Formal organisational structures

When a group chooses to formalise its organisational structure, it becomes a legal charitable (or not-for-profit) organisation. The two most common formal structures for New Zealand community groups are incorporated societies and charitable trusts. While the two formal set-ups have some differences, both of them establish a group as a legal entity that is separate from the people who formed or make up the group.
There are two ways an organisation can be incorporated:

  • a society may incorporate under the Incorporated Societies Act 1908
  • a charitable society or trust may incorporate under the Charitable Trusts Act 1957.

Advantages

There are many advantages to having a formal organisational structure, including:

  • there's a formal document (deed/constitution) setting out what the group does and how it will do it
  • access to a wider range of grants, donations, contracts and loans
  • better credibility and accountability
  • the possibility of applying for charitable status, and so benefiting from exemptions from income tax, resident withholding tax and gift duty
  • prevention of people being personally liable for the group's debts.

Benefits of incorporation

Separate legal identity

As a separate legal entity, an incorporated group can:

  • execute documents in its own name
  • enter into contracts in its own name, subject to its own rules
  • buy, sell, own, lease and rent property, subject to its own rules
  • borrow money and give securities, subject to its own rules
  • sue and be sued in its own name.

Perpetual succession

An incorporated group has perpetual succession, which means the group continues to exist even if the membership of the group changes (as long as it complies with the law and is not wound up). This permanence gives the group further legal recognition and makes it more creditable, which will help when seeking grants or donations or entering into contracts.

Limited liability

The members of an incorporated group benefit from gaining limited liability. This means that when the group incurs any debts or other legal liabilities, it can usually only be sued in its own name, and its members are not usually personally responsible. However, members can be held personally liable when, for instance, they don't make it clear to third parties that any liability the member incurs is actually for the group.

Choosing the right structure

If you are thinking about formalising the structure of your group, you will already have a clear purpose and vision for your organisation. You also need to take into account the type of project and the role the organisation plays in the community e.g. the organisation may want to act as a facilitator and develop local projects; it may support other groups and projects; or it may undertake trading activities, either for itself or for the community. Each type of structure has advantages and disadvantages that will suit some types of groups and projects better than others. The information here provides some general guidelines about the different organisational structures, but it's recommended that you look at more technical and legal information such as:

 

Tip: Getting the advice of a lawyer and/or an accountant will help you decide which organisational structure best suits your needs.

 

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Contents of the Community Resource Kit