Charitable Companies
A company can be a charity – if it’s dedicated to exclusively charitable purposes
A company can be not-for-profit, if it operates for the public good rather than for the profit of individuals. If a not-for-profit company has exclusively charitable purposes it can apply for charity status through an application to Charities Services.
The importance of a bespoke constitution
Unlike for-profit companies which can rely on the default provisions in the Companies Act 1993 instead of having a constitution, charitable companies must have a constitution.
The constitution must set out the company’s charitable purpose(s) and how the company prevents any individuals from making a profit, to ensure that the company is genuinely charitable and does not operate for private benefit.
What does the constitution need to say?
There are some key provisions that a charitable company’s constitution must contain:
- Charitable purposes
The constitution must set out the company’s charitable purpose(s), which must align with the four categories of charitable purpose in New Zealand law by being focussed on:
- relieving poverty;
- advancing education;
- advancing religion; and/or
- benefitting the community,
- Prohibiting personal benefit / financial gain
The constitution must explicitly prevent the distribution of dividends or other financial benefits to shareholders, to ensure that all profits generated by the company are used solely for its charitable purposes and not for the personal benefit of any individual. Where a shareholder is itself a registered charity, the constitution can be crafted to reflect that.
- Restrictions on issuing shares
The constitution should also specify that shares in the company can only be transferred or issued to other registered charities, to ensure that that ownership is not diverted for non-charitable purposes.
- Distribution of surplus assets on winding up
The constitution must include a winding-up clause that directs any assets that remain when the company is wound up towards charitable purposes or to other registered charities. This ensures that the company’s assets are used for their intended charitable purposes even after the company ceases to operate.
What are the benefits of being a charity?
With charity status, a company will have:
- Increased credibility that comes from being on the public and searchable Charities Register;
- Better access to donations and funding as a result of the accountability and transparency of charities and the public perception attached to charity status; and
- A charitable tax exemption.
Registering a company as a charity is a significant step that can have important advantages, including public credibility, charitable tax exemption, and better access to funding opportunities. However, getting the constitution right it requires careful attention to make sure it meets the legal requirements and reflects the company’s charitable purpose(s).
MoranLaw’s experienced team can guide you through the entity formation and charity application process, to make sure your company is structured for success in the charitable sector. Get in touch today.
