The trustees of any trust or society that is exclusively or principally for charitable purposes can be incorporated as a Board under the Charitable Trusts Act 1957.
A charitable purpose means every purpose that in accordance with the law in New Zealand is charitable.
Charitable purposes may include:
- The relief of poverty
- Religious instruction
- Promotion of athletic sports
Charitable trusts are normally formed to undertake charitable activities and are less suitable for commercial activities.
The main advantages of a charitable trust incorporated under the Charitable Trusts Act 1957 are:
- Corporate status provides for perpetual succession and limited liability
- Corporate status limits liability so that board members are not liable for debts of the trust
- Charitable trusts are capable of holding property, suing and being sued and doing everything a body corporate may lawfully do
- Charitable trusts must be for charitable purposes and must be for the public benefit
- Income tax exemptions are available
The main disadvantages of a charitable trust incorporated under the Charitable Trusts Act 1957 are:
- Can be expensive to set up
- The assets are exposed to wider groups of beneficiaries due to the need for charitable trusts to be for the public benefit
- Structure not easily understood by management or banks, which is particularly relevant for arranging finance
- Administration more difficult as bound by trustee law rather than corporate law
- Difficult to introduce new business ventures into structure
- Expense of aligning existing trust and new trust deed
- Income tax exemptions do not apply to purposes outside of New Zealand
Suitability of a Charitable Trust structure
Charitable trusts are more suited to Māori organisations whose objectives are charitable and are therefore not suited for commercial operations.
Māori organisations that are suited to the charitable trust structure include Māori private training establishments and Hauora. An example of a charitable trust is the Ngāti Hine Health Trust.
The charitable trust structure may also be suitable for hapu and iwi and organisations whose objectives are of a social or cultural nature.
What do boards of a Charitable Trust do?
Upon incorporation under the Charitable Trusts Act 1957, charitable trusts are registered as a board. These boards may make profits on their trading activities but the profits must be used for their charitable purposes and cannot be distributed to members.
Although charitable trusts are set up for charitable purposes, they still have objectives that need to be met if the organisation is to survive and prosper.