What Is The Difference Between A Charity And A Social Enterprise?

Whether you’re setting up a charity, a Not-For-Profit or a profit-making social enterprise, the structure you choose is crucial to how you conduct your business activities. 

As there is no set rule or structure in New Zealand specific to these organisations, the choice you make is very dependent on what you envision for the organisation. Therefore, it is important to know whether you want to be a social enterprise or a charity as this will impact your decisions. 

In this article, we’ll go through the differences between a charity and a social enterprise. This should help you decide on how your operation can be best supported. For a broader discussion on structures available for a social enterprise, you can find out more here. You can also read more about legal structures for charities here.

What Is A Charity?

Charities in New Zealand are regulated by Charities Services and must be registered on the Charities Register. They are governed by the Charities Act 2005.

To qualify as a charity, an entity must meet the following criteria:

1.     Not-For-Profit Organisation

This means that charities cannot operate for the private pecuniary profit of an individual. Any surplus funds must be used to further the charitable purposes of the organisation. 

2.    Charitable Purposes That Are For Public Benefit

The entity must be established exclusively for charitable purposes, which include the relief of poverty, the advancement of education or religion, or any other matter beneficial to the community. The public benefit requirement is met if the charity’s work benefits the public or a sufficient section of it.

It’s essential to ensure your organisation’s governing documents, like your trust deed or constitution, clearly state your charitable purposes and how you will achieve them.

3. Does Not Have A Disqualifying Purpose

Disqualifying purposes include any purpose that is illegal or contrary to public policy. This includes activities that promote or oppose a political party or candidate for political office. However, advocating for a change in the law or policy is allowed if it’s ancillary to a charitable purpose.

4. Not be an individual, political party or government entity

The last requirement is that a charity must not be an individual, a political party, or a government entity. If your organisation meets all these requirements, then you’re operating a charity in New Zealand. 

What Is A Social Enterprise?

In New Zealand, there is no legal definition for social enterprises, so they are subject to the usual business structures and laws applicable to businesses in general. 

Social enterprises are unique as they aim to make a profit while creating social impact. They might choose to donate a portion of profits to social causes or integrate social objectives into their business model. 

What Is The Difference Between A Charity and a Social Enterprise?

Understanding the distinctions between a charity and a social enterprise is crucial for compliance with New Zealand’s legal framework. Charities must adhere to the charitable purposes as defined by the Charities Act 2005, while social enterprises have more flexibility in their mission and operations.

Registration

Charities must be registered with Charities Services to be recognised as such and to access certain tax benefits. Social enterprises, on the other hand, do not have a specific registration process and operate under standard business structures.

Funding

Charities may raise funds through donations, fundraising activities, and government grants. Social enterprises can attract investment for profit-making ventures or fund their activities through profits made from their business operations.

Organisational Structure

Charities in New Zealand can adopt various legal structures, such as incorporated societies or charitable trusts, provided they meet the requirements of the Charities Act 2005. Social enterprises can choose any legal structure that suits their business model, whether they operate for profit or not.

Tax Concessions

Registered charities in New Zealand may be eligible for tax exemptions and donee status, which allows them to issue tax-deductible receipts for donations. Information on these concessions can be found on the Inland Revenue Department’s website.

Social enterprises are generally treated like any other business for tax purposes, but they may qualify for certain concessions if they meet specific criteria.

Is A Charity A Social Enterprise?

Some charities in New Zealand may also function as social enterprises, particularly if they engage in commercial activities to support their charitable purposes. However, not all social enterprises are charities, especially if their primary purpose is not charitable under the law.

Which Classification Is Right For My Business?

Choosing between a charity and a social enterprise structure in New Zealand depends on your goals, the nature of your activities, and the legal obligations you’re prepared to meet. It’s important to consider the benefits and limitations of each before making a decision.

Need Help?

If you’re uncertain about the key differences between a charity and a social enterprise, or if you need assistance with setting up your organisation in New Zealand, our team is here to help. Contact us for a free, no-obligations chat at [email protected] or 0800 002 184. 

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