Social Enterprise - Parry Field Lawyers

Parry Field Lawyers are pleased to release “Social Enterprises in New Zealand: A Legal Handbook” by Steven Moe. The book is a first of its kind and is intended to resource the Social Enterprise sector with useful information relevant for Social Enterprises. It is available as an eBook or a printed copy.

The 100 page book features and introduction by Alex Hannant, the CEO of Ākina Foundation and covers a range of topics such as:

what Social Enterprises actually are;
the different forms of legal structure they can take in New Zealand;
options for reform of the Social Enterprise sector; and
useful information for Social Entrepreneurs.

To get the ebook click here

Printed copies will also be available to those who would like one with a suggested donation of $5 to the Parry Field Charitable Foundation (you can learn more about that registered charity here).

Comments from a few advance readers are set out below.

If you find this resource helpful then please consider joining us in spreading the word to others by sharing this page on social media (see icons above) or emailing the link to one or two other people.

Comments from advance readers of the book:

This is one of the clearest and succinct summaries of issues around Social Enterprise I have read. It is a great resource for those entering into Social Enterprise and a good reference for those already involved.

Peter Townsend
CEO, Canterbury Employers’ Chamber of Commerce

Social Enterprise is becoming increasingly important in New Zealand as we work to solve our complex social and environmental issues. This handbook is an excellent starting point for anyone interested in learning more about social enterprise. I hope it will stimulate discussion and understanding of what is a very exciting opportunity for social and economic development in our country.

Louise Edwards
Chief Executive, Rātā Foundation

Our world has changed. It is now time for New Zealanders to take social enterprise and social impact seriously. This book clarifies the meaning of social enterprise and begins to show organisations how they can have a real positive impact on society. It is an excellent start to enable us all to move collectively to a new way of doing business.

Dr Rachel Wright
Director, Centre for Entrepreneurship
University of Canterbury

A great starter booklet for those wanting to get a basic understanding of social enterprise and the issues and opportunities for making it blossom more fully in New Zealand.

Dr James E. Austin
Eliot I. Snider and Family Professor of Business Administration,
Emeritus Co-Founder Social Enterprise Initiative Harvard Business School

I found Steven Moe’s book both interesting and valuable and believe it will stimulate discussion and further progress in this important area of social and economic development. A strong economy that marries sound business practice with social purpose will mean a more resilient New Zealand.

Dr. John Vargo, Executive Director
Resilient Organisations Ltd

This clearly written handbook is full of practical guidance and thought-provoking insights for social entrepreneurs and their advisers.

Professor Matthew Harding
Chair of the Charity Law Association of Australia and New Zealand

Steven Moe’s book serves to demystify the fast growing social enterprise sector, making it more accessible to both the practitioners and the curious. There is an unnecessary divide between the purely commercial and the charitable, and when they come together some of the most challenging social and environmental issues can been solved and we getting a little bit closer to building a more diverse and inclusive society, where everyone has the opportunity to participate on an equal basis.

Michelle Sharp, Chief Executive Officer
Kilmarnock

Excellent answers to common questions facing the growing number of humans waking up to the new way of thriving in business. I’m excited about the time when this is a history book, marking the time when global business began the paradigm shift to all business being ‘business for good’. Thank you Steven for being a powerful part of this change in New Zealand.

Kit Hindin, Start-Up Activator
Ministry of Awesome

I think the book will make a very valuable contribution to the emerging discussion about social enterprises in New Zealand, and how we can create a better eco-system that will allow them to flourish. I commend the book to anyone who is interested in exploring how we can remove barriers to finding innovative solutions to some of New Zealand’s pressing problems.

Susan Barker
Co-author of The Law and Practice of Charities in New Zealand,
Director of Sue Barker Charities Law, Wellington

At last a lawyer’s perspective on the social enterprise sector in New Zealand. Steven Moe’s book provides valuable and useful information for social enterprise practitioners on how to approach the messy legal and regulatory environment faced by the sector. It is a welcomed addition to New Zealand’s social enterprise literature.

Lindsay Jeffs, Director
Social Enterprise Institute

This is an excellent resource for the growing social enterprise sector in New Zealand! Parry Field are leading by doing, which is what this sector needs most right now.

Camia Young
Founder of Ohu Development

An easy to read book that touches on key topics that will surely stimulate a lot of discussion at both theoretical and practical levels among the New Zealand Social Enterprise community.

Dr Sussie Morrish, Associate Professor of Marketing
Department of Management, Marketing and Entrepreneurship University of Canterbury

Steven Moe has written a very readable, practical and accessible primer for all those interested in driving social change in New Zealand through the application of sound business principles. I congratulate Steven on his proactive leadership and heartily recommend his legal handbook, “Social Enterprises in New Zealand,” to social enterprise stakeholders in New Zealand and throughout the world.

Marc J. Lane
Author of “The Mission Driven Venture: Business Solutions to the World’s Most Vexing Social Problems.”
The Law Offices of Marc J. Lane in Chicago.

This is a landmark piece of work for the emerging social enterprise scene in New Zealand. This resource will be a great conversation starter to help build this community in NZ. Great leadership on the start of this journey. Kapai!

Tim Jones
Grow Good/ B Corp Ambassador

A big change that we have seen over the last few years is with the number of people looking to include values and a purpose within their early stage enterprises. Often these entrepreneurs don’t have the knowledge of the legal options and this “legal handbook” will not only reduce time spent but also minimize costly errors. The handbook also gives a great overview on a number of questions which are important for New Zealand to tackle over the next few years.

Geoff Brash
Founder, GBJ Innovation
Organiser/Facilitator/Mentor, Startup Weekend

An excellent “Field Guide” to social and business structures; what they are and how they work. Steven outlines a path through a very complicated maze of options. Disruptive technologies (exponential and otherwise) are having a significant impact on traditional structures. It is time to rethink how social focus can be most effective.

Rob Lawrence, R & D Specialist
Canterbury Employer Chamber of Commerce

Social Enterprises are becoming an increasingly popular topic of conversation. But with a variety of different meanings attached. Steven Moe provides a very helpful attempt to add clarity to our conversations, to explore some creative options and to point us to some helpful resources.

Alistair Mackenzie
Teaching Fellow, Laidlaw College
Author of “SoulPurpose: making a difference in life and work”

This helpful text comes at an exciting time for social enterprise in New Zealand. We need to use this opportunity to talk about the path of existing social enterprises and about the possibilities across the social enterprise spectrum. We need to help the current not for profit sector gain the skills and experience to explore enterprise. And we need to understand the role of the private and philanthropic sectors in providing capital and support.

Jenn Chowaniec
Trust Coordinator, Wayne Francis Charitable Trust

The label ’social enterprise’ seems to be very ‘on trend’ at the moment – however defining a ’social enterprise’ still remains reasonably elusive. In a country where many businesses have always operated in a socially good way without seeking recognition or formalising business models – this book will help us look at our unique way of doing business and I hope gather conversation to ensure our communities and governments insist Aoteoroa not only does ‘business for good’, but is a leader in the business transformation.

Jo Blair
Founder of Brown Bread

This is an incredibly poignant time to really kickstart this conversation: Canterbury is full of talented and dedicated people working in the ‘social enterprise space’, but oftentimes without a legal structure that really works for them. As leaders, customers, volunteers and commentators in this space, we have all grappled with this particular question – so we’re fortunate to have this piece of work aggregate some of the common opportunities and challenges to enable us to move forward. Onwards and upwards!

Erin Jackson
Director, Narrative Campaigns

This is a “must have” for anyone looking to start up their own social enterprise. It’s a great snapshot of the Social Enterprise legal landscape leading up to the 2017 SEWF and I can’t wait to see what opportunities exist for Aotearoa New Zealand afterwards.

Anthony Rohan
Enspiral Accounting

This book pulls everything you need to know to set up a social enterprise from a legal perspective in a way that is easy to read and understand. It will serve as a reference point for much of our decision making and is a must if you are setting up in social enterprise.

Rebecca Parnham
Co-founder, Krama & Co.

Social enterprise is the future, and this book provides a great launching point for practitioners and their advisors. Thank you for providing this insight and snapshot, Steven!

Anna Guenther
Chief Bubble Blower & co-founder
PledgeMe, a crowdfunding social enterprise

One of the most confusing aspects about setting up a social enterprise is getting the legal structure right. You might have thought the hard work was done when you had the great idea that you hope can become a self funding business that also achieves good in the community. In fact that is just the beginning of the journey because you also need to find the right type of entity (separate to you as an individual) which can move the idea forward.

In New Zealand there is currently no legal structure which is specifically aimed at being a vehicle that social enterprises can use with confidence. In another article this lack has been discussed in more detail and that issue can be further explored here. For now, we need to make do with the legal structures which are available and the two most common are setting up as a company, or setting up as a trust. This article looks at both of those options.

One of the key points to consider before we look at the detail of each option is to remember that you need to “tell your story” in a compelling way to future investors, funders and the community. Choosing the right structure is therefore really important because that becomes a fundamental part of that story. Will it be easy to explain to funders who offer grants that you have a company structure and are the sole shareholder? Probably not. If you want investors who are seeking returns on their investment then will they easily understand that you have set up as a trust? You get the idea. So thinking through who your story needs to be told to will be important when thinking through the structure that is most appropriate.

Why set up as a Company?

A company structure offers a model which is well known and is easily explained. We see this used quite a lot in New Zealand not just in “for profit” scenarios. The word “limited” at the end of all company names in New Zealand is there for a reason – it is an effective way of limiting and containing liability that the entity may incur. That provides comfort for shareholders who will not be personally liable if the venture does not succeed. The contrast with trying to run a social enterprise in your personal name should be obvious – in that situation you have 100% control but could also be personally liable for debts that are incurred.

One of the other main advantages of this structure relates to governance. The founders who had the great idea can also be the shareholders and therefore retain control over the direction of the company. The company will have a board made up of at least one director and they are usually appointed by the shareholders which again offers another level of control to those who founded the company.

One of the downsides of setting up as a company has been hinted at earlier: people assume that a company structure is being used because there is a desire to make a profit. If your strategy is to approach foundations or other groups who might provide large scale funding for your idea then that can make it tough to explain. One of the ways to deal with this is to try and hard wire your purpose into the company structure itself by stating clearly in the founding document (in the case of the company, the Constitution) what the purpose of the company will be. This will be essential if you decide to apply for registration of the company as a charity with Charities Services because they will look at the purposes which are set out there to decide if your entity meets the criteria to be registered as a charity. For more on these issues see this article here.

Why set up as a Trust?

Setting up a trust is probably the most common form that is used in New Zealand. It is a structure which is easily explained and because there are no “shareholders” as such it provides a clean story to explain to people. There is something of an inbuilt assumption that if you are a trust then it is automatically assumed that this is a “for good” type of entity. This is in contrast to the company structure where there can be an assumption that there is a “for profit” element as a main objective.

A trust does not have shareholders and is instead guided by trustees who form a Board. In some ways this might be seen as providing less control to the original founders. However, in practise the founders will choose trustees who share the vision for the trust so that they can ensure it follows in the direction intended. One of the key decisions at an early stage is how to make decisions about replacement trustees – will they be shoulder tapped by current trustees, elected or some combination of both those options? Governance issues will sooner or later become a key point for the trust so it is best to get this sorted early. This aspect and the issues involved is explored further in this article about governance here.

The purpose is also safeguarded by the founding document for a trust, the Trust Deed, which will have a “purposes” section that sets those out clearly. It is really important to make sure that the purposes decided on accurately reflect what the trust is intended for. As with a company structure if you go to Charities Services this will be really important when they decide to register you as a charity (or not). One of the weaknesses we see is that people do not define the purpose using terminology and ways of describing what they will do so that they fit within one of the four recognised charitable purposes. For more on this, see the article here.

What about two for one?

As can be seen each of the most commonly used structures has both pluses and minuses. One option we have seen people do is to set up using both structures in order to try and get the unique advantages that each provide. In that scenario there is usually a trust which has been registered as a charity and has donee tax status. When telling the story to funders and donors that is a structure that can be easily explained and they can get on board with.

At the same time the trust may have a trading arm which is set up as a company. Usually the shareholder will be the charitable trust. The income that is generated by the business of that company then usually will go back to the trust for it to continue carrying on its charitable purposes. But having the company may provide more flexibility such as a vehicle to enter into joint ventures with other entities or seek other investors into the company. Like most structuring it is important to get good accounting advice on some of the tax and accounting implications of setting up in this way as well.

Conclusion

We hope that this overview of the two main options for social enterprises in New Zealand has provided some clarity over why each structure might be used. Ultimately it would be great if there could be a new form of entity which took the best aspects of both the company and trust structures and that could be used going forward. For now though we need to make do with what is available and adapt the structures that we can use in order to further advance social enterprises in New Zealand.

This is a book about social enterprise which is a really interesting and challenging read. I think it will be relevant to a lot of people involved in charities and not for profits as well as those looking to start one. There are a lot of concepts and thoughts in this book which align well with many of our social enterprise clients (even if many of our clients may not realise that is what they are). The traditional words for them have been “not for profit” or “charity” and they probably have never called themselves “social enterprises” but that is really what they are!

So turning to the book it is “different” in a few distinctive ways. For one, when I bought it the person at the store said, “How much do you want to pay?” It seems that you can choose the price. The money then goes towards funding “Thankyou” which is the organisation the author co-founded. On a communication from them when I joined their newsletter it says about this price: “It’s sold at a pay what you want price to fund the future of Thankyou and so far, has crowd-funded the launch of Thankyou New Zealand! WIN!”

The other distinctive is when you open the book all the text is opposite to the usual format for a book. It runs from left to right across the page so you have to turn it 90 degrees onto its side and read it almost like a flip chart. So from the outset you can tell that the author is trying to do something different. Trying to challenge the status quo. He acknowledges this a little later when talking about this format:

“Once you get out of your comfort zone, you begin to actually ask questions – and you start thinking and challenging what you’ve always accepted as the norm. The reality is that stepping out is uncomfortable. Even as you read this book ‘the wrong way around’ in airport lounges, on public transport, on you way to school or work or around friends, there’s a chance you’ll feel uncomfortable. Why? Because there is the possibility that people will notice your re doing something differently. We live in a world where we can blend in fairly easily, that is until the moment you take a risk and attempt something that perhaps no one has done before.”

The story itself centres on three young people who had an idea in Australia that has resulted in “Thankyou”. They started it when they were just 19 years old. The back cover describes what they did as beginning with the world water crisis and how to end it but that “has developed into award-winning consumer goods brand that empowers millions of people to fight poverty with every munch of muesli, sip of water or pump of hand wash”.

Essentially they brand around 35 products and then the funds raised from the sale of those products goes to support, for example, water projects in Africa (from sale of water), health projects (from sale of body care products) and food programs (from sale of food products). You can read more about them online at https://thankyou.co/. As noted above it looks like they will be launching in NZ soon.

The book is called Chapter One because the author acknowledges up front that their story is just beginning. He uses that as an encouragement to try and say that we can try things as well because they are just at the start of their journey. He plans to write a “Chapter 2” in a few years time when they are further down the road. The opening page makes this a call to be included on their journey as he writes, “Our world doesn’t need another book; it needs an idea that could change the course of history. Write with us.” He writes later:

“This book is written as we go, to show you that any one individual, any group of people, can make their ideas and dreams a reality. You may not have ‘made it’ yet (and neither have we), but everything we have learned along the way we want to share with you, In the hope that it will encourage you, inspire you and empower you.”

The 13 chapters have catchy headings like “Turning stumbling blocks into stepping stones”, and “Build a great team to achieve a great dream”. In each chapter anecdotes and stories are told about the experiences of the author. What I found helpful was the honesty about their journey – not trying to pretend that they have “made it” but instead writing in a way to try and encourage others to try something new. The book is full of challenges to the status quo and trying to do things differently. An example of this is the following quote:

“Some people don’t think the game will ever change. But it always does. And if you aren’t convinced the game will change, it’s probably best to keep those thoughts to yourself, otherwise years later you might find yourself mentioned in a quote like this: “the iPhone is nothing but a niche product” – then CEO of Nokia in 2008.”

There are many quotes like this and there are several direct reference to New Zealand as well. For example, when describing why they want to launch Thankyou in New Zealand he writes:

“We want to empower New Zealanders, the way we’ve empowered Australians, to show the world that consumers have the power to change stuff. Many of the biggest brands in the world trial ideas in New Zealand because it’s widely known that if a concept works in New Zealand, it will work globally. So we’ve invited New Zealand to help take this movement to the next level. The thing is, we’re not just launching Thankyou Australia into New Zealand. Instead, we’re launching Thankyou New Zealand from scratch. We’ll be setting up a local team, local suppliers and local impact partners. Coinciding with this book arriving on shelves, we launched our boldest and most ambitious campaign yet, inviting both Australians and New Zealanders to make a choice – to either help launch Thankyou New Zealand or not to. Will it work? We can’t guarantee that it will. But I love this thought: if it does, then together two of the smallest countries in the world (at times underestimated), who both bat above their weight globally in sport, entertainment and music, could go not to do something the likes of which the world has never seen before.”

Is this book a world changer? No. But that would be too much to ask of anything. What it does provide is a call to move in the right direction. What is needed is for many people to start questioning the way things have always been done and this book is good because it does that. It also is empowering because it shares a journey that the author is just starting which makes it seem more possible to join in some way. Perhaps the sentiment was best summed up in one of my favourite books as a child, “The Lorax”, where Dr Seuss ends with the following lines:

“Unless someone like you cares a whole awful lot,
Nothing is going to get better. It’s not.”

And that is really the theme of this book too. We need to care. We need to demand change. We need to be the change. I would recommend this book to people who are looking for an inspiring and ultimately challenging read. It will definitely be interesting to see how Thankyou goes in New Zealand since we will have a front row seat on their launch here.

Review by Steven Moe, Parry Field Lawyers

One of the key questions for any start up – whether in the charitable or social enterprise arena or not – is what the best structure is to reduce the potential liability for directors/trustees.

We would recommend using the structure of a Charitable Trust. It is created by execution of a Deed of Trust, but can then be incorporated as an incorporated Charitable Trust under the Charitable Trusts Act 1957.

While there are other options such as an Incorporated Society, the charitable trust route is the process we usually follow.

Once the trust is incorporated, it is a legal person separate from the Trustees, and can enter into contracts and other obligations as its own legal person (under the Common Seal of the incorporated Trust). This means that the trustees do not personally need to be parties to the contracts it enters.

Under this structure, the liability of the Trustees personally would be somewhat analogous to the liability of directors of a Company (who do owe some duties to the Company and its creditors but not direct personal liability for Company actions), but is not clearly stated in the Charitable Trusts Act 1957. It should also be possible to obtain professional indemnity insurance for the Trustees as officers of the trust.

Every situation is unique and we would be happy to discuss your particular situation with you because what is right for one organisation may not work so well in another context.

Please note that this article is not intended to be legal or investment advice, and is only intended as a general guide. Reliance should not be placed on this article where any specific issues are concerned.

Introduction

So you have a great idea that just might make a difference in the world, but are wondering about how to formalise a legal structure that would help you do that? A charitable trust is one of the most commonly used options in New Zealand. This article describes the steps to set up a charitable trust and key points to consider.

Advantages of a charitable trust

A charitable trust can provide a number of advantages. For example:

Reputation: Funders and donors tend to gain comfort if the entity is a charitable trust (rather than a private business or individual). Where a company sets up a charitable trust and invites staff to participate, they will be motivated by the charitable purposes.
Tax status: There can be tax advantages in registering as a charitable trust with Charities Services (see below).
Longevity: A trust is not dependent on one individual and can go on long after the founder ceases to be involved, in “perpetuity” in fact.

Great examples of charitable trusts in New Zealand include World Vision, The New Zealand Breast Cancer Foundation, and Ronald McDonald House.

Key points before setting up

To set up a charitable trust you will need a founding document for the Trust – called a Trust Deed. This is the legal document which sets out the key elements of the Trust. The questions you should answer before you see your lawyer are as follows:

What are your purposes? A charitable trust must be charitable. That may sound basic but it isn’t necessarily as easy as having a good idea – for example if you want to develop a new type of transport that is safer than a car then it sounds great but by itself that purpose won’t be “charitable”. You need to fall within one of the following categories to count as a charity:
Alleviate poverty: This does not just apply to the destitute but could be for those that fall below the ordinary standard of living. It could be achieved through financial means but also through practical means such as providing food and shelter;
Promote education: Whether something is deemed to be charitable under this category will depend on its usefulness and its educational value;
Promote religion: This is about the promotion of a wide range of spiritual teachings. Charitable purposes under this heading could range from the provision and maintenance of ministers/religious leaders to the provision of buildings for worship. However, it does not include just the promotion of certain ethics.
Other charitable purposes beneficial to the community: This in a way is a “catch-all” provision. It can include such purposes as the promotion of health and recreational facilities. However, a trust will not be deemed charitable under this category if it is not for some public benefit.

Whether your purposes will fit the definitions is something that we can discuss with you.

Practical considerations, cost and timing involved

Before you take the next steps it is worth knowing a few practical points, which include:

Writing the Trust Deed – particularly the charitable purposes can take a few weeks to get all trustees on board and an agreement. Important issues such as the statement of purposes, who hold the power to appoint and remove trustees, are best decided before the trust deed is signed.
Time frames involved to get decision – a few days for Companies Office, a few weeks/months for Charities Services.
Registering with Companies Office – this is a free application which must be signed by all trustees. In addition one trustee must sign a statutory declaration in support of the application and attach a certified copy of the trust deed.
Time frames for incorporation – 1-2 days once application documentation signed.
Cost for application – this is a free online application on the Charities Services website.
Application requirements – the application form is reasonably detailed. It must be accompanied by a statutory declaration from one of the trustee applicants. Charities Services, when considering your application, will want to see good evidence of the Trust’s existing or intended charitable activities so that it can satisfy itself the actual activities are genuinely charitable.
Time frames for registration – this can take up to three months from the time Charities Services receive application.
Time frame for tax exempt status – Charities Services should notify IRD directly once your charitable registration is approved, but it can take a few weeks for your trust to show up on the IRD’s list of donee organisations.
The availability of trustees to sign documents – this can depend on where your trustees are.

Summary

Although setting up a charitable trust can take time, it is often a most worthwhile structure to have in place. We have helped many charities over the years and would be happy to discuss your situation with you.

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. 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).

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