To help your group work out what type of legal structure would best suit your needs, consider the following questions (see: “Table of legal entities”).
How many people will be in your group?
The size of your group may be relevant to helping you choose the right legal structure. For example:
- An incorporated society has to have at least 15 named members (although that number will decrease to 10 for societies registered under the 2022 Act).
- A trust only needs one appointed or elected trustee, although usually there are at least two (the same applies to a charitable trust board based on a trust).
- A company only needs one shareholder and one director (this can be the same person).
- To incorporate as a charitable trust board, a charitable society or group has to have at least five members (although, as a result of the 2022 Act, it will no longer be possible to apply to be a charitable trust board from October 2023).
- Industrial and provident societies have to have at least seven members.
Will the number of members change over time?
If your group intends to start small but grow its membership over time, an incorporated society is likely to be a good option. An incorporated society has to have rules about how people join and leave the society. These rules can be written to meet the organisation’s needs. For societies incorporated under the 2022 Act, members will need to actively consent to joining.
Charitable groups can have flexible membership rules, because changes to membership do not affect the way the trustees run the organisation. Incorporated societies need more specific rules for appointing or changing trustees. The group has to decide what these rules are, and include them in the trust deed.
Who will your group be accountable to?
If your group will be accountable to a wide number of people, it may be better to have a broad membership-based legal structure, such as an incorporated society. Trusts and charitable trust boards that are based on a trust aren’t accountable to a membership in the same way as the managing group of an incorporated society.
Who do you want to make important decisions?
If the group of decision-makers in your organisation will be small, it may be best to set up a trust, charitable trust board or company. If larger numbers of people are included in decision-making, an incorporated society may be suitable.
How much money or property will your group have?
If your group has or may potentially have substantial money or property, a trust may be an appropriate way to manage and use it, particularly if you want to keep decision-making within a small number of people.
How will your group be funded?
Consider where the funds will come from to establish and maintain your organisation.
Will you have employees?
If your organisation will employ paid staff, it should be incorporated. This means the organisation will have its own legal identity with the power to, among other things, enter into employment contracts in its own name.
Will your group make a profit?
If your group is a commercial venture, then consider a profit-based structure, like an industrial and provident society, a partnership, or a company. Trusts and incorporated societies can make profits, but the profits of a charitable trust or an incorporated society can’t go to members.
Is Māori-owned land involved?
If it is, you may need to consider establishing a trust under Te Ture Whenua Act 1993 / the Māori Land Act 1993.
For more information about Māori Land trusts, see the “Māori Land” chapter in the Community Law Manual.