If you’re setting up a new community organisation, whether it is social, charitable, sporting, political or something else, you’ll need to consider which legal structure will be most appropriate for the group and its activities.
For example, will an informal unincorporated group be sufficient? Or will you need something more formal, like an unincorporated group with detailed written rules, or an incorporated society, or a trust?
There are a number of legal structures that may be open to your group, each with different advantages and disadvantages. This section discusses each of those forms:
- unincorporated groups
- incorporated societies
- charitable trust boards
- industrial and provident societies.
New legislation about incorporated societies
New legislation about incorporated societies was introduced in 2022. Throughout this resource:
- the Incorporated Societies Act 1908 will be referred to as the “1908 Act”, and
- the Incorporated Societies Act 2022 will be referred to as the “2022 Act”.
Some key distinctions
With some of the legal forms discussed in this section, the decision-makers are accountable to a wider membership (for example, an incorporated society). With others, control can be limited to a very small number of people (for example, a trust or company).
Another way of categorising the different legal structures is to consider whether it means the group will be incorporated – that is, have a separate legal identity from its members. If so, the group would need to be an incorporated society or company.
Those two distinctions are discussed in more detail below.
Accountable to many people or to a few?
In many organisations the key decision-makers are accountable to a larger membership. These membership-based organisations are usually democratically structured and governed, and the governing body has an overriding obligation to serve the organisation’s purposes and objectives. The board or decision-makers are elected and can be removed by the membership.
Examples are an incorporated society, which has to have 10 members under the 2022 Act (under the old rules, this was a minimum of 15 members), or an unincorporated group with a formal membership.
By contrast, some groups involve just a few individuals, who have decision-making power and are not accountable to any larger membership. For example, in the case of a trust, the decision-makers are the trustees, and there can be just a single trustee (although there are usually at least two). Trustees are not accountable to any membership, although when they deal with the trust property, they’re accountable to the people for whose benefit the trust was set up. Trustees are appointed by themselves in the case of initial trustees and by each other as time goes on.
A company is another structure where decision-making power and ownership of the group’s property can be kept in the hands of only a small number of people. A company can be set up with just one shareholder and one director.
Incorporated or unincorporated?
Incorporated societies, charitable trust boards, companies, charitable trusts and industrial and provident societies can all be incorporated groups, in contrast with unincorporated membership groups and trusts.
Incorporation gives an organisation the following key features:
- Separate legal identity – An incorporated group has its own legal identity, separate from its members. The law treats the group as if it were a separate “person” in its own right, so that it can, for example:
- enter into contracts in its own name (if its rules allow this)
- buy, sell, own, lease and rent property (again, subject to its rules)
- execute legal documents (such as deeds and leases) in its own name, using its “common seal” (official stamp) (although under the 2022 Act, it will be optional to have a common seal)
- borrow money and give the lender securities over property owned by the group (subject to the rules)
- sue and be sued in the courts in its own name.
- Continuing existence – An incorporated group has “perpetual succession”, which means it continues to exist as a separate legal entity regardless of changes in its membership. This gives a group a stronger reputation when it’s seeking grants or donations or negotiating contracts, as it gives the group a sense of permanence and credibility.
- Limited liability for members – If a group is incorporated, its members and officers benefit from gaining “limited liability”. This means that when the group takes on any debts or other legal responsibilities, it can usually only be sued in its own name, and its members aren’t usually personally responsible.
Incorporation also brings certain limitations and/or additional responsibilities for an organisation, in particular:
- No financial gain – An incorporated society must not be carried on for the financial gain of its members.
- No claim to surplus assets after the organisation ends or is dissolved – For societies registered under the 2022 Act, surplus assets (that is, anything left over after paying off the society’s debts) have to be distributed to a not-for-profit entity nominated in the constitution. This means that surplus assets can’t be distributed to an incorporated society’s members (unless the member is a nominated not-for-profit entity).
- Financial reporting obligations – For societies registered under the 2022 Act, there may be extensive financial reporting obligations depending on the size and nature of the society.
- Potential criminal liability for society and officers – The 2022 Act creates a number of offences for which societies and its officers may be liable.
For more information on the advantages and limitations of remaining unincorporated, see: “Unincorporated groups”.
Useful Links and Resources
- Download our Table of Legal Entities to compare different structures
- For more on legal structures contact the New Zealand Companies Office
- For more on charitable trusts, visit The Charitable Trusts Register
- For advice on charitable status, contact the Department of Internal Affairs Charities Unit
- For more information on how to establish a charitable trust, see the page on Trusts
- For more on Incorporated Societies, visit The Incorporated Societies Register