to another form.  That can be done and most often when winding up the assets can be transferred to another entity – but that is inefficient, costly and takes time.  Why not get it right from the start with a bit of extra homework and consideration?

One of the key elements is to focus on the purpose and mission – let that guide the action taken and the vehicle that is chosen rather than the other way around.

Part 3:           Setting up as a registered charity

If the legal vehicle is chosen then the next stage is not automatic – registering it as a charity with Charities Services.  That key step is actually really important though to provide standing in the community as there is credibility from doing so.   Being able to talk to funders, donors, community leaders, volunteers and other stakeholders will be enhanced by having this status.

There are also major tax benefits of being a registered charity which cannot be overlooked.  The two key benefits are that  the entity will not pay tax and it will be able to give tax deductible receipts to donors.  This can be a major incentive to encourage generosity because if someone gives the new entity $3,000 then they can claim back $1,000 at the end of the financial year when filing their personal tax returns.

In the last year we have helped about 40-50 new charities set up and sitting on the Charities Services sector group have seen a lot of people struggle with the detail of this step – however with good advice it is definitely possible to get onto the charitable register and join around 28,000 other entities who have achieved that status.

Part 4:           Links back to the religious group

This is perhaps the most important question for the religious group – will there be ongoing involvement, or not?  In this final part we are going to raise some points which it is important to think about.

From the originating group’s perspective someone with new enthusiasm to start an initiative can be very helpful to further enhance what they do.  Selfishly it may feel like the new initiative is coming from a member and so of course it should be linked back to the religious group which has inputted into that person’s life.

If there remains an association then the religious group could use this as a way outwork their own mission in the world.  This could be in an aligned area where there is a need.  For example if someone sets up a youth focused charity then there could be lots of synergy with the religious group.

However, it is important to consider if the new entity will be under the “control” of the religious group.  That could result from having the ability to appoint all the new trustees of a trust, or remove them all or the power to force a wind up.  We have spent a lot of time on this article on this point so if this is of a concern have a read here.  The point is that if a religious group does control the new initiative then it may need to consolidate the accounts with their own.

Another consideration is that even if the new initiative starts with strong links it may be that over time there is less of a close link.  For example if a preschool is started it might initially be connected back to the Church but over time it might be that they become less connected.  We have seen this happen with social services in particular where the origins are with a religious group but then the new entity grows and grows and eventually dwarfs the starting point.  It is usually best for it to grow into its own stand along initiative by then.

It is also worth considering if what is planned actually has alignment back with the religious group.  For example, a youth focused charity trying to prevent youth suicide may find that its funding sources want for the work it does to not have an affiliation with a particular belief system.  Having the name of the group involved or including an “advancing religion” purpose as an afterthought in the Trust Deed may actually hinder the new entity when it comes to seek funding.

Having said that, some new initiatives do naturally link back and it may be appropriate to control them and consolidate accounts.  As an example a religious group might want to be more active in the community and meet pastoral needs so it might decide to start a funeral business.  The money generated from the business in profits could then go back to the religious group but perhaps key is that the business itself could make use of the facilities of the religious group both in terms of people, buildings, food preparation while also being there to support those at a vulnerable time who have lost a loved one.

Having considered all these points the key is that it should not simply be a given that the religious group stays involved in the new initiative.  Instead, it might be the place of the elders of that group to help shape and guide the person with the new idea but ultimately to let them fly free with their idea.  This is perhaps the most altruistic attitude that can be taken – rather than ongoing control, instead allowing something new to start.

As a final note we are aware that many religious groups themselves are not operating in an optimal way.  Assisting someone else with working out their vision and how to achieve it might actually be the springboard to reconsider the religious group itself.  For example, many groups that have been around for a long time may be unincorporated associations which potentially means that there members themselves have liability.  It can be worth considering the legal form of the entity, how its governance works, how decisions are made, the links with other groups and a myriad of other points which can help the religious group operate even better.

We hope this paper has been helpful and are happy to brainstorm and discuss with people about what might be the best option in their own situation!

Questions can be sent to stevenmoe@parryfield.com

We have helped many overseas charities set up in New Zealand.  Why is it an attractive place to set up?  This is a very generous country with a population that is open to supporting others.  Also, the regulatory environment makes it easy to start a charity.  In this article we want to outline some of the key things to know from an overseas perspective if you are looking to set up here.

Before we dive in please note that with this focus we have not gone into the detail of the process to set up a charity itself which we already covered in detail in this article so read that one in combination with this one.  Instead we are thinking about the key things to know if you are an overseas charity which is looking to set up in New Zealand.

What we find is that the following are the crucial points to consider:

  1. Purpose – focus on New Zealand? Is the new charity being set up to do the work you do in another country on the ground here?  Or are you looking to fundraise in New Zealand to send the funds back offshore?  The answer to this is really important because a New Zealand charity can be set up easily BUT will only qualify for tax donee status (favourable tax position and ability to issue receipts to donors so they can claim back 1/3 of what they give) if 75% of the funds are used in New Zealand.
  2. Purpose – focus offshore? If you plan to send the funds back offshore this is important to be clear about at the start.  If the funds raised here are to go offshore then you may still qualify if you can come under Schedule 32 status (funds are to be used offshore for humanitarian purposes) – we go into detail about this here as we have helped close to 20 obtain this status.
  3. Trustees: It will help with the application to show a connection to New Zealand so rather than having all offshore trustees it is best to have a majority who are here in New Zealand. It is possible to have only offshore trustees but if you do then this is likely to convert the trust into a foreign trust with some accounting implications (speak to your accountant about this).
  4. Accounting and tax: picking up on that last point it is important to structure things well so that you are in the best position from a tax and accounting position so as well as talking to your lawyer make sure you get input from an accounting professional.
  5. Connection to overseas entity: It will be important to think through how closely aligned the new entity will be. For example, should all new trustees be approved in writing by the overseas charity? Will there be an MOU in place about how things will run?  Will there be a license agreement about the use of trademarks?  All these things need to be thought through.  It may be that instead of a close connection that it is intended that the new entity is to be independent – that’s fine too.
  6. Understand the local context: Find out more about how things operate here for charities – you can do that by downloading our free book for Charities in New Zealand here. We also host a call every two months for the impact sector where many people share about what they are seeing – examples of these are here.  It may help to get a better understanding of the society here too – for example the relations with Māori and the unique value that brings to the way we operate here.  Many charities choose to include a clause about honouring the principles of the Treaty of Waitangi or translating headings in their Trust Deed.  The point is it helps to get to know the local landscape and we can help with that process.  One of our Partners hosts a podcast called seeds theseeds.nz which has hundreds of interviews with local people doing good so there are many stories to learn from.

    Our team is experienced with overseas entities coming here and setting up charities and social enterprises. We would be happy to assist you in your journey. For more information, please feel free to contact Steven Moe stevenmoe@parryfield.com or 021 761 292, Aislinn Molloy  aislinnmolloy@parryfield.com or Michael Belay michaelbelay@parryfield.com  We also have free resources for start-ups, boards and companies including a “Start-ups Legal Toolkit” which covers the key issues we see people face when starting out.

 

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.

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

We live in unprecedented times. In this short guide we have set out key issues which we think Charities in New Zealand should be focussed on.

We will update this article as we have further information and expand it more.

Key Information

We recommend looking at this site for the latest Government announcements on COVID-19. Also, note that there is a specific page for community groups where there is more detail – in particular for eg Churches, regarding gatherings, here.

Government support for Charities

While initially unclear, the government has confirmed that this wage scheme and leave scheme apply to registered charities, non-government organisations, incorporated societies and other entities. These groups can apply if they meet the qualification criteria. We found that this information was the best to refer to but this summary from Deloitte is helpful as well.

Charities Services guidance

Charities Services have published this guide and key points to note are:
• They remain open and will continue to operate to process registrations etc;
• Annual returns can be extended – best email for info is info@charities.govt.nz;
• Charities Services will not be accessing their post during the shutdown so contact by email;
• They suggest formally postponing AGMs if needed.

Governance

We suggest this is a great chance to look back at your purposes and ensure that they are being followed. Why not also check policies and other rules? We also suggest you ask questions as a governing body to ensure that everyone understands the finances and budgets – how will they be affected? Remember, there are obligations as trustees which need to be complied with, for a summary see here. Finally, if you are making important decisions then record them in minutes of meetings. It may be that due to physical distancing you will need to adjust how you have meetings – we use Zoom.

Contracts

Consider seeing what they say about “Force Majeure” events – things outside of your control – there may be provisions which help to delay provision of services or goods at this time. Is some renegotiation needed around the terms? Price? Timing?

Leases

If you have a commercial lease have a look and see if there is an “Emergencies” clause. If you have such a lease it depends what it says – so it is worth checking your agreement with the Landlord. If you have a recent ADLS version Deed of Lease (which is industry standard) then there is a definition of “Emergency” which includes an epidemic. Clause 27.5 then has provision about access to the property in an emergency – see the screen shot – that refers to “a fair proportion of the rent and outgoings shall cease to be payable…” in some circumstances where you are unable to access the premises as a consequence of the emergency. Use that clause as the basis to talk with your Landlord in the coming weeks.
As a side note, if you only ever signed an Agreement to Lease, don’t panic that it doesn’t have that clause, as the Deed of Lease provisions are deemed to be incorporated into the Agreement to Lease as well (if it is an ADLS form) – see clause 4 of the ADLS Agreement to Lease form.

Other guidance

There is a lot out there – but here are some resources:

• For those in Churches, we have created this book – the principles would apply to any charity.
• Philanthropy NZ have issued this helpful summary of things to consider for COVID-19.
• As mentioned above, check out the Charities Services link here and what they refer to.

On March 26 2020, the Government announced more support for community groups. You can find out more here.

Questions?

This article is not a substitute for legal advice and you should consult your lawyer about your particular situation. Feel free to contact Steven Moe stevenmoe@parryfield.com or Kris Morrison krismorrison@parryfield.com  at Parry Field Lawyers.

Are you an entity that carries on business for the benefit of a registered charity? Then it is essential that you are aware of the incoming changes to business income tax exemptions. This article explains what the current law is and how the incoming changes will impact both registered and unregistered entities.

A key benefit of being a registered charity is enjoying the tax exemptions on business and non-business income set out in the Income Tax Act 2007. Under section CW 42, registered charities do not need to pay tax on their business income provided that they carry out their charitable purposes in New Zealand. However, the section goes further and extends the exemption to entities that carry on business for the benefit of a registered charity. This means that businesses can benefit from this exemption without registering with Charities Services. Therefore these businesses are not obliged to comply with the charity reporting requirements.

The Government has been concerned that some businesses may be taking unfair advantage of the provision, undermining the transparency and accountability mechanisms in the Charities Act 2005. As a result, the Taxation (Annual Rates for 2018-2019 Modernising Tax Administration, and Remedial Matters) Act 2019 narrows the eligibility for this exemption. Taking effect from the 2020-2021 income year, an entity must be registered as charitable to be eligible for a business income tax exemption. This means that an unregistered entity carrying on business for the benefit of a registered charity is no longer eligible.

This will have an impact on companies that are owned by a charitable trust. From 2020, the charity’s registration will no longer shield that company from income tax obligations. Entities that are currently relying on another’s registration need to consider whether they are eligible for charitable registration in order to retain this benefit. This could involve revising the constitution of the business and making clear it is sending profits to the charity.

 

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. Our team is experienced with charities, social enterprises and trusts that are common in this area of law. We would be happy to assist you in your journey. Please feel free to contact Steven Moe at stevenmoe@parryfield.com or 021 761 292 should you require assistance.

Interested in pursuing a purpose or cause that benefits the community? The type of vehicle you use is critical in ensuring your efforts are effective and that any assets you hold are protected.

Charitable Trusts and Incorporated Societies are two common vehicles used in New Zealand that often cause much confusion. We provide a short summary outlining the benefits and drawbacks of each option below:

Incorporated Society

• Governed by the Incorporated Societies Act 1908.
• Members can come and go without affecting the vehicle’s identity.
• Minimum number of 15 members required (Body Corporate members do however count as three (3) individuals).
• Usually used by sports clubs, cultural groups, etc. that see benefit in wider involvement.
• Accountability: committee members (officers) are accountable to the members.
• Administration costs: annual financial statements must be filed and annual general meetings held.
• Control: democratic control of the vehicle and its activities by its members. Inefficiency may result if majority of the members hinder the society’s purposes. There are some stories of members ousting officers but in our experience this would be very rare.

Charitable Trust

• Governed by the Charitable Trusts Act 1957/Trust Act 2019.
• We recommend at least three trustees or an odd number to prevent conflict.
• Accountability: individuals (a.k.a trustees) need to operate in accordance with the trust’s deed or be held personally liable for breaching their duties as trustees.
• Administration costs: proper records required for activities undertaken, etc. Trustees must meet regularly to make decisions as required by the trust deed.
• Control: decisions are made by a select few which may mean greater stability and efficiency. Conflict between the trustees however could adversely affect the performance of the trust. As trustees appoint each other, the ability to change hands of controlling power may be difficult.

Various factors must be considered before committing to a vehicle. We generally find that a Charitable Trust is the most flexible of the two. However, it is important that you consider how your operations are likely to look like. Imagine the future. Will your vehicle advance or hinder your ability to effect your purpose?

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Our team is experienced with charities, social enterprises and trusts that are common in this area of law. We would be happy to assist you in your journey. For more information, please feel free to contact Steven Moe at stevenmoe@parryfield.com or 021 761 292. We have free resources for start-ups, boards and companies including “Start-ups Legal Toolkit” which covers the key issues we see people face when starting out (it’s a free PDF guide in the resources section of this site).