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 2022 unless a society is yet to reregister under the new Act.
- Usually used by sports clubs, cultural groups, etc. that see benefit in wider involvement.
- Members can come and go without affecting the vehicle’s identity.
- Membership: Minimum number of 10 members required (Body Corporate members do however count as three (3) individuals).
- 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?
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 including our Charities Legal Handbook. For more information, please feel free to contact us at Parry Field Lawyers.
The information contained in this outline is of a general nature, should only be used as a guide and does not amount to legal advice. It should not be used or relied upon as a substitute for detailed advice or as a basis for formulating decisions. Special considerations apply to individual fact situations. Before acting, clients should consult their Parry Field Lawyer.
