Charities/NFP - Parry Field Lawyers

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

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

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.

Read Part 2 on Changes to Charities: What do you need to update?

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

“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:
E 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:
E craig.fisher@rsmnz.co.nz
T +64 21 899 848

Charitable trusts have a long history of supporting those in need. Yet those in charge of decisions about how to use funds should be cautious to ensure that any giving does not create a private gain or financial benefit to an individual. Failure to give in accordance with the permitted charitable purposes can mean a charity may lose its registered status.

To illustrate this it is good to look at a practical example. In 2014, the Charities Registration Board determined that the New Zealand Affordable Art Trust no longer qualified for registration as a charitable entity. The Board found that the Trust’s primary purpose was to promote the private interests of artists. This was outside the scope of charity as it conferred private benefits on artists which were more than incidental to any charitable purpose.

The Trust submitted that its support of artists fell under the ‘relief of poverty’ charitable purpose. This argument was rejected as the Trust chose to assist artists based on criteria such as originality, technique and development, rather than the relative wealth or poverty of the artist. The Board did acknowledge that the Trust helped to advance education in the arts for the general public, however this was not the main focus of the Trust.

A similar approach has been found in the courts. In Commissioners of Inland Revenue v White, Fox J held:

The promotion or advancement of industry (including a particular industry such as agriculture) or of commerce is a charitable object provided that the purpose is the advancement of the benefit of the public at large and not merely the promotion of the interest of those engaged in the manufacture and sale of their particular products. The charitable nature of the object of promoting a particular industry depends upon the existence of a benefit to the public from the promotion of the object.

At the risk of providing too much detail, Lord Simonds, when considering the question of whether an element of public benefit is necessary to achieve charitable status in Oppenheim v Tobacco Securities Trust Co Ltd said:

My Lords, once more your Lordships have to consider the difficult subject of charitable trusts … It is a clearly established principle of the law of charity that a trust is not charitable unless it is directed to the public benefit. This is sometimes stated in the proposition that it must benefit the community or a section of the community. Negatively it is said that a trust is not charitable if it confers only private benefits. In the recent case of Gilmour v Coats [1949] AC 448 this principle was reasserted. It is easy to state and has been stated in a variety of ways, the earliest statement that I can find being in Jones v Williams (1767) 2 Amb 651, in which Lord Hardwicke, LC, is briefly reported as follows: ‘Definition of charity: a gift to a general public use, which extends to the poor as well as to the rich …’With a single exception, to which I shall refer, this applies to all charities. We are apt now to classify them by reference to Lord MacNaughten’s division in Income Tax Commissioners v Pemsel [1891] AC 531, and, as I have elsewhere pointed out, it was at one time suggested that the element of public benefit was not essential except for charities falling within the fourth class, ‘other purposes beneficial to the community’. This is certainly wrong except in the anomalous case of trusts for the relief of poverty with which I must specifically deal. In the case of trusts for educational purposes the condition of public benefit must be satisfied. The difficulty lies in determining what is sufficient to satisfy the test, and there is little to help your Lordships to solve it.

What does this mean for charities?

Charitable trusts should ensure that any benefit they bestow are intended to create a benefit for the public. While a private benefit incidental to a charitable public benefit may be allowed, this should not be the primary focus if a trust wishes to maintain its charitable status.

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 in your journey. Please feel free to contact Steven Moe at stevenmoe@parryfield.com should you require assistance.

Are physical signatures necessary when executing legal documents?

Not always. The rules are found in the Contract and Commercial Law Act 2017 (CCLA). The core principle is that a signature must be RELIABLE in order to have any legal effect. In determining whether the signature you have provided is reliable, the questions are:

Does the signature adequately identify you?
Does it indicate your approval of the information in the document?
Given the nature of the transaction, is the means by which your signature was provided (physical or electronic) appropriate?

An electronic method must satisfy the first two aspects above in order to be recognised as an “electronic signature” in New Zealand. Generally, an electronic signature is presumed to be reliable provided:

1. The means of creating the electronic signature is:

(a) linked only to the signatory;

(b) under the control of the signatory alone; and

2. Any alterations to either the signature or the information in the document, is detectable.

However, this presumption may be overturned if the electronic signature is held not to be ‘as reliable as is appropriate’ given the purpose and circumstances in which the signature is being required. This is very much a fact-specific determination that will depend on the context of each situation. It is suggested that the following factors be considered:

the size of the transaction (i.e. the level of risk e.g. documents involving large sums);
how often you transact with the other party concerned; and
whether the other party (and yourself) often enters into the sort of agreement represented by the document.

Practical examples of these principles

Below are some case law examples that help illustrate the standard:

Wilfred v Lexington Legal Ltd

An electronic signature (in the form of an email from a client to their lawyer signing “best regards — Harmon”) sufficed as being a reliable for the purposes of entering into a contract for legal services.

Company Net Ltd v Registrar of Companies

Original signatures were required by the Registrar of Companies in relation to company incorporation documents — albeit in this case, there were issues of identifiability that caused concern. The companies office makes clear that they do accept electronic signatures for most documents.

See: https://companies-register.companiesoffice.govt.nz/help-centre/managing-your-online-account/filing-documents-with-electronic-signatures/

Welsh v Gatchell

Agreements for sale and purchases of land can be signed electronically. Notice to the other party about electronic signatures is already provided in the standard terms of the Auckland District Law Society document which is commonly used for these types of transactions.

Consequently, although electronic signatures will generally be considered reliable, where there is a lot riding on a particular document (i.e. a sizeable transaction as opposed to a mere box ticking activity), it appears prudent to require physical signatures. Where physical signatures pose significant inconvenience and you wish to sign electronically, we advise that you give express notice to the other party that an electronic signature will bind all parties to the contents of the document, and that you expressly specify the form of electronic signature required.

What documents can be signed electronically?

As noted above, documents can be signed electronically as long as the signatory is identifiable and the signature is reliable. However, there are two main caveats to this:

Legal Requirement

Where there is a legal requirement on you to give information to a person (thus requiring your signature), you must obtain that person’s consent to receiving the information through means of electronic signature.

Documents of Integrity

Electronic signatures have no effect on documents that concern “matters of integrity” such as:

Documents relating to citizenship, elections, fish and game, civil aviation, corrections, credit contracts and consumer finance, disabled persons community welfare, fisheries, medicine regulations, misuse of drugs, passports, and court procedural documents;
Documents that relate to affidavits, statutory declarations, documents given on oath or affirmation (although there are some short term changes due to Covid-19 which we discuss below);
Powers of attorney and enduring powers of attorney, Wills, codicils and the like;
Negotiable instruments;
Bills of lading;
Warrants to enter, search or seize; and
Fair Trading Act 1986 provisions in relation to consumer standards information on goods or services, and products or safety standards.

Is it sufficient to provide electronic pdf versions of the signed documents or are originals always required?

The inclusion of a counterparts clause in documents allows parties to exchange pdf copies of signed agreements through email or fax. The party last to sign the document effects a binding contract upon their provision of the signed document to the other party/parties. It is common practice for physical signatures to be exchanged in this manner i.e. physical signature presented in electronic form/through electronic means will suffice.

The absence of a counterparts clause in the document itself however means that wet-ink physical signatures will be required. A signature may be deemed unreliable where it is performed in a manner that wasn’t agreed to between the parties as evidenced in the document.

Provision of the originally signed documents is also required when executing deeds. Section 10 of the Property Law Act 2007 requires a signed deed to be delivered in order to take effect. Delivery is commonly understood as being the physical handing over of documents either in person or through post. If the intention is to effect delivery otherwise, we advise that this be made clear in the document itself by recording that the deed shall be deemed delivered upon transmission of a scanned copy of the original executed document by one party to the other.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. Please feel free to contact Steven Moe at stevenmoe@parryfield.com 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 until the society has reregistered under the Incorporated Societies Act 2022.
• 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. 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). For more information, please feel free to contact us at Parry Field Lawyers:

Steven Moe, Partner – stevenmoe@parryfield.com
Yang Su, Senior Solicitor – yangsu@parryfield.com
Sophie Tremewan, Solicitor – sophietremewan@parryfield.co

Summary

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Christchurch – Riccarton

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Hokitika

Auckland