Incorporated societies vs charitable trusts – Which is better for your organisation?
11 July, 2013 | Peter Smith
Trusts and Incorporated Societies can sometimes acquire considerable assets both property and business.
Significant property and business interests require specialised skills, good governance and a succession plan. This is an approach that can be judged objectively and runs contrary to the “personality” issues that tend to bedevil Incorporated Societies – issues of power, control, small mindedness and lack of understanding of principles of good governance.
Business also requires a large degree of confidentiality and commercial sensitivity that creates tension with the democratic transparency demanded by members of Incorporated Societies. The needs of business and the speed of decision making required, results in disengagement between committees and the members. This, in turn, can lead to mistrust and suspicion.
Building a culture that accommodates the tensions between often passionate self interest and good governance is extremely difficult given the legal basis of Incorporated Societies. The “tighter” less democratic nature of charitable Trusts sits more easily in situations of significant property and/or business interests.
Features of Incorporated Societies
- Governed by the Incorporated Societies Act 1908:
- A legal entity that is separate from its members and has limited liability status;
- Fundamentally democratic with members electing committee or board;
- In some Societies the committee elects chair and vice chair (assists with succession planning) while in others chair and/or vice chair are elected by members;
- Must follow the objects of the Society as set out in the rules;
- Requires 15 members to incorporate. The members are the stakeholders;
- Governance is ultimately in the hands of its members as a majority of members is sufficient to wind up a Society and transfer its assets to another Society;
- Can have charitable status if its objects are charitable and the Society is operated for charitable purposes;
- Difficulties with “business” model;
- Difficulty with finding volunteers to participate in “committee” environment.
Features of Charitable Trusts
- Governed by the Charitable Trusts Act 1957 and the Charities Act 2005:
- A separate legal entity with limited liability status;
- Does not require members/stakeholders;
- Committee or board does not have to be democratically elected;
- Must follow its objects;
- Governance is in the hands of the board;
- Can have charitable status if its objects are charitable and Society operated for charitable purposes;
- Better suited to “business” model;
- Difficulty with finding volunteers to run small Trusts relying on volunteers.
The right legal vehicle for your organisation can help ensure its on going success. For further advice on how to choose between incorporated society or charitable trust status, or assistance in making a change, contact not-for-profit law expert Peter Smith by phone on 09 837 6882 or email firstname.lastname@example.org email@example.com