Updated February 2012
HOW-RUL -FEB12 1

Rules and the Charities Act
The Charities Commission
does not require you to
have any specific wording
in your rules, but we must
be satisfied that your
organisation meets certain
criteria. What do we mean by ‘rules’?
To be considered for registration as
a charitable organisation, you must
send us a copy of your rules with
your application form.
Your rules are the documents that
set out your purposes, what you do
and how you operate. For example,
they may be your trus t deed,
constitution or charter. (If your
organisation was specifically set up
under an Act of Parliament, your
rules may be that Act.)
If your charity isn’t an incorporated
society, a registered charitable trust
or a company (that is, if it isn’t a
lega l organisation commonly
referred to as ‘registered with the
Companies Office’), the rules you
send us should be signed and
dated by either the original officers
or the current officers.
When you apply for registration
under the Charities Act, we read
your rules to identify whether you
have a “charitable purpose”.
Charitable purpose as defined in
section 5(1) of the Charities Act
includes:
“. . . every charitable purpose,
whether it relates to the relief of
poverty, the advancement of
education or religion, or any other
matter beneficial to the community.” Read our guidance on
charitable
purpose
for more details.
While we don’t require any specific
wording in your rules , we must be
satisfied that your organisation:
 has a legal name that is not
misleading or offensive and
 has exclusively charitable
purposes that fall within one of
the four purposes set out in
section 5(1) of the Charities Act
and which provide a public
benefit and
 does not have powers clauses
which would allow the
organisation to undertake non-
charitable activities and
 is not carried on for the private
financial benefit or profit of an
individual and
 restricts distributions on winding
up to charitable pur poses.
Name
Your rules should clearly display the
formal (legal) name of the applicant
organisation. Your name must not
be misleading or offensive. For
more, read our information sheet
The name of your organisation

Rules and the Charities Act
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Purpose clauses
Purpose clauses, often called
“objects” clauses, state what an
organisation aims to achieve.
You should clearly identify a list
of purposes in your rules a nd the
list should begin with the
organisation’s main purposes.
All purposes must be lawful, and
should show a clear charitable
aim. They shouldn’t say things
like “to fulfil social needs”
because this is too vague,
general and uncertain to clearly
show a charitable aim.
You may wish to show how your
purposes fit with the four
categories of charitable purpose
like this:
 “To relieve poverty by. . .”
 “To advance education by. .
.”
 “To advance religion by. . .”
 “To be beneficial to the
community by. . .”
as appropriate.
Your organisation may still
qualify for registration even if
some of its purposes are not
charitable. This is the case as
long as the non- charitable
purposes are undertaken to
further a charitable purpose
and are not independent
purposes.
For more details about ancillary
(secondary) purposes see our
guidance on charitable purpose
.
We suggest you keep your
purpose claus es separate from
any “powers” clauses.
Powers clauses
Powers clauses set out the
things that your organisation
may do to achieve its purposes –
for example, employ people;
borrow and invest money;
purchase, lease and hire land,
buildings and vehicles.
Po wers clauses must not allow
the organisation to undertake
non- charitable activities. For
example, the following clauses
are unlikely to be accepted by
the Commission:
 officers have the power to do
anything in relation to the
organisation, including
things that would usually
require an express power or
an order from the Court
 officers can determine the
governing law applicable to
the organisation.
Private profit clauses
To register your organisation
under the Charities Act, we must
be satisfied that it is n ot carried
on for private financial benefit or
profit to an individual .
Your rules should reflect this,
and clearly show that your
organisation may only act to
advance its charitable purposes.
The payment of reasonable
salaries and other expenses to
advance your charitable purpose
is acceptable.
If a trust wants to be able to
make payments or provide
benefits to its trustees, its trust
deed must clearly show that this
is allowed.
Here is an example of a
combination of clauses that
would be acceptable:
 All income, benefit, or
advantage must be used to
advance the charitable
purposes of the
organisation.
 No member of the
organisation, or anyone
associated with a member,
is allowed to take part in, or
influence any decision made
by the organisation in
respect of payments to, or
on behalf of, the member or
associated person of any
income, benefit, or
advantage.
 Any payments made must
be for goods or services that
advance the charitable
purpose and must be
reasonable and relative to
payments that would be
made between unrelated
parties.
Your rules should not include
clauses that would allow private
pecuniary profit for individuals or
other organisations.
For example, the Commission is
unlikely to accept clauses which
would allow the organisation to:
 provide loans or advances
without security
 provide loans or advances at
below market interest rates
 guarantee the liability of any
individual or organisation
 give security in support of a
guarantee to any individual
or organisation

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 sell, exchange, or lease the
organisation ’s property at
below market rates
 purchase, lease, or
exchange property at above
market rates.
 provide remuneration to
individuals at above market
rates
 place an officer’s, or any
other individual’s, interest
above its duty to the
beneficiaries and its
charitable purpose.
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Companies must have clauses
in their rules that either:
 prevent distribution of
dividends or payments to
shareholders or
 restrict current shareholders
and the transfer and issue of
shares to registered
charitabl e entities or trustees
of a trust for charitable
purposes.
Here is an example of a clause
that prevents distribution of
dividends or payments to
shareholders:
 No shareholders of the
company shall be entitled to
receive any benefit from the
company by way of dividend
or other payment from the
company by virtue of a
shareholder holding shares
whether ordinary or any
other class of shares in the
company.
1 Molyneux v Fletcher (1898) 1 QB 648;
In Re Pauling Settlement Trust [1964] 1
Ch 303, [1963] 3 All ER 1; Cowan v
Scargill [1985] Ch 270

Here are examples of clauses
that restrict the transfer and
issue of shares to registered
charitable entities or trustees
of a trust for charitable
purposes:
 The directors shall refuse to
register any transfer of
shares unless the proposed
transferee is a registered
charitable organisation or a
trustee who holds those
shares in trust exclusively for
charitable purposes as
defined in section 5(1) of the
Charities Act 2005.
 No shares shall be issued to
any person unless that
person is a registered
charitable organisation or a
trustee who holds those
shares in trust exclusively for
charitable purposes as
defined in section 5(1) of the
Charities Act 2005.
Winding-up clauses
We suggest all charities include
a winding-up clause in their
rules. This sets out what will
happen to their assets if they
cease to operate and are
voluntarily or involuntarily wound
up.
If your organisation is an
incorporated society , you will
already have a winding- up
clause. This is required under
the Incorporated Societies Act.
If your organisation is a trust ,
you are not required to have a
winding -up clause in your rules.
If your rules have a clause that
refers to winding- up in
a ccordance with section 27 of
the Charitable Trusts Act, that is, as the court directs, this is
acceptable.

To meet the requirements of the
Charities Act, winding- up
clauses must direct all assets to
charitable purposes or charitable
organisations.
Here are three different
examples of winding up
clauses:
1. A general winding- up clause:
 If a decision is made to wind
up or dissolve the
organisation and any
property remains after the
settlement of the
organisation’s debts and
liabilities, that property must
be used to further a
charitable purpose or
purposes as defined in
section 5(1) of the Charities
Act 2005.
2. A winding- up clause that
distributes remaining property
to another organisation:
 If a decision is made to wind
up or dissolve the
organisation and any
property remains after the
settlement of the
organisation’s debts and
liabilities, that property must
be given or transferred to
another organisation f or a
charitable purpose or
purposes as defined in
section 5(1) of the Charities
Act 2005.
3. A winding- up clause that
distributes remaining property to
another organisation that has
similar purposes :

Rules and the Charities Act
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 If a decision is made to wind
up or dissolve the
organisation and any
property remains after the
settlement of the
organisation’s debts and
liabilities, that property must
be given or transferred to
another organisation for a
similar charitable purpose or
purposes as defined in
section 5(1) of the Charit ies
Act 2005.
Governance
Governance clauses explain
how your organization is
managed. They should include
the following information:
 Who governs the
organisation – for example,
the organisation is governed
by a management committee.
 How many governing
officers your organisation
should have and how they
are appointed – for example,
a management committee of
between six and eight
members will be elected at
each AGM.
 How decisions are made –
for example, by majority vote
 What will amount to a
conflict of interest – for
example, a conflict of interest
exists for an officer if the
officer’s interests or duty in a
particular matter conflicts, or
might conflict, with his or her
duty to the charitable entity 
How a conflict of interest
should be managed – for
ex ample, when a conflict of
interest exists for an officer,
that officer must declare the
nature of the conflict or the
potential conflict; the officer
must not take part in
deliberations or proceedings
including decision- making in
relation to the conflict of
interest. The officer must not
be counted in the quorum
required for decision- making
on the matter for which he or
she has the conflict of
interest.
Amendment clauses
We suggest all charities include
a clause in their rules that sets
out the procedure for changing
their rules.
If your organisation is an
incorporated society , you will
already have a clause in your
rules that explains the way your
rules can be changed. This is
required under the Incorporated
Societies Act.
Although a charity registered
with the Commission must notify
us of any changes to its rules,
we do not need to be consulted
before a change is made.
Please don’t put a clause in
your rules saying that the
Commission must approve
amendments.
Important note : if you are an
incorporated society, a
registered charitable trust, or a
company and you wish to make
changes to your rules, you must
send the changes to the
Companies Office for their
approval before you send them
to us.
When you notify us of a change,
we will consider whether the
change affects your registration
status.
If it does, we will send a formal
notice to your address for
service and give you the
opportunity to have your say on
the matter.
Helpful tip – Do you have a
clause in your rules that sa ys
you must get approval for
changes to your rules from
Inland Revenue?
If you do, please note that this is
no longer required, because
Inland Revenue has agreed to
the removal of such clauses.
Check their website
www.ird.govt.nz for more
details

T his informati on sheet w as fi rst publi sh ed in Februar y 200 8 and up dated in February 2012. Please refer to
www .char ities.govt.nz for any ne w de ve lo pments or up dates.
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Related information sheets
 The name of your
organisation
 Charitable purpose
 “Public benefit” test:
Guidance for charities
 Purposes beneficial to the
community: Examples of
wording for purpose clauses
 Advancement of education:
Examples of wording for
purpose clauses
 Advancement of religion:
E xamples of wording for
purpose clauses
 Relief of poverty: Examples
of wording for purpose
clauses
For further information
We hope this information is
helpful.
For more information about the
Charities Register or registration
under the Charities Act, please
browse www.charities.govt.nz
You can also call the Charities
Commission on our free
information line – 0508 242 748
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