What are the non-profit structures in New Zealand Aotearoa?

There is enormous diversity within Aotearoa’s non-profit sector and the different non-profit structures organisations have to choose from. Not-for-profits and charities in New Zealand range from large nationally organised entities and associations to semi-corporate and small, to informal groups that rely on casual volunteering¹. Most non-profit organisations rely on donations, gift giving/koha, government grants and contracts, service fee revenue, income from trading, investments or dividends, sponsorships, and membership fees to fund their activities.

The most common non-profit legal structures in New Zealand are unincorporated groups, incorporated societies, trusts, charitable trust boards, companies, and industrial and provident societies. Each of these types can also choose to become a registered charitable entity if they meet the legal requirements to do so. Read the following article to learn more about who regulates non-profits in New Zealand Aotearoa.

Common Non-Profit Structures

Incorporated Societies

One of the most common non profit structures in New Zealand Aotearoa is the incorporated society. This structure is a membership-based organisation that has been registered under the Incorporated Societies Act. They are managed by a committee of directors and officers. After completing the incorporation, the group becomes a legal entity and can enter into agreements. It can continue operating even when leadership changes happen and is not entirely dependent on its directors or founders. Incorporated societies have one major benefit, they offer their members protection against financial losses or legal action (liability). To adopt this type of legal structure, incorporated societies must meet several legal obligations. To learn more about these obligations, read our article on Incorporated Societies.

Trusts and Charitable Trust Boards

Charitable trusts are registered charities that hold and protect assets for charitable purposes. Trusts are managed according to their deeds and set rules and have the option to become incorporated if they are working to promote religion, education, reduce poverty, or for the benefit of a community. They are managed by a board. Charitable trusts are an example of a not-for-profit structure managed by board members. Once incorporated, a charitable trust board is allowed to make a profit on activities conducted by the organisation, as long as they are used for charitable purposes and are not distributed to members. A common example of trust revenue is profit from trading.

Charitable trust boards can own property, sign and hold mortgages, open bank accounts, and purchase properties and investments. Board members are called trustees and must operate under the trust deed. A trustee is a person or board member who is given control to manage properties and other assets for a specific purpose. Read our factsheet to find out more about trusts and charitable trust boards.

Māori Land Trusts

Māori land trusts come in multiple forms and are intended to hold and manage Māori land shares and land blocks. All Māori trusts must appoint one or several trustees to run the organisation and fall within one of three types of trusts:

• Share-based trusts with multiple owned or solely owned Māori land blocks
• Land-based trusts that manage Māori land blocks for their land owners
• Land-based corporate structures or companies established over Māori land with shareholders

For example, a Māori reservation is a land based trust that sets aside blocks of Māori land for a specific community purpose such as a meeting place, fishing ground, conservation reserve, recreational ground, or water source. To learn more about Māori land trust, read our info sheet.

Unincorporated Groups

An unincorporated group is technically not a legal structure. These non profits operate in an informal way with few or no legal requirements. They normally consist of people who are working on a voluntary basis to organise a one-off event or short term project. An unincorporated group does not need to register as a company or charity, and there are no fees associated with forming the entity.

An example of an unincorporated group is a local sports club or social committee, non profit organisations formed when two or more people come together and agree to work for a common purpose other than to make a profit. Learn more about unincorporated groups in New Zealand.

Charitable Companies

Adopting a Charitable Company as a non-profit legal structure means forming a corporate entity capable of owning assets and entering into legal agreements. Charitable Companies are private limited liability entities registered under the Companies Act 1993. This type of non-profit must register with Charities Services to receive charitable status and be eligible for tax exemptions.

Their main purpose must be to carry out activities with a charitable purpose, such as the promotion of religion, education, reduction of poverty, or a general focus on providing a service to their community. Red our article to learn more about Charitable Companies in New Zealand.

National Bodies and Local Organisations

In New Zealand Aotearoa local non-profit organisations are often attached to larger national bodies. In some cases, they may be groups of shareholders or members of the larger entity and can be involved in managing its governance. In others, they may have less autonomy. There are two types of national bodies: national non-profit structures attached to incorporated local societies and those where local groups are unincorporated.

National bodies are incorporated and have more capacity to enter into legal contracts, hire people or hold assets. Local organisations may also be incorporated and have the same legal rights, but some are unincorporated and property ownership or legal agreements are entered into by their members. Attaching to national bodies is a way of reducing liability and increasing capacity. Read about national bodies and local organisations and their legal structure.

Best legal structure for a non-profit organisation

The non-profit legal structures available to you in New Zealand Aotearoa offer multiple options. The one you choose for your organisation will largely depend on the kinds of activities you plan to do, and on how you want to manage money and make decisions. Each structure is different. Unincorporated societies are best suited for small informal groups and clubs, or people who want to organise for a one-off situation. In comparison, incorporated societies are better suited for small not-for-profit groups and clubs with more sizeable memberships and volunteers, especially community-based groups.

A key difference between each of the non-profit structures is the accountability and control they provide. Generally, non-profit leaders are held accountable to their members. Yet, a trust or company will offer much less control to a small number of people. For example, companies can be set up by one shareholder and director and trustees are not accountable to their organisation members but to those who directly benefit from the trust they oversee.

Registered charitable trusts are a good choice for most non-profit groups with a charitable purpose who want to have and protect assets. Māori land owners should strongly consider starting a Māori Land Trust(https://www.maorilandcourt.govt.nz/your-maori-land/trusts-and-incorporations/) as a way of managing corporations operating on Māori land and protecting land owners and shareholders. Industrial and provident societies are better suited for businesses that use a co-operative model and have a business or commercial purpose, such as a workers co-op.

Incorporated vs Unincorporated: Differences

There are several differences between incorporated groups vs unincorporated societies. Different non-profit legal structures each have their own legal obligations.

Incorporated societies are regulated by the Incorporated Societies Act 2022, while unincorporated societies don’t have a specific law regulating their activities. There is also a difference in the two types of non-profit membership sizes. Incorporated societies must have a minimum of 10 members or a mix of individuals and corporate bodies (worth three members), but unincorporated societies only require two people.

Another difference between the two non-profit structures in New Zealand Aotearoa is that members of unincorporated groups are personally liable for debts, while incorporated societies can transfer liability to the organisation, giving members limited personal liability. Unincorporated societies don’t have the same legal obligation to report financial activities entities registered under the Charities Act 2005 do. On the other hand, incorporated societies have many legal obligations. They must follow the rules set out by the Companies Register, for example, prepare and submit annual financial statements.

Advantages of Each Non-Profit Structure

Non-profit structures in New Zealand Aotearoa each have their advantages and limitations. Unincorporated groups have no legal obligation to report unless they receive charitable status, and are therefore more informal and have fewer rules and restrictions. Incorporated societies are members-based and tend to be more democratic and organised. This structure can be more efficient and easy to manage. As a larger group, if you choose a charitable trust as a non-profit legal structure, you will have a better framework for governing and managing. As a legal structure, charitable trusts can help keep decision making in the hands of a few members, which can be a benefit but is less transparent. Members can still be involved in managing the entity and have less liability and long term stability since there are few changes in leadership.

Companies are easy to set up and a useful structure for New Zealand Aotearoa non-profit organisations that want to conduct commercial activities. Like trusts, directors are able to keep control of the organisation in fewer hands and still have limited liability. A NZ company can also get a loan more easily, though directors may be asked to sign as guarantors.

Limitations

There are also a few disadvantages to each non-profit legal structure. For example, unincorporated groups place more financial risk on their members, especially if the organisation accumulates debt or enters into a legal contract. An unincorporated group is not considered a legal entity and Directors and members must take all of the risks on. This may not be the best option if you plan to hire staff or apply for grants from external entities.

The size of membership may also be a limiting factor. Incorporated societies must maintain at least 10 members and they may be difficult to find and keep since the work is done on a voluntary basis. Board directors at incorporated societies risk their decisions being vetoed by general members at Annual General Meetings, which can slow progress or create extra work.

Charitable trusts have limitations when it comes to sharing their profits with members, and in some cases, trustees control everything. This can reduce accountability to other members and make the work less transparent to the public. The non-profit structure of companies can be viewed as too complicated for charitable community-based activities. For example, reporting requirements are extensive and can become a burden on smaller entities with few or no employees. In addition, when company directors fail to meet their obligations, they can be legally liable.

Resources

For information about tax obligations and how they relate to non-profit legal structures in New Zealand Aotearoa, visit Inland Revenue Te Tari Taake.

To make an informed decision about which legal structure to choose, take a look at this helpful table

Learn more about the legal structures of national bodies and local organisations in this article.