Download Charitable Trust Boards in New Zealand: Registration, Management, and Reporting and more Slides Decision Making in PDF only on Docsity!
Choosing the right legal structure for your group
What is a charitable trust board?
Charitable Trusts Act 1957, s 2 (definition of “charitable purpose”); ss 7, 8
The Charitable Trusts Act 1957 allows the trustees of a trust, or the members of an unincorporated society, to become an incorporated body – a “charitable trust board” – by registering under that Act. As a charitable trust board, these people agree to hold money or assets and carry out activities for charitable purposes.
What qualifies as a “charitable purpose” is explained elsewhere in this chapter (see “Charities and charitable status / Who can register as a charity” in this chapter). However, in the case of charitable trust boards, a “charitable purpose” also includes any religious or educational purpose, even if it wouldn’t otherwise qualify as “charitable” under New Zealand law.
By registering, the trustees or the society’s members become the members of the charitable trust board.
Sometimes a charitable society will take an additional, intermediate step and establish a trust, so that the trustees appointed can then be incorporated as a charitable trust board. In those cases, the membership of the charitable trust board consists of the trustees, rather than all the members of the society that set up the trust.
To be able to register as a charitable trust board, the trustees or the society must not be registered under any other Act.
The Charitable Trusts Act is administered by the Registrar of Incorporated Societies.
Registering as a charitable trust board
Charitable Trusts Act 1957, ss 13, 14, 19, Schedule 2
To register and incorporate as a charitable trust board, your trust or group must apply to the Registrar of Incorporated Societies (part of the Companies Office). The application must be in the form shown in the Charitable Trusts Act 1957 (Schedule 2).
Once they are registered and incorporated, the trustees or society members become a body corporate under the name of the charitable trust board. This means the board takes on a separate legal identity distinct from those individuals. The board also enjoys “perpetual succession”, which means it continues to exist despite changes to its membership (until it’s wound up), and it also has its own “common seal” (official stamp).
When a board is registered, all property held by the trustees or society members is vested in the board for the same purposes as before. The board’s liability is limited to the assets of the trust or society (although board members can be personally liable in some cases – for example, if they’ve been negligent or acted illegally). The board is liable for any transactions that are entered into in the board’s name and that the board is authorised to enter into by the trust deed or constitution.
Board’s powers and duties
The powers of a charitable trust board will be the powers set out in the constitution of the society or the trust deed of the trust.
Board members must comply with the requirements of the Charitable Trusts Act. If they’re also trustees, they’re also bound by the general duties applying to trustees under the common law and the Trustee Act 1956 (see above, “Trusts / Trustees: Their powers, duties and liabilities”).
Choosing an appropriate management structure for a charitable trust
board
What management structure is appropriate will depend on whether a charitable trust board is based on a society or a trust:
Society-based charitable trust boards – If a charitable society incorporates as a board under the Charitable Trusts Act, best practice suggests that a committee consisting of a few of the members should be responsible for managing the board. In effect, this should be no different from the way in which the society managed itself before it became a
In some cases a charitable trust board may be wound up (liquidated) by the courts – if it can’t pay its debts for example.
When a board is based on a charitable society, rather than on a trust, the board can also be wound up voluntarily by the board itself. For most trust-based boards, the trust deed will also give the trustees (that is, the board) the power to wind up the trust.
The liquidation provisions in the Companies Act 1993 (Parts 16 and 17) apply to a liquidation of the board as if the board were a company.
The board’s debts must be paid from its funds or assets. If there’s any surplus, this must be distributed to another charitable organisation in New Zealand. A charitable trust board must specify in its trust deed or constitution that any surplus assets will go to a charity with similar aims to its own. If a charity is deregistered, there will be a tax on its net assets (see “Charities and charitable status / Removal from the Charities Register” in this chapter).
Under the Companies Act, officers of a charitable trust board may be personally responsible (liable):
if they’ve misapplied money or property belonging to the board if they’ve been negligent or breached a duty or trust, or if proper accounting records haven’t been kept.
Key questions to ask
To help your group work out what its needs are and what type of legal structure would best suit it, consider the following questions (and consult the following table):
How large will your group’s membership be?
The size of your group may be relevant to the type of structure you should choose. For example:
an incorporated society must have at least 15 named members a trust need have only one appointed or elected trustee, although usually there are at least two (the same applies to a charitable trust board based on a trust) a company need have only one shareholder and one director (this can be the same
person) to incorporate as a charitable trust board, a charitable society or group must have at least five members industrial and provident societies must have at least seven members.
How flexible should the membership rules be?
An incorporated society must have rules about how people join or leave the society. These rules can be written to meet the organisation’s needs. If your group intends to begin with a limited number of people involved, but plans to become larger, an incorporated society is likely to be the best option in the long term. Charitable societies that have nominated several of their members to be trustees are not greatly affected by turnover in membership because the trustees continue to run the organisation. However, it may not be easy to change trustees. The trust deed for any charitable trust or charitable trust board can set up whatever rules a group wants for appointing trustees, but these must be specific.
Who is your group accountable to?
If your group is accountable to a wide number of people, it may be better to have a broad membership-based legal structure, such as an incorporated society. Trusts and charitable trust boards that are based on a trust aren’t accountable to a membership in the same way as the managing group of an incorporated society.
Who makes important decisions?
If the group of decision-makers in your organisation is small, it may be best to set up a trust, charitable trust board or company. If larger numbers of people are included in decision-making, an incorporated society may be suitable.
How much money or property will your group have?
If your group has or may potentially have substantial money or property, a trust may be an appropriate way to manage and use it, particularly if you want to keep decision-making within a small number of people.
the Companies Office website, and the trade mark register on the Intellectual Property Office of New Zealand website. Reserve the proposed company name by filling out a name reservation form on the Companies Office website. The Registrar of Companies will then issue a notice of reservation, and the name will be reserved for 20 working days after the date the notice of reservation is issued. Prepare an application for company registration. The application for registration must contain the full name of the company the company’s registered officer and address for service the full name and residential address of each director and shareholder the number of shares to be issued to each shareholder
Consent forms and certificates of eligibility must be provided for each director Consent forms must be provided by each shareholder The company’s constitution, which must set out the company’s charitable purposes, must be submitted alongside the application for registration The documents (notice reserving company name, application for registration, consents and certificates, and the company’s constitution) must be filed with the Companies Office. It costs $10 to reserve a name and $105 to apply to register the company.
Once the company is incorporated with the Companies Office, apply to the Department of Internal Affairs Charities Services for registration as a charitable company. The process is set out at the Charities’ website here.
Charitable companies may be suitable for groups that:
want the liability of shareholders to be limited want more flexibility in decision-making (as decisions do not need to be made by all members as with an incorporated society) have some trading purpose
Incorporated societies
What is an incorporated society?
An incorporated society is a membership-based organisation that has registered under the Incorporated Societies Act 1908. To be able to register, your group must exist for some lawful purpose other than making a profit.
By registering under the Act, the society becomes an incorporated body with a legal identity of its own, separate from the identity of its members. This means the society continues to exist as a legal entity (called “perpetual succession”) even though its membership may change. It also means the society’s members are not personally responsible for debts and other obligations that the society takes on.
The society’s activities are limited by the Incorporated Societies Act and the rules the society adopts for itself.
Usually an incorporated society’s management committee and officers deal with the admini- stration, management and control of the society.
Key requirements for incorporated societies
Incorporated Societies Act 1908, ss 4(1), 20, 31
Not for financial gain – The society cannot operate for financial gain, which means it can’t make a profit with the intention of passing it on to the members. Any profits must be returned to the society to be used for its purposes and for the benefit of those in the community who the society serves. If a society breaches this rule it can be fined up to $200, and each member that was involved in the breach can be fined up to $40. As well as this, the members involved can be held personally liable for any debt or obligation that the society took on in breaching the rule. Minimum membership – The society must have at least 15 members. However, a member that is a body corporate, such as another incorporated society, counts as three individual members. Rules – The society must have a set of rules that meet the requirements under the Incorporated Societies Act. (A model set of rules is available here. Acting within society’s objects – Once registered, the society must operate within the
how the society’s officers are appointed the control and investment of the society’s funds, and the society’s powers (if any) to borrow money how the rules can be changed.
As well as covering the matters required by the Act, the rules can also include any other provisions, so long as they’re not inconsistent with the Act and other laws.
Meetings and decision-making
Incorporated Societies Act 1908, s 6(1)(f)
The society’s rules must state how general meetings are to be called and held. To comply with this requirement, it’s a good idea for the rules to provide for:
the ability to call special meetings in addition to annual general meetings how much notice is required for calling AGMs and special meetings and for announcing the agendas for these meetings the quorum required for a meeting procedures for adjourning meetings appointing a chairperson or co-chairs, and whether they can have a casting vote (casting votes are less common than they used to be, as most groups prefer the notion of one vote per person and if a vote is equally tied, the motion does not pass. With a governance approach informed by Te Tiriti o Waitangi, there’s usually an emphasis on consensus decision-making and balancing power between tangata whenua and tangata Tiriti. the appointment of corporate representatives for meetings (if some of the society’s members are themselves incorporated bodies) keeping proper and accurate records of all meetings.
The rules must also set out the procedure for making decisions at society meetings. This will usually include:
rules about who can vote the voting procedures (for example, whether a show of hands is enough) whether members can vote by proxy, post or email
how many people must agree for there to be a valid decision (for example, a simple majority) consensus decision-making, if this is the preferred approach.
Electing the society’s officers
Incorporated Societies Act 1908, s 6(1)(g)
The rules must state how the society’s officers are appointed. Often rules state that they will be elected by the members at the annual general meeting. At a minimum, a chairperson, treasurer and secretary (the principal officers) should be elected at the AGM. Groups can decide to specify the minimum and maximum number of people on their board and rather than elect officers for specific tasks such as the secretary, the rules can specify that the officers will be elected by the board at the first board meeting after the AGM.
Controlling, investing and borrowing money
Incorporated Societies Act 1908, s 6(1)(i)
The rules must specify how the society’s funds will be managed – for example, who can sign cheques and who will collect money owed to the society. The control and investment of a society’s funds are usually entrusted to the management committee.
The rules must also specify the types of investments that are allowed when the society has surplus funds.
If there is a possibility that the society will borrow money, a rule should state how this may be done. The power of a society’s management committee to borrow is usually limited, and usually requires a general meeting of members.
The rules should also require that income and property can be applied only to further the society’s objects (aims), and that members aren’t allowed to gain financially.
Financial accounts and statements
Although it’s not required, it’s good practice for the rules to deal with accounting processes and statements, including who’s responsible for keeping proper accounts. This is important, because the Act requires a society to keep proper accounts and provide financial statements.
society’s direction, purpose or structure, or large amounts of money. The rules should require decisions such as these to be approved by members at general meetings.
The rules should also clarify the functions and powers of different classes of membership – for example, financial members may be given the right to attend meetings, speak and vote.
Officers and management committee: Roles and responsibilities
Management of an incorporated society
Usually an incorporated society’s management committee and other officers deal with the administration, management and control of the society.
Chairperson, treasurer and secretary: The principal officers
A society’s principal officers are its chairperson/co-chairs, treasurer and secretary:
The chairperson/co-chairs preside over and regulate the society’s meetings. Specific duties may include acting as spokespeople for the society in the community. The treasurer controls income and spending, keeps the society’s financial records, and prepares the annual accounts. The secretary is responsible for the overall administration of the society.
Role and powers of officers
Officers are directly accountable to the society’s members, mainly through general meetings.
Officers must act consistently with the functions and powers given to them by the society’s rules. Officers have no powers other than those set out in the rules, and they cannot do anything that the society itself cannot do.
The management committee
The management committee or board is appointed by the society’s members at the annual general meeting. The committee’s functions are to:
set the mission, aims and values of the society employ and dismiss the co-ordinator or manager
develop and propose policies and strategies for the society to consider adopting keep proper accounts and handle the society’s finances, including reviewing budgets and business plans monitor compliance and risk keep a register of members control the society’s common seal (official stamp) call general meetings.
Duties and liabilities of officers
Incorporated Societies Act 1908, s 34A
The Incorporated Societies Act doesn’t specify any general duties for a society’s officers.
In general, all officers of a society have a duty to:
act in good faith and in the society’s best interests exercise their powers for a proper purpose act in accordance with the society’s rules and objects ensure the society’s affairs are carried out in a way that does not create a substantial risk of loss to the society’s creditors ensure that the society does not incur an obligation that it can’t fulfil take reasonable care in exercising their duties ensure that they don’t profit personally from their position of trust.
The society’s rules can provide for officers to be indemnified for costs and liabilities that they incur through committing wrongful acts in good faith while properly serving the society. The society can also take out “Directors and Officers” insurance to protect their officers and in some cases entire committees.
A society’s officers can potentially face financial penalties under the Incorporated Societies Act if the Act is breached. For example, each officer can be fined up to $1,000 for failing to provide documents that the Registrar of Incorporated Societies has asked to inspect.
Apart from potential criminal liability (for theft for example), an officer may also be personally
Changes to rules – Any change to the rules must be signed in duplicate by at least three members and must be filed with the registrar, along with the minutes from the meeting where the members agreed with the changes. A statutory declaration made by a member or lawyer must confirm that the change was made as required by the society’s rules. This can now be done online at: www.societies.govt.nz/cms/customer-support/learn-about-our-online-services/file-rule-ch anges-online/file-a-societys-rule-change-online Registrar’s powers of inspection – The registrar can require the society to hand over any registers, records or other documents so that the registrar can monitor whether the society is complying with the Incorporated Societies Act. Reporting by charities – Incorporated societies that register as charities also have some specific reporting requirements (see “Charities and charitable status / Administrative responsibilities of registered charities” in this chapter).
Winding up the society (liquidation)
What is “liquidation”?
Liquidation is the process that brings an incorporated society’s existence and activities to an end. Its purpose is to collect the proceeds of the society’s assets and distribute them to the members, unless the rules require otherwise.
If the society has charitable status, any surplus assets must be distributed to other charitable organisations within New Zealand that have similar aims. If a charity is deregistered, there will be a tax on its net assets (see “Charities and charitable status / Removal from the Charities Register” in this chapter).
Voluntary liquidation
Incorporated Societies Act 1908, s 24
The members of an incorporated society may voluntarily put it into liquidation by passing a resolution to this effect (by either a simple majority or a three-quarter majority according to their rules) and appointing a liquidator (if there are any assets to liquidate) at a general meeting.
This decision must be confirmed by another resolution (again, passed by a simple or three-
quarter majority, according to their rules) at a second general meeting held no earlier than 30 days after the initial meeting.
Compulsory liquidation by the High Court
Incorporated Societies Act 1908, s 25
The High Court can put an incorporated society into liquidation in various situations – for example, if the society is unable to pay its debts, or its membership falls below 15.
An application to the court to have a society put into liquidation may be made by the society itself, a member, a creditor of the society, or the Registrar of Incorporated Societies.null
Unincorporated groups
Many community groups will not need to incorporate – for example, if your group is intended to exist for only a short period (perhaps because it’s been formed to organise a particular event, or to respond to a particular time-limited issue), or if you don’t intend to seek funding from funding agencies (who often require applicants for funding to be incorporated). In those cases, it may not be worthwhile to incur the cost of becoming formally incorporated and to take on the ongoing obligations – reporting requirements for example.
However, it’s important to understand the limitations of remaining unincorporated – for example, the risk for individual members that they will be held personally responsible for obligations the group takes on.
Benefits and limitations
Benefits of being unincorporated
No incorporation process – You will not need to go through the relevant administrative process, including providing an application and supporting documents, and showing that you meet all the relevant requirements (for example meeting the legal definition of “charitable purpose” if you want to incorporate as a charitable trust board). Fewer ongoing requirements – By incorporating, your organisation will take on a number of ongoing administrative requirements – for example, incorporated societies must maintain a register of members and file annual financial statements with the Registrar of Incorporated Societies (see “Charities and charitable status / Administrative
have the right to be indemnified (paid back) out of any property the group members hold individually, if the group’s rules provide for this.
Rules for unincorporated groups
Why have written rules
The rules of unincorporated groups will derive from an agreement between the members, or an implied agreement based on past practice, or both.
To operate smoothly, an unincorporated group should record its rules and processes for managing the group’s affairs and making decisions. Having detailed written rules helps to determine what is right and wrong if disputes arise.
What should the rules cover?
It’s good practice to have written rules stating:
the group’s name the group’s objects or purpose how a person becomes and stops being a member, and any obligations that members have how the group will resolve disputes between members how general meetings will be convened the method of voting at general meetings what officers (such as chairperson and treasurer) will be appointed to any committee, and how they will be appointed the control of finances and financial accounts how the group’s rules can be changed how to dissolve the group.
Decision-making and management
Decision-making processes
The group’s rules should clearly state its decision-making processes, including:
which decisions need to be approved by the ordinary members if voting is to be used, who can vote the procedures for voting (for example, a show of hands) and whether members can vote by proxy, post, email or secret ballot how many people must agree in order for there to be a valid decision (for example, a simple majority) specific decision-making for groups using Te Tiriti informed processes The approach for achieving consensus if this is the preferred decision making process.
Managing the group’s affairs
The management of most unincorporated groups is usually delegated to a committee of members.
If the rules require a management committee to be appointed, the committee has no authority to bind ordinary members, unless the rules state otherwise.
It’s useful for the group’s rules to deal with financial controls and investment of the group’s funds. It will help the group operate smoothly for the rules to clearly state who is responsible for keeping proper accounts and the procedures for receiving and withdrawing funds (for example, a requirement for the signatures of two committee members).
Umbrella organisations and unincorporated groups
If your group does not want to incorporate, it could instead become part of an existing umbrella organisation that is incorporated. This would allow your group to get on with its work without the costs and responsibilities of being incorporated itself. (See “Choosing the right legal structure for your group / National bodies and local organisations” in this chapter.)
There should be a written agreement between the group and the umbrella organisation to make sure the relationship is clear. Both sides should get legal advice before signing any agreement.
