New Zealand

The most common for-profit organisational forms in New Zealand are a company, a partnership and a limited liability partnership. 

Company

A company is the most common structure for running an Enterprise.   A company is a separate legal entity.   Every company must have at least one director and at least one shareholder, but commonly will have multiple of each.  

a)     Limited liability companies

A limited liability company has full responsibility for all of its legal and financial obligations.   A shareholder’s liability is limited to the amount of capital they invest in the business, and they are only liable for any money owing on their shares or for personal guarantees they have given to lenders or creditors.

Limited liability companies are incorporated under the Companies Act 1993.   Company profits are taxed at the corporate rate of 28%.  

b)     Co-operative companies

The main purpose of co-operatives companies is mutual support for members, or the promotion of a specific purpose or social benefit.   Examples include some taxi businesses, dairy companies, or Māori community services and developments.   They will often have the word 'co-operative' in their company name.

All co-operatives must:

have at least 60% of shareholders that are “transacting shareholders”. “Transacting shareholders” are shareholders that carry out activities such as supplying goods or services to the company, buying goods and services from the company, or entering into commercial transactions with the company;

• have a constitution that includes a description of the co-operative’s activities; and
• return their profits to shareholders as rebates or as shares instead of rebates.

A Partnership

The other common option for a for-profit Enterprise is using a partnership. Partnerships are taxed differently to companies; the individual partners are taxed at their marginal rate. In partnerships, all partners are jointly and severally liable for the debts of the partnership. Partners share the business’ profits, losses, responsibilities and debts according to their partnership agreement.

Limited Partnerships

A limited partnership is a corporate structure with separate legal personality (similar to a company). A limited partnership has full capacity to carry on or undertake any business or activity, do any act, or enter into any transaction, both within and outside New Zealand. A limited partnership has limited partners and a general partner. Limited partners are akin to shareholders as they provide capital to the limited partnership and have limited liability. They can be an individual, a company, or a trust. There is also a general partner, which is the entity responsible for running the limited partnership. The general partner has unlimited joint and several liability for all the debts of the partnership. Unlike a company, a limited partnership has “pass-through” tax treatment in New Zealand so the limited partners are taxed at their marginal rate.

The default position is that the board of a company must consider and prioritise the interests of shareholder when making decisions. However, shareholders of a company can detail other interests that a board must consider in its decision-making process in the constitution or in a shareholders’ agreement relating to the company.

In New Zealand there is currently no legal structure which is specifically designed for Social Enterprises.

There have been calls for reform in this area, see for example,
Jonathan Barrett “Should New Zealand Adopt Hybrid Social Enterprise Legislation” (2013) 19(4) NZBLQ 253.

Social Enterprises are permitted to be not-for-profit bodies in New Zealand. This can be in the form of a registered charity, or a not-for-profit organisation.

Charity
To be a registered charity, the Social Enterprise will need to be committed to one of the charitable purposes discussed above at question 2(b). Registered charities are not allowed to carry on business for pecuniary gain, and are restricted to using funds to further the charitable purpose, as stated in their trust deed or constitutional documents. Social Enterprises often have a “for-profit” element to them, therefore it is not very common for them to operate entirely as a charity, although parts of the structure may operate as a charity.

The charity can take many forms. It can be a company, a trust or an incorporated society. An example of a charity that is a company in New Zealand is health food company Sanitarium.

Not-for-profit
Not all not-for-profit bodies are registered charities. A not-for-profit is an organisation, either incorporated or unincorporated, where the activities of the organisation are not carried on for profit or gain of its members. An example of this type of entity may be an incorporated society, which cannot be for pecuniary gain of its members, or a trust. A company is able to “write in” Social Enterprise purposes into their constitution.

New Zealand law permits the registration of “co-operative companies” under the Co-operative Companies Act 1996. Co-operatives are businesses that are owned and controlled by their members or shareholders. Co-operatives undertake “co-operative activity”, which includes activities such as supplying the shareholders of the company with goods, or processing goods provided by shareholders.

There are some restrictions on co-operative companies. They exist primarily for the benefit of their members, and are required to ensure they are carrying on co-operative activities, otherwise they will cease to be registered as a co-operative company. Co-operative activities include supplying shareholders of the company with goods and services, marketing goods or services supplied by shareholders, and entering into commercial transactions with shareholders. The co-operative company also must have at least 60% of shareholders that are “transacting shareholders” – shareholders who carry out co-operative activities.

One of the benefits of co-operatives is that various requirements under the Companies Act do not apply to co-operative companies. For example, shares in a co-operative are able to have nominal value. Co-operatives are also owned and controlled by their members, and members get other benefits through purchasing supplies or having their products sold by the co-operative.

There are no unique reporting requirements for Social Enterprises in New Zealand.  

Social Enterprises have not been the subject of any significant jurisprudence in New Zealand.

There are no formal ESG requirements, but it is becoming increasingly more common and important for Enterprises to issue reports on sustainability and ESG, as investors and consumers become more interested in the environmental impact and awareness of businesses.

However, following the finding of the Task Force on Climate-related Financial Disclosures, it is possible that New Zealand may impose mandatory climate related disclosure requirements (in relation to governance or strategy) on financial entities such as banks, and equity and debt issuers.

New Zealand does not have a recognised legal structure for Social Enterprises, therefore there are no specific ESG requirements for Social Enterprises.

No.

There is no requirement for major investor classes to look at ESG issues.

However, they are permitted to take into account ESG requirements. Major funds such as the New Zealand Super Fund are increasingly taking into account ESG considerations when making their investment decisions.

The funding that a Social Enterprise can receive depends on the structure the Enterprise takes. In order for the Social Enterprise to access funding in the form of grants/charitable investments, the Enterprise is required to be set up as a registered charity with Charities Services, or another not-for-profit. This will allow access to various funding options from entities such as the Department of Internal Affairs, the local council, and charities that are set up to fund other charities.

Traditional investment may be more common for Social Enterprises that are set up as a company that does not have charitable/not-for-profit status. However, a Social Enterprise that is set up as a for-profit company may struggle to get traditional investment, based on the fact that they are set up to “do good” rather than to raise profit.

There has been an increasing amount of interest in impact investing in New Zealand. The Center for Social Impact is expecting that the number of funds will continue to increase over the next few years.

There is no specific Government funding/support for Social Enterprises in New Zealand.

None of the companies listed on the NZX are prominent Social Enterprises.

There is no requirement for Enterprises to disclose ESG factors in their annual reports, however it has becoming increasingly common for Enterprises to do so.

It is possible that certain financial entities may be required to make climate-related disclosures following the Taskforce on Climate-related Financial Disclosures, if these requirements are enacted in legislation in New Zealand.

Social impact bonds are a fairly recent phenomenon for New Zealand so they are not overly prevalent, with the first social impact bond being launched in 2017. There was a pilot study run by the Government in 2013 and there has been increasing interest in social impact bonds in the years following, so although currently not prevalent it is likely they will increase in the coming years.

The Community Finance initiative has also recently released social housing bonds. Capital from investors will be used to fund the development of safe and affordable social housing, while at the same time earning financial returns.

No.

Crowdfunding is legal in New Zealand.

Equity crowdfunding is where companies raise money from the public by issuing shares. This form of crowd funding is governed by the Financial Market Conduct Act. Crowdfunding must be done via a licensed crowdfunding service provider website if the Enterprise wants to take advantage of the lighter disclosure obligations that apply to crowdfunded share offers. However, licencing is not mandatory, but if the crowdfunding is not sourced by a licenced crowdfunding service, extra reporting is required.
These regulations do not apply if the enterprise is only used for charitable or philanthropic fundraising, and donors don't receive shares. Therefore, if the Social Enterprise is a charity or a non-for profit, less regulations apply.

There are tax exemptions available for registered charities and non-for Profit, but there are no specific tax exemptions for Social Enterprises specifically.

New Zealand generally exempts registered charities from income tax on both non-business and business income (regardless of whether the business is any way related to the exempt entity’s charitable purposes).

A charitable entity that is registered under the Charities Act, can undertake an Enterprise to advance the charitable purpose or purposes directly or indirectly via business activities. This entity can be fully exempt from income tax.

Charities are required to use their business income in New Zealand, and are required to only use these funds to further charitable purposes. Funds that are sourced from donations are able to be used worldwide, but must still be in the furtherance of charitable purposes.

New Zealand’s company tax regime includes an imputation system. Rather than merely imposing tax at company level, tax paid at company level gives rise to ‘imputation credits’. These credits can be attached to dividends paid to shareholders and used by the shareholders to offset their tax liability (so that there is not effective double taxation). However, the credits are not refundable, so they are of no help to charities and other tax-exempt shareholders. From an income tax perspective, it is therefore more efficient for such parties to undertake an Enterprise directly, or via another tax-exempt entity (eg a charitable company), or via a ‘flow through’ entity (eg a partnership, or possibly a trust which is a partial flow through).

No.

New Zealand only allows individuals or organisations to deduct donations that are made to organisations that have “donee status” from the Inland Revenue Department. To receive donee status, the organization must be a registered charity.

No.

No.

No.

There are various Government grants and other funding available to self-employed and new start-up businesses, although these are not widely available to all small/new businesses. The Government has also released an initiative for small businesses that are struggling as a result of COVID-19 to receive interest free loans.

The Small Business Council, a Government entity responsible for developing New Zealand’s small business strategy, has recently recommended that the Government introduce a small-business grant scheme.

Businesses can also register with Regional Business Partners, a service funded by the New Zealand Government, that provides advisors to businesses to help them expand and develop. This program is available to all businesses, but the Government has looked at reviewing this network to be more tailored towards helping small businesses. There is also advisory services available through the Callaghan Innovation Agency, a Government agency that supports “hi-tech” businesses.

There are no specific Social Enterprises legal structures in New Zealand, therefore the compliance requirements will be dependent on the legal structure the Enterprise chooses. For example, if the Enterprise is a registered charity, they are required to annually report to Charities Services with an annual return and financial statements with information on activities, transactions and balances. The annual return will be publicly available on the Charities Services website. However, Social Enterprises themselves do not have any specific compliance requirements separate from those of the chosen legal structure.

In 2018 the Government partnered with the Akina Foundation in forming The Impact Initiative, which focusses on “building the overall conditions for a thriving Social Enterprise sector in Aotearoa New Zealand”.    The initiative focusses on the following sectors to achieve this goal: capacity building, impact, finance and legal barriers, and social procurement.  

The Initiative has been effective in identifying key areas where New Zealand’s legal landscape needs to adjust to better account for Social Enterprises and allow them to succeed.   The next phase of the initiative involves creating the changes that social Enterprises need, now that the research and measurement has been done on the current situation.  

No.

Company:
It costs $10 (plus GST) to reserve a company name, and $114.39 (plus GST) to apply to incorporate a company. A company can be incorporated within 2 business days.

Trust:
It is free to set up a Trust (other than legal costs in setting it up), as there is no registration required for trusts. The time to incorporate a Trust is dependent on the make-up of the trust.

Charity:
There is no cost to submit an application to register as a charity (other than legal costs incurred in making the application). Firstly, the entity that will be registered as a charity needs to be created whether this is a company, a trust or an incorporated society. Then an application needs to be submitted with Charities Services. There is no set timeframe for how long Charities Services takes to process applications some may only take a few days but others may take months.

Incorporated Society:
It costs $102.22 to apply to incorporate a society in New Zealand. From our experience it takes 1 – 2 weeks to form an incorporated society (including the process of drafting society rules, and obtaining signatures from initial members).

Registered Charity
If the Social Enterprise registers as a charity with Charities Services, they will gain access to all the tax benefits previously discussed at section III, but will have a restriction on what they can use their funds for.

Certified B Corporation
The number of New Zealand companies who are choosing to become B Corporation certified is increasing. New Zealand companies are not required to change their company’s constitution and other documents as a condition to B Corporation certification. This is because in order to include the requirement for B Corporations to change their constitution as part of the certification, wider legislative amendment would be required to clarify the duties of, and provide greater comfort to, directors of New Zealand B Corporations.

New Zealand B Corporations are required to sign a term sheet to contract with B Lab New Zealand, as per the following:
1. to the extent permissible under New Zealand law, to consider the impact of its decisions not only on shareholders, but also on its employees, customers, suppliers, the community, and the environment;
2. to use reasonable endeavours to support B Lab’s efforts to determine an effective legal mechanism to promote directors' consideration of the matters in item 1;
3. in the event that such a legal mechanism is established in Australia, take such steps as are necessary to avail itself of such mechanism; and
4. in the event of a change of control of it, including a public offering, it will recertify within 90 days of the effective date of the change of control.

The B Corporation certification has no formal benefits, but consumers have increasing interest in supporting social Enterprises so may lead to increased revenue. The B Corp website also allows consumers to view company’s business impact scores.

Yes. There are some administrative barriers to setting up an entrepreneurial Enterprise, particularly for Enterprises based overseas. This is because of the NZ Overseas Investment Act 2005 and anti-money laundering legislation which require additional administrative work.

Yes, as above. There are further additional challenges with the lack of specific structures for Social Enterprises. Please see question 7 below for possible reforms.

No.

No.

A new legal structure

New Zealand could adopt legal structures specifically for social Enterprises. The 2019 Social Enterprise report suggests the following key elements of a new structure:

a) Clear name which makes it clear the Social Enterprise is not a traditional limited liability company but is also not a trust or an incorporated society;
b) Purposes which clearly articulate how the purposes of the Social Enterprise align with social good and how these operate with the tensions of being a business;
c) Capped dividends to ensure profit raising is not the primary object;
d) Tax emptions should be flexible enough so that those who meeting the criteria could apply for a tax exempt status for the non-profit portion of their income;
e) Reinvestment of profit and surplus, perhaps including a guideline of what must be reinvested;
f) Reporting on profit making goals and social benefit goals; and
g) Director duties reform so directors consider new objectives beyond profitability.

A new legal status

This option requires significantly less reform but would require the Government to grant a status to certain entities who satisfy certain requirements such as reinvestment, social purposing and reporting.

A new structure would be the most beneficial, or a requirement for Enterprises to take into account ESG considerations when making decisions.

Current Reforms
It is likely there will be reforms in the Social Enterprise space in New Zealand. The current Inland Revenue tax policy work programme includes a charities section that signals work in relation to charities involved in business and also Social Enterprise (but note that this programme is scheduled to be updated in the next month or two).

A Charites Act review is also underway that is examining issues related to charities involved in business. Unfortunately, the review was put on hold due to COVID-19 and we are still awaiting updates. We also understand that Inland Revenue may already have made some options/proposals in relation to charities and donation tax incentives to the Minister, so we might hear more about this in the next quarter.

The Incorporated Societies Act is due to be repealed and replaced by the Incorporated Societies Bill, which was introduced to Parliament on 17 March 2021. This legislation will comprehensively restate and modernise the framework of basic legal, governance and accountability obligations for incorporated societies and those who run them.