Understanding the basics
Incorporated Societies are membership-based organisations registered under the Incorporated Societies Act 2022 (“the new Act”), which replaced the 1908 Act. They require at least 10 members and operate democratically with members having voting rights.
Charitable Trusts are established by a trust deed under the Trusts Act 2019 and the Charitable Trusts Act 1957. They are managed by trustees who hold property and assets for charitable purposes, without a membership structure.
Incorporated Societies
Advantages
1. Democratic Governance: Members have a direct say in the organisation's direction through voting rights at general meetings. This democratic structure can enhance community engagement and ownership of the charity's mission.
2. Limited Liability: Once incorporated, the society becomes a separate legal entity, protecting individual members from personal liability for the society's debts and obligations.
3. Transparency and Accountability: The new Act requires regular general meetings, financial reporting to members, and maintains a public register, fostering transparency and public trust.
4. Flexibility in Activities: Incorporated societies can engage in a broader range of activities, including some commercial activities, provided they align with the society's purposes.
5. Easier Membership Growth: The structure naturally accommodates growing membership and can effectively harness volunteer enthusiasm and community support.
Disadvantages
1. Administrative Complexity: The new Act imposes significant compliance requirements, including detailed constitutional requirements, officer duties, and regular reporting obligations.
2. Potential for Disputes: Democratic governance can lead to member disputes, contested elections, and decision-making delays, particularly in larger societies.
3. Re-registration Requirements: Existing societies must re-register under the new Act by April 2026, requiring constitutional updates and potentially significant administrative work.
4. Member Control Limitations: Founders may have less control over the organisation's direction as members can vote to change the society's rules or leadership.
Charitable Trusts
Advantages
1. Simplified Governance: Trustees have clear authority to make decisions without requiring member consultation, enabling swift decision-making and consistent strategic direction.
2. Perpetual Purpose: Trusts can be established to exist in perpetuity, ensuring long-term commitment to charitable purposes beyond the involvement of original founders.
3. Asset Protection: Trust property is legally separated from trustees' personal assets, providing protection for both the charitable assets and trustees (when acting properly).
4. Privacy: While charitable trusts registered with Charities Services are publicly visible, the governance structure offers more privacy than incorporated societies.
5. Founder Control: Settlors can establish specific terms in the trust deed that guide how the trust operates, maintaining their vision for the charitable purposes.
Disadvantages
1. Limited Flexibility: Once established, trust deeds can be difficult to amend, potentially constraining the organisation's ability to adapt to changing circumstances.
2. No Membership Benefits: Without members, trusts may find it harder to build community engagement and may miss out on the energy and resources that active membership brings.
3. Trustee Liability: While trustees are generally protected when acting prudently, they can face personal liability for breaches of trust or failing to act in the beneficiaries' best interests.
4. Succession Planning: Finding replacement trustees who share the original vision and have appropriate skills can be challenging, particularly for smaller trusts.
5. Limited Commercial Activities: Charitable trusts typically face more restrictions on commercial activities compared to incorporated societies.
The small investment in proper legal advice today saves your
society or trust thousands tomorrow—and ensures the founders’ visions are properly carried forward.
Making the right choice
Consider an Incorporated Society if:
• Community participation and democratic governance are important
• You anticipate a large, engaged membership base
• Your activities may include some commercial elements
• You value transparency and community accountability
Consider a Charitable Trust if:
• Quick decision-making and consistent leadership are priorities
• You have a specific, long-term charitable purpose
• You prefer a simpler governance structure
• The founders want to maintain greater control over the organisation's direction
Regulatory Considerations
Both structures can register with Charities Services to obtain charitable status, providing tax exemptions and donee organisation status. However, both must meet the same charitable purpose requirements and comply with the Charities Act 2005.
The new Incorporated Societies Act 2022 has introduced significant changes that align incorporated societies more closely with modern governance standards, similar to those already applying to charitable trusts under the Trusts Act 2019.
Conclusion
The choice between an Incorporated Society and a Charitable Trust depends on your organisation's specific needs, governance preferences, and long-term objectives. Both structures can effectively serve charitable purposes, but they offer different approaches to achieving those goals.
As you consider which structure best suits your charitable organisation, it's important to obtain professional advice tailored to your specific circumstances. The Charities team at Canterbury Legal has extensive experience with incorporated societies and charitable trusts and can guide you through the selection process, establishment, and ongoing compliance requirements.
For more information or to discuss your charitable organisation requirements, please contact us at Canterbury Legal.
