A Charitable company is a private limited liability company registered under the Corporations Act and meeting the definition of a charitable entity. In New Zealand Aotearoa a charitable company has been registered as a charity on the Department of Internal Affairs Charities Register, and is eligible to receive a tax exemption. Charitable Company status is a good choice for group members who want to limit the liability of shareholders, retain flexible decision making, and have a trading purpose.
Charitable Companies are corporate entities with their own assets. They can own property, enter into contracts, and sue or be sued. Assets are legally owned by the company, as well as any debts or financial liabilities. This gives trustees or directors the benefit of having limited liability as individuals. When a director or trustee is replaced on the Board, the Charitable Company retains its assets and debts accumulated by the former directors, in a similar way a Charitable trust would.
How to Become a Charitable Company
An organisation must take two administrative steps to become a charitable company in New Zealand. The first step to becoming a Charitable Company is to apply to the Companies Office for incorporation. To do this, you will need to check that your proposed name is not already reserved or registered. The Companies Office website and the trade mark register managed by the Intellectual Property Office are useful tools for completing this process. To apply for incorporation, companies must provide the following information:
The name of the organisation
The name of the registered officer
The address of the company
A list of the directors and their residential addresses
The number of shares to be issued to each shareholder
A list of shareholders and their address
A certificate of eligibility for directors
A copy of the Constitution describing the charitable purpose
A copy of the notice of name reservation
Once you’ve confirmed your proposed name is available, you can reserve it through the Companies Office. The name of the organisation will then be reserved by the Registrar of Companies for 20 days to give you time to finalise the registration process.
How to Obtain Charitable Status
After completing the incorporation process, companies must register with the New Zealand Department of Internal Affairs Charities Services (Ngā Rātonga Kaupapa Atawhai) to receive charitable status. According to the Charities Act 2005, an organisation can register as a charity if they have charitable purposes and their officers are qualified under the Act. As a non-profit organisation, you are considered to have a charitable purpose if your work provides relief of poverty, advances education or religion, or does anything that benefits a community.
As a New Zealand company, if your main purpose is to generate private revenue and profit, you cannot be considered as charitable under the Act. You may, however, have what is called ‘ancillary’ purposes that support your main charitable objectives, as long as they’re not run independently. Your company purposes must be made clear in the organisation’s Constitution.
In New Zealand, to register your charity, you must complete an application through Charities Services. Steps include providing a copy of your rules or governing document, obtaining a Companies Office registration number through incorporation, getting and sharing your IRD number, informing Charities Services about your work activities and the geographical area and people who will benefit from the work, sharing financial information such as funding sources, and obtaining certification for each of your officers.
What responsibilities do Charitable Companies have?
Organisational leaders are responsible for choosing the right structure and officers that will support the charity work and align with its purpose and vision. In addition, all registered charities, including Charitable Companies, have three main legal responsibilities:
File an annual return and financial statements with Charities Services at the Department of Internal Affairs.
Notify Charities Services of any changes to the organisation’s name, address, officers, rules and purposes, or balance date for annual returns.
Provide the organisation’s charity registration number when collecting donations by phone or Internet.
Registered charities must also manage legal agreements such as leasing a building or hiring and fire staff, including vetting people to ensure the protection of vulnerable community members. and manage other contracts. Organisations are required to meet data protection standards outlined in New Zealand’s Privacy Act 1993, including destroying outdated records. Charitable organisations must meet health and safety standards and comply with the Health and Safety Work Act 2015.
Responsibilities of Trustees and Directors
Once appointed, group leaders oversee governance of the organisation. This can include holding meetings, setting agendas, creating charters and procedures, planning for the short and long term financial viability of the organisation, and appointing the right people to do the work. Trustees are responsible for complying with the trust deed, and if registered as a charitable trust, the Charitable Trusts Act 1957.
While financial liabilities are lessened, board members and trustees may still be liable for certain breaches under the law. They have the duty to act in the best interest of the organisation, be impartial, exercise reasonable care, keep assets safe, and be accountable and diligent. A Charitable Company is a popular choice with medium sized or larger charities interested in complex or high risk activities.
If trustees and members want to seek out funding, hire staff, or borrow money, the Charitable Company structure may provide the flexibility needed. Understandable, some organisations may view this as an added burden since this type of non-profit is likely to increase legal obligations and compliance issues.
How large does my charitable company group membership need to be?
The size of your group can depend on the type of legal structure you should choose for your organisation. An incorporated society must have at least 15 members, an industrial and provident society must have at least seven members, and a trust needs only one trustee, and a charitable society must have a minimum of five members.
How can I trademark the name of my charitable company?
The New Zealand Intellectual Property Office manages a database of trademarked companies. Before applying to register the name of your organisation, you must obtain a search and preliminary advice report. The first step is to use the Trade Mark Check tool and see if your name already exists in the NZ register. Next, you should obtain the report and review the initial assessment of whether your desired trade mark complies with the Trade Marks Act 2002. If your name is unique enough to your industry you can decide whether to proceed with the application.
Do charitable companies have to file an annual return?
Yes, as a charitable company, you will have to file an annual return with the Companies Register Office. This is different from filing a tax return through Inland Revenue. An annual return is a submission of information by company directors for the purpose of reviewing and confirming its details on the Companies Register. It doesn’t involve submitting financial information. Registered charities in New Zealand are exempt from paying taxes and therefore do not need to file an income tax return.
I am an incorporated company from another country operating in New Zealand. Do I need to register?
Yes, your charitable company must register through the Companies Office’s Overseas Register if your business activities involve establishing or using a share transfer office, or administering or managing property in New Zealand. There are three ways you can register your company to legally carry out business in New Zealand: set up your overseas company as a NZ business, establish a subsidiary company, or transfer your company to New Zealand.
What is a limited liability company?
A limited liability company or LLC is one of several possible business structures available to you as a non-profit entity. This legal structure will allow you to create a business that is recognised as a legal entity separate from its owners, limiting their liability and financial risk. An LLC still has all of the responsibilities for its legal and financial obligations, but shareholders and owners liability is limited. They are only responsible for money owed on their shares or personal guarantees they give to banks or suppliers.
For more information on how to obtain certification for your officers, visit the Charities Services website and download the form.
This fact sheet is intended as a simple overview. Non-profit law is incredibly complex and there are many components, allowances, restrictions, exceptions and important qualifications that are not described above. Dedicated legal advice should be sought from a legal practitioner before taking action.
Better Boards connects the leaders of Australasian non-profit organisations to the knowledge and networks necessary to grow and develop their leadership skills and build a strong governance framework for their organisation.