Impact Investment - Parry Field Lawyers

There are around 28,000 officially registered charities in New Zealand doing important work to make Aotearoa a better place. People donate around $1.5 billion annually to New Zealand charities to enable them to do their work.

When it comes to an organisation, the term ‘charity’ has special meaning. To call itself a registered charity, an organisation needs to go through a proper process, which is governed by the Charities Act 2005 (the Act).

This law exists to promote public trust and confidence in the charitable sector and to encourage and promote the effective use of charitable resources. In a nutshell, it is about ensuring good practice by charities, which is a great thing for everyone.

To obtain charitable status an entity must have legitimate charitable purposes, and these are set out in the Act as: relieving poverty; advancing education; advancing religion; or other purposes beneficial to the community. In other words a cause may be good but it may not be capable of registering as a charitable entity.

This doesn’t mean that a cause that falls outside of these categories is not worthy; it simply means that by law that cause is unlikely to be able to become a registered charity – it may still be a charity which is incorporated with Companies Office though.

We realise this area of law can be confusing so have written a free guide about this for those who want to set up charities which is available here

Does charitable status matter?

There are some advantages for organisations to be registered charities. Funders and donors often feel more comfortable giving to a registered charity because they know that registered charities are required to adhere to good practice. There may also be tax advantages for the organisation, and for donors, who may qualify for tax rebates and be able to claim back 1/3 of what they give to the charity.

To help ensure charities are operating well, registered charities must submit annual reports to Charities Services. The reports are all publicly accessible on the Charities Register, so anyone can see how the charity is performing.

It is an offence to even imply that you are a registered charitable entity if you are not registered, because it is misleading. Being a ‘charitable trust’ does not mean an entity is a registered charity. The term ‘charitable trust’ is simply the legal structure. A charitable trust still needs to be registered to have genuine legal charitable status which is done by applying to Charities Services.

Registered charity or not?

It’s easy to check if an organisation is a registered charity by doing a quick search using the Charities Register.

Dealing with bogus ‘charities’

If you discover that an entity is wrongfully describing themselves as a charity to seek an advantage, you can email compliance@dia.govt.nz. Find out more about making a complaint on the Charities Services website.

We deal with charities and those who want to set them up a lot and have many free resources on our website here. Should you require assistance, please feel free to contact Steven Moe stevenmoe@parryfield.com, or Yang Su yangsu@parryfield.com or any of the team at Parry Field Lawyers.

Establishing a Corporate Foundation can improve the impact and focus of a business’s philanthropic activities. We have helped companies set up foundations which advance charitable purposes which are aligned with their business initiatives. In fact, here at Parry Field, we have set up our own charitable foundation as well.

In this article we will be going over some of the key things which we think it is important for you to know about this topic. The easiest way is of course just to have a conversation and we do that on a no charge basis, just to answer questions and work out if we could help or not.

So what is a Corporate Foundation?

A corporate foundation is a Charities Services registered charity (typically in the form of a charitable trust) established by a business to further the business’s charitable activities. For more on charities see our legal book here
Although the business and the foundation are separate legal entities, and there are considerations to ensure there are no conflicts of interest, they usually have close ties and the business typically provides financial support and other resources to the foundation
The business typically benefits from an enhanced reputation from its close ties with a registered charity as well as tax-credits for its donations to the foundation. Its customers or others in its ecosystem may also provide donations to the Foundation and possibly receive tax credits for them
An example in New Zealand would be the Vodafone Foundation

So why might you consider setting up a Foundation?

Increases credibility of business’s charitable activities
May increase employee engagement in business’s philanthropic efforts
Foundation’s registration with Charities Services provides public reassurance that its activities are for public good
May provide significant tax advantages for the business, such as:
- Business can tax-effectively fund other organisations that may not be registered charities, but are doing charitable work
- Business can use the foundation to store charitable funds during good profit years without the need to distribute it all immediately
- Foundation can make its grants repayable but the business can’t do that tax-effectively
Drawbacks of a Corporate Foundation
- Increased burden of administration from managing two separate entities – note that they are separate – there will be conflicts if you treat them as the same.
- Risk of fracture in relationship between the foundation and the business, for the reason that they are different entities and the business does not ‘control’ the foundation.
Alternatives
- Business can set-up an account with a donor advised fund but this comes with fees and less legal and practical control
- Business can set-up an internal CSR division to manage philanthropic efforts, but possibly less credibility and reputational benefit
- Business can partner directly with the charities it would like to support, but less flexibility for tax-advantageous donations
Conflict of Interests
- Although a business and its corporate foundation may work closely in practice, it is imperative that the corporate foundation have an effective strategy for managing conflict of interests. This is particularly true if the business has the right to appoint and remove the corporate foundation’s trustees
- Trustees of the corporate foundation have a legal duty to act in the best interest of their charitable trust, and Charities Services has provided some guidance on how trustees can manage conflicts of interests here
Key Points to Consider in setting up a Corporate Foundation
- What is the charitable purpose of the foundation? Should it have a broad purpose for future flexibility? Or should it have a more narrow purpose to focus the charitable efforts?
- Legal structure of the corporate foundation – we typically see charitable trust as the legal vehicle of choice, but other options such as an incorporated society or a limited liability company are also viable alternatives, each with its own advantages and disadvantages
- Relationship between the business and the foundation, such as funding obligations, rights to appoint and remove officers/trustees and access to the business’s resources
- Terms of the licence of the business’s brand to the foundation
- Registration of the foundation with Charities Services followed by granting of tax-donee status by the IRD
- As a registered charity the foundation will need to file annual returns
- The foundation’s policies – including investment, grant distribution, conflict of interests, privacy/data protection, etc…

We know there is a lot to consider and are happy to have a conversation at no charge with you on the options.

Recent changes will affect many larger entities in New Zealand from next year who will need to make new disclosures about climate related issues. This impacts everyone because it is an indication of where disclosure trends are heading.

The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 (the “Amendment Act”) received Royal assent on 27 October 2021. The Amendment Act makes climate-related disclosures (“CRDs”) mandatory for some organisations by amending the Financial Markets Conduct Act 2013, the Financial Reporting Act 2013 and the Public Audit Act 2001. The External Reporting Board (“XRB”) has recently finished its consultation process on CRDs and expects to issue Aotearoa New Zealand Climate Standards in December of 2022 (see here).

Who has to make these climate disclosures?

Approximately 200 entities in Aotearoa New Zealand will be required to produce CRDs, which include:

All registered banks, credit unions and building societies with total assets of more than $1 billion;
All managers of registered investment schemes (other than restricted schemes) with greater than $1 billion in total assets under management;
All licensed insurers with greater than $1 billion in total assets or annual premium income greater than $250 million;
Listed issuers of quoted equity securities with a combined market price exceeding $60 million; and
Listed issuers of quoted debt securities with a combined face value of quoted debt exceeding $60 million.

For now, the current statutory regime only requires large enterprise value entities to produce CRDs. However we can anticipate that smaller entities that obtain or apply for funding from such entities or obtain insurance from such entities may in future be required to report on their own climate change risks in order to secure funding or insurance.

Purpose of requiring disclosures and some comments

Although the XRB has not yet issued the standard for CRDs, there are a few key observations to note:

Currently, the CRDs are designed to help publicise the risks that climate change may pose to a reporting entity’s enterprise value.
Given the above, the primary users of the CRDs are expected to be investors, lenders and creditors – people who are most concerned about the financial health of the reporting entity.
The XRB’s the proposed standards for the CRDs have a ‘single materiality’ lens (e.g. the focus is on climate change’s financial risk to the reporting entity) but considers that this approach is a foundation that can be built upon to possibly include ‘double materiality’ in the future (e.g. disclosing on the reporting entity’s environmental impact).
In our view requiring these entities to also be talking about the impact they will have on climate would be a positive step (only reporting on the impact on the entity means this regime remains wrapped in a ‘shareholder primacy’ lens ultimately focused on impact on the shareholder – rather than the broader impact the entity will have on stakeholders).

We will update this article as the XRB releases its standard for CRDs. If you would like to know more about the statutory requirements for climate-related disclosures, please do feel free to reach out to us at stevenmoe@parryfield.com or yangsu@parryfield.com.

The Limited Partnership regime was introduced fairly recently in New Zealand through the Limited Partnership Act 2008. As such, limited partnerships may not be as familiar to Kiwi entrepreneurs and founders. In this article, we highlight a few of the advantages and disadvantages of choosing a limited partnership for your business structure. In our view, they represent a relatively simple structure which can really be useful in the right situation.

What is a Limited Partnership?

Limited partnerships are a corporate structure that combine some key features of companies (such as separate legal personality) and partnerships (such as tax pass-through treatment). In a limited partnership, on entity is the general partner(s) who manage(s) the limited partnership (day to day running) while other investors are limited partners who act as silent partners (see diagram below).

This structure is often used by venture capitalists or fund managers as the corporate vehicle for investor partners to invest their funds. For more information on the basic requirements of a limited partnership, along with a comparison of other structures, please see here.

Why choose a Limited Partnership?

Positive	Comment
Liability is ring-fenced	A limited partnership is a separate legal entity, and limited partners’ liability is restricted to contributed capital
Effective practical and legal control	Only general partners may manage the affairs of the limited partnership
Tax pass-through treatment	Tax consequences of the limited partnership pass directly to the partners
Privacy	Identity of limited partners and contents of partnership agreement do not have to be publicised

Why wouldn’t I choose a Limited Partnership?

Drawback	Comment
General partner is jointly liable with the limited partnership for the liabilities of the limited partnership	Often addressed by choosing a limited liability company to act as general partner, providing liability ring-fencing
More involved set-up	All limited partnerships require a written partnership agreement
Investors negotiate their rights and obligations	E.g. Right to remove/appoint general partner(s), exit rights, pre-emptive rights
Financial Markets and Conducts Act 2013	A partnership interest in a limited partnership may be a financial product requiring FMCA compliance

We have helped many founders and companies structure their business and each situation is unique. If you think a limited partnership may be a suitable option for your business, feel free to reach out if you would like specific input on your context.

If you enjoyed this content then we also have a guide for people doing business in New Zealand which you can download for free here.

Christchurch CBD

Christchurch

Rolleston

Hokitika