Characteristics of different organisational legal structures

Legislation

None

Incorporated Societies Act 1908

Charitable Trusts Act 1957

Charitable Trusts Act 1957

Companies Act 1993

Industrial and Provident Societies Act 1908

Te Ture Whenua Māori Act 1993

Minimum number of people required

Two individuals

15 individuals, five corporate bodies, or a mix of both (corporate bodies count for three people)

5 individuals or existing society

Two or more trustees

One or more shareholders

Seven individual members

Trustees

Decision-making

By members at general meeting/by committee

By members at general meeting/by committee

By members at general meeting/by board

By trustees/trust board

By directors/ shareholders at AGM

By members at general meeting/by committee

By trustees

Liability of members/
trustees

Personal liability of members

In general, limited personal liability, provided decision makers act prudently and within the group's purpose and, if charitable, not for personal gain (specific provisions apply to company directors and Māori land trust trustees)

Reporting requirements

None unless registered under the Charities Act 2005

Registrar of Incorporated Societies requires:

changes of rules and office

annual financial statements (unless registered under the Charities Act 2005)

Registrar of Incorporated Societies requires:

changes of rules and office

Registrar of Incorporated Societies requires:

changes of rules and office

Companies Office requires:

annual return and changes of name, office, rules and directors

Registrar of Industrial and Provident Societies requires:

annual return

Registrar of the Māori Land Court requires:

annual financial statement and changes of trustees

All organisations registered under the Charities Act 2005 (also known as charitable entities) need to file an annual return (including financial statements) with Charities Services and notify changes to the name, address, balance date, rules, purposes, or officers of the charity to Charities Services.

Disposal of assets on liquidation

Surplus assets can be distributed among members unless charitable status, or other tax-exempt status  applies

Surplus assets can be distributed among members unless charitable status, or other tax-exempt status applies

Surplus assets must be passed on to other charitable organisations

Surplus assets must be passed on to other charitable organisations

Surplus assets can be distributed among shareholders unless charitable or other tax-exempt status applies

Surplus assets can be distributed among members unless charitable or other tax-exempt status applies

As the court directs, or to beneficial owners or successors

Best suited for

One-off situations, informal groups and clubs

Not-for-profit groups and clubs – particularly membership or volunteer-based groups  especially smaller groups with strong community links

Good for most not-for-profit groups with a charitable purpose

Not-for-profit organisations with a charitable purpose – especially where the initial trustees want to maintain control and succession

Good for groups with a commercial purpose (such as a community business)

Good for co-operatives, generally with a business/ commercial purpose (such as craft or workers–co-ops)

Only for Māori land owners or shareholders of corporations

Advantages

No external reporting requirements (unless the group is seeking tax benefits or charitable status)

Informal structure, with few rules or restrictions

Democratic, membership-based organisation structure

Easy, efficient structure for non-profit organisations (particularly smaller ones)

Provides a better framework for governance/ management than incorporated societies (especially in larger, more complex groups)

Only requires five individuals to incorporate

Charitable status and limited liability of members/trust board

Keeps control in a few hands (the trustees), while enjoying limited liability. This provides longer-term stability (but may lead to staleness/
stagnation)

Easy to set up

Useful where the group has some commercial activities (such as a community enterprise)

Keeps control in a few hands (the directors), while enjoying limited liability

Often easier to obtain loans (but this may require personal guarantees from directors)

Profits can be distributed to members (unless the group has charitable status)

Protection of land from alienation

Strong shareholder participation

Limitations/
disadvantages

Members may be liable for the debts of the group

Not a separate legal entity

Not recommended for on-going groups, where groups are employing staff or receiving external funding

Finding (and maintaining) 15 members may be a problem

Risk of committees being overturned annually (at AGM) which may lead to short-term decision-making and limited succession planning (note this can be addressed in the rules)

Not suitable for groups with a commercial purpose

Groups need to have a charitable purpose and cannot distribute profits to members

The distinctions between the different types of charitable trusts can be confusing

Control is with the trustees - there is no accountability to a wider membership base

Trustee succession planning is usually by Trustee appointment

The distinctions between the different types of charitable trusts can be confusing

Generally too complex for charitable community organisations

Reporting requirements are more complex than other structures

Directors may be liable if they fail to meet their obligations

Not suitable for broad membership- based organisations

Because they are quite rare, many accounting and legal professionals may not fully understand how they work

Not suitable for commercial enterprises

Can be cumbersome to operate due to the wide shareholder participation