Characteristics of different organisational legal structures

 

 

Unincorporated group

 

Incorporated society

 

Registered charitable trust
(society-based)

Registered charitable trust
(trust-based)

Company

 

Industrial and provident society

Māori land trust

 

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 director 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

 

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Previous page: Initial considerations for organisational structures

Contents of the Community Resource Kit