Incorporated Societies: Is it time to think about moving to a charitable trust?

by Mar 18, 2024Commercial Law, Trusts

Article 3 in a series of 3 articles on the changes to the Incorporated Societies regime

With the new Incorporated Societies Act now in force, all incorporated societies must review their rules (constitution) for compliance and re-register under the new Act.

It is an opportune time for existing incorporated societies to revisit their purpose and structure.

Is an incorporated society still the best structure for your organisation? An alternative structure that some incorporated societies might consider is a charitable trust.

Charitable trusts versus Incorporated Societies

An incorporated society is a member-based organisation where decisions are usually made by each member voting. Officers are appointed by elections. This democratic process means that incorporated societies can be susceptible to interest groups influencing the larger membership. In a charitable trust, trustees make decisions in accordance with the trust deed. Having control with a smaller group might allow for more strategic and longer-term decision making.

A charitable trust might be more suitable where the purpose of the organisation is to offer services and assistance more widely to the general community as opposed to an incorporated society which typically focuses on its own membership.

Some key differences in each structure

FeatureIncorporated SocietiesCharitable Trusts
NatureMembership-based structure ideal for activities including sports or community events.Trust board structure ideal for holding and protecting assets for charitable purposes and contributing to social good.
LegislationIncorporated Societies Act 1908 transitioning to Incorporated Societies Act 2022Charitable Trusts Act 1957
Trusts Act 2019
Decision MakingBy members/committee in accordance with the society rules/constitutionBy trustees in accordance with the trust deed.
LiabilityNo liability unless breach of trustee duties and obligationsLimited liability (unless being run for profit so not charitable)
AdvantagesDemocratic decision-making for member organisations.
Opportunity for diversity and representation.
Control in the hands of a few
Often more stable as trustees remain the same.
DisadvantagesChanging officers may need re-training.
Democratic process allows control changes and greater opportunity for potential internal conflict
If trustees do not rotate then entrenchment could be negative.
If there is no consensus between trustees then conflict can be a challenge.

Transition process

Transitioning from an incorporated society to a charitable trust is not a quick process. It involves careful consideration, strategic planning and consultation with members. The membership would need to vote to change. A new charitable trust would need to be formed and then the assets of the incorporated society transferred across.

We would be happy to have an initial discussion with you if you are considering moving from an incorporated society structure to a charitable trust structure. Please contact Penelope Gibbs or Kimberly Knox if you would like more information.

Interested in reading more about incorporated societies? Have a look at our previous two articles in this series of three:

Article 1 New Incorporated Societies Act 2022: What Societies need to know
Article 2 Key Changes under the Incorporated Societies Act 2022



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