Tool: An Overview of Legal Structures
A summary of the different legal structures available to support your project.
TOOL
Trust:
A trust is the legal relationship created when assets are placed under the control of a person or group of persons (the trustee/s) for a specified purpose.
The trustees are therefore the nominal owners of the property, but they have a legal obligation to deal with the property in the manner set out in the trust deed. They often meet regularly as a ‘board of trustees’ to make decisions regarding the trust.
The law does not recognise a trust as legal ‘person’, like it does a company or an individual.
Charitable Trust:
A charitable trust is a trust [hyperlink to trust definition] which has a charitable specified purpose. Legally, this means that it must be set up for the relief of poverty, the advancement of education or religion, or any other matter for public benefit. If the trust is registered as a charitable entity under the Charities Act 2005, it will be exempt from tax obligations.
For more information about charitable purposes, head to: Establishing a Charitable Entity
Company:
A company is a separate legal entity incorporated at the Companies Office under the Companies Act 1993. Because it is a separate legal entity, it can sue and be sued, just like a person.
In order to exist, it needs:
- a name
- at least one share
- at least one shareholder
- at least one director
- a registered office
- an address for service
Each shareholder holds shares in the company, which gives them the right to vote and the right to receive a ‘share’ in the company’s profits. The director or directors do not have any financial interest in the company (unless they are also shareholders). They meet regularly to make decisions about how the company is run.
To find out more, head to Companies Office NZ
Charitable Company:
A charitable company is a company [hyperlink to company definition] set up for a charitable purpose. This means that its shareholders are not entitled to receives shares in the company’s profits. If the trust is registered as a charitable entity under the Charities Act 2005, it will be exempt from tax obligations.
Legally, this means that it must be set up for the relief of poverty, the advancement of education or religion, or any other matter for public benefit. For more information about charitable purposes, head to:Establishing a Charitable Entity
Co-operative:
A cooperative is an organisation that is both owned and controlled by its members. It can be, but is not always, a company. A cooperative exists to support its members and/or to promote a specific purpose or social benefit. In a cooperative company, at least 60% of the voting rights must be held by transacting shareholders. A transacting shareholder is a shareholder/member who either supplies the company, purchases its goods or uses its services. Other requirements are a constitution that states the nature of the cooperative activity and a statutory declaration by each director stating that in their opinion, the company is a cooperative.
Well-known cooperatives in New Zealand include Fonterra, the Cooperative Bank and Mitre 10.
Incorporated Society:
An incorporated society is a for-purpose entity registered as such under the Incorporated Societies Act 1908. Its membership is dictated by its set of rules, or its constitution, which also provides for a governance board. Members are barred from receiving any profits generated. An incorporated society is a common structure where a group of people share an interest such as sport, hobbies or a community interest.
Partnership:
A partnership is a legal relationship between two or more persons pooling resources and distributing risks and rewards proportionately. It is not a separate entity in and of itself. Decision making and apportionment of risk and reward is all dictated by the governing document - the partnership agreement.
If you need advice or consultation on what legal structure is best suited to service your business and community, please get in contact with Ohu or see our Legal Preparation and Facilitation services.