Charitable Companies are an option when creating a charitable entity

A philanthropist wanted to set up a charitable entity with other like-minded individuals, which was to own property and offer social housing to families in need.

He was considering a charitable trust, but found when he discussed potential funding for any such entity with his bank, that his bank was hesitant to lend money to a charitable trust.

He also found that some of the individuals he approached were cautious about being appointed trustees due to the onerous responsibilities placed on trustees because of recent changes to trust law.

He made enquiries with his lawyer about other options, as he had only heard of charities as being incorporated societies or trusts, and didn’t think either of these were quite right for what he needed. He was pleasantly surprised to hear that a charitable company was an option.

Registering as a charity means the entity will receive tax exempt status.

If you have a New Zealand company that operates exclusively for charitable purposes, you are able to register your company as a charity with Charities Services. You can either change an existing company to be a charity, or can set one up from scratch.

The key to making a company a charity is the content of its constitution. While not all companies have constitutions, all charitable companies must have constitutions.

The constitution should set out the company’s charitable purposes. Charitable companies are barred from allowing individuals (shareholders) to obtain a financial gain or benefit.

All income, benefit, or advantage must only be used to advance the company’s charitable purposes. For this reason, the company’s constitution must contain the following clauses in order to be registered as charitable:

• A clause preventing distributions of dividends or payments to shareholders;
• A clause only allowing the transfer and issue of shares to registered charitable entities or trusts;
• A winding-up clause which directs all of the company’s assets to charitable purposes or charitable organisations.

Like all companies, your company must be registered with the Companies Office by providing details of shareholders and directors, and the name of the company. This is the first step in the process.

Once your company is registered with the Companies Office, you can apply to Charities Services and provide your constitution for them to approve, along with information about the company’s intended activities and other required information.

An IRD number will then be issued by Inland Revenue. If your constitution is approved by Charities Services, you can then upload it with the Companies Office.

Registering a company as charitable can be a useful way to have a commercially recognised entity benefitting the section of the community you intend to benefit.

Ensuring that the constitution is worded correctly is vital to ensure a smooth registration process and to ensure the entity can operate effectively. It is therefore important to seek legal advice from a legal professional to get your constitution right at the outset.