A charitable entity is a entity which has been established principally for charitable purposes. The Charities Commission's definition of Charitable Purpose is defined as:
"Charitable purpose has a special meaning in the law that is more limited than the meaning people generally give to those words.
To have a charitable purpose, the rules or governing document of an organisation must clearly state that its work is for:
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the relief of poverty
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the advancement of education
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the advancement of religion
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any other matters that are beneficial to the community
For an organisation’s purposes to be charitable, its aims must also be for a public purpose. The benefit must be available to a large part of the community and the activities must not result in the private benefit or profit of any individual. Some examples include:
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religious institutions
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aged persons’ homes
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homeless hostels
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organisations relieving the special needs of people with disabilities
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non-profit child care centres
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societies that promote the arts
A non-charitable purpose secondary to an organisation’s charitable purpose does not stop the organisation from qualifying for registration as a charitable entity.
The relevant section of the Charities Act relating to the meaning of charitable purpose is Section 5."
There are various steps involved in the establishment of a charitable entity, these are
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1. |
Choose a name for the charitable entity, the first document completed is the Trust Deed or constitution. The primary issues are:
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the name of the entity
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the objects of the entity – this is discussed more in detail below
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the names and identities of the trustees or directors or initial members. (Although there is no minimum number of trustees or directors or members, as an indication most charitable entities have around five. The greater the number of trustees or directors or members the more transparency the trust may have.)
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Purposes of the entity
In order for the entity to be a charitable entity the entity must be established for charitable purposes. There are several areas of accepted charitable purposes. These are:
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Entities for the relief of poverty
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Entities for the advancement of education
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Entities for the advancement of religion
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Entities for other purposes beneficial to the community
The proposed activities (i.e. purposes) of the entity need to be expressed in such a way so as to fit within one or more of the above categories. There is a balance to be struck between framing the purposes of the Trust sufficiently tightly to clearly only allow activities within the above categories and sufficiently widely to allow some flexibility.
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3. |
Applying for an IRD number for the entity
A condition of registration under the Charities Act 2005 is that all entities must have an IRD number.
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Incorporation of a Charitable Trust under the Charitable Trusts Act 1957
Once the Trust Deed is finalised the Trust can be incorporated under the Charitable Trusts Act 1957. This gives some protection for the trustees individually as registration creates a Trust Board.
An Incorporated Society must have a minimum of 15 members but the members of an Incorporated Society have limited liability. The Incorporated Societies Act 1908 (“Act”) states that “Except when otherwise expressly provided in this Act, membership of a Society shall not of itself impose on the members any liability in respect of any contract, debt, or other obligation made or incurred by the Society”.
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5. |
Registration under the Charities Act 2005
Registration under the Charities Act 2005 is voluntary however, a charitable entity that chooses not to register with the Charities Commission will no longer qualify for tax exempt status or be able to call itself a "registered charitable entity".
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May 2011 |
