Incorporated societies – Community Toolkit

What is an incorporated society?

An incorporated society is a membership-based organisation that has registered under the Incorporated Societies Act 1908. To be able to register, your group must exist for some lawful purpose other than making a profit.

By registering under the Act, the society becomes an incorporated body with a legal identity of its own, separate from the identity of its members. This means the society continues to exist as a legal entity (called “perpetual succession”) even though its membership may change. It also means the society’s members are not personally responsible for debts and other obligations that the society takes on.

The society’s activities are limited by the Incorporated Societies Act and the rules the society adopts for itself.

Usually an incorporated society’s management committee and officers deal with the administration, management and control of the society.

Key requirements for incorporated societies

Incorporated Societies Act 1908, ss 4(1), 20, 31

Not for financial gain – The society cannot operate for financial gain, which means it can’t make a profit with the intention of passing it on to the members. Any profits must be returned to the society to be used for its purposes and for the benefit of those in the community who the society serves. If a society breaches this rule it can be fined up to $200, and each member that was involved in the breach can be fined up to $40. As well as this, the members involved can be held personally liable for any debt or obligation that the society took on in breaching the rule.
Minimum membership – The society must have at least 15 members. However, a member that is a body corporate, such as another incorporated society, counts as three individual members.
Rules – The society must have a set of rules that meet the requirements under the Incorporated Societies Act. (A model set of rules is available here.
Acting within society’s objects – Once registered, the society must operate within the scope of the objects (aims) stated in its rules. If it acts outside these objects, the Registrar of Incorporated Societies can give written notice to the society to stop doing this, and after that each of the society’s officers can be fined for every day that the breach continues. If a society enters into a contract or other transaction outside its objects, the transaction could be invalid and not enforceable by or against the society, in which case the officers responsible (the treasurer or secretary for example) may be personally responsible. If a society makes a rule or does something affecting its members that is outside its objects, members may be able to get a court injunction to stop it.

Note: Registrars’ powers and the ability of the courts to intervene will likely become stronger when new legislation replaces the current Incorporated Societies Act 1908 (a new bill is expected to be introduced into Parliament later in 2016).

Registering as an incorporated society

How to register

Incorporated Societies Act 1908, s 7

To become an incorporated society, your organisation must register with the Registrar of Incorporated Societies (part of the Companies Office). You’ll need to submit an application for incorporation signed by at least 15 members, and a copy of your organisation’s rules.

(For more information about how to register, and other information about incorporated societies, check the website.

The society’s rules

What must the society’s rules cover?

Incorporated Societies Act 1908, s 6

An incorporated society must have a set of rules covering, among other things:

the society’s objects (aims)
how a person becomes and stops being a member
how general meetings are called and held, and how voting is to take place at these meetings
how the society’s officers are appointed
the control and investment of the society’s funds, and the society’s powers (if any) to borrow money
how the rules can be changed.

As well as covering the matters required by the Act, the rules can also include any other provisions, so long as they’re not inconsistent with the Act and other laws.

Meetings and decision-making

Incorporated Societies Act 1908, s 6(1)(f)

The society’s rules must state how general meetings are to be called and held. To comply with this requirement, it’s a good idea for the rules to provide for:

the ability to call special meetings in addition to annual general meetings
how much notice is required for calling AGMs and special meetings and for announcing the agendas for these meetings
the quorum required for a meeting
procedures for adjourning meetings
appointing a chairperson or co-chairs, and whether they can have a casting vote (casting votes are less common than they used to be, as most groups prefer the notion of one vote per person and if a vote is equally tied, the motion does not pass. With a governance approach informed by Te Tiriti o Waitangi, there’s usually an emphasis on consensus decision-making and balancing power between tangata whenua and tangata Tiriti.
the appointment of corporate representatives for meetings (if some of the society’s members are themselves incorporated bodies)
keeping proper and accurate records of all meetings.

The rules must also set out the procedure for making decisions at society meetings. This will usually include:

rules about who can vote
the voting procedures (for example, whether a show of hands is enough)
whether members can vote by proxy, post or email
how many people must agree for there to be a valid decision (for example, a simple majority)
consensus decision-making, if this is the preferred approach.

Electing the society’s officers

Incorporated Societies Act 1908, s 6(1)(g)

The rules must state how the society’s officers are appointed. Often rules state that they will be elected by the members at the annual general meeting. At a minimum, a chairperson, treasurer and secretary (the principal officers) should be elected at the AGM. Groups can decide to specify the minimum and maximum number of people on their board and rather than elect officers for specific tasks such as the secretary, the rules can specify that the officers will be elected by the board at the first board meeting after the AGM.

Controlling, investing and borrowing money

Incorporated Societies Act 1908, s 6(1)(i)

The rules must specify how the society’s funds will be managed – for example, who can sign cheques and who will collect money owed to the society. The control and investment of a society’s funds are usually entrusted to the management committee.

The rules must also specify the types of investments that are allowed when the society has surplus funds.

If there is a possibility that the society will borrow money, a rule should state how this may be done. The power of a society’s management committee to borrow is usually limited, and usually requires a general meeting of members.

The rules should also require that income and property can be applied only to further the society’s objects (aims), and that members aren’t allowed to gain financially.

Financial accounts and statements

Although it’s not required, it’s good practice for the rules to deal with accounting processes and statements, including who’s responsible for keeping proper accounts. This is important, because the Act requires a society to keep proper accounts and provide financial statements.

Changing the rules

Incorporated Societies Act 1908, ss 6(1)(e), 21

The rules must state how they can be changed. Usually all members will be given an opportunity to meet and debate any proposed changes. The threshold for approving a rule change is often higher (two thirds of the membership, for example) than for other decisions (where a consensus of those present or a simple majority is usually enough).

Membership

Becoming and ceasing to be a member

Incorporated Societies Act 1908, s 6(1)(c),(d)

An incorporated society’s rules must state how people become and stop being members. Membership that isn’t authorised by the rules is invalid. The rules should specify:

the administrative steps involved in a person becoming a member, how applications are made (if they’re required), who decides whether to accept the applicant as a member (if this isn’t automatic after an application), and any subscription fee
when the society can refuse to admit a person as a member – for example, if they were previously expelled
different classes of membership, such as honorary members or active or associate members, and the voting rights of each class.

For how a person stops being a member, the rules should specify:

the process for resigning (for example, whether a resignation must be in writing)
how the society can terminate someone’s membership – that is, who has the authority to do this and in what situations (non-payment of subscriptions or fees, for example)
a process for disciplining and expelling members that complies with natural justice, is culturally appropriate and fair.

Members’ functions and powers

The functions and powers of members usually relate to important decisions involving the society’s direction, purpose or structure, or large amounts of money. The rules should require decisions such as these to be approved by members at general meetings.

The rules should also clarify the functions and powers of different classes of membership – for example, financial members may be given the right to attend meetings, speak and vote.

Officers and management committee: Roles and responsibilities

Management of an incorporated society

Usually an incorporated society’s management committee and other officers deal with the administration, management and control of the society.

Chairperson, treasurer and secretary: The principal officers

A society’s principal officers are its chairperson/co-chairs, treasurer and secretary:

The chairperson/co-chairs preside over and regulate the society’s meetings. Specific duties may include acting as spokespeople for the society in the community.
The treasurer controls income and spending, keeps the society’s financial records, and prepares the annual accounts.
The secretary is responsible for the overall administration of the society.

Role and powers of officers

Officers are directly accountable to the society’s members, mainly through general meetings.

Officers must act consistently with the functions and powers given to them by the society’s rules. Officers have no powers other than those set out in the rules, and they cannot do anything that the society itself cannot do.

The management committee

The management committee or board is appointed by the society’s members at the annual general meeting. The committee’s functions are to:

set the mission, aims and values of the society
employ and dismiss the co-ordinator or manager
develop and propose policies and strategies for the society to consider adopting
keep proper accounts and handle the society’s finances, including reviewing budgets and business plans
monitor compliance and risk
keep a register of members
control the society’s common seal (official stamp)
call general meetings.

Duties and liabilities of officers

Incorporated Societies Act 1908, s 34A

The Incorporated Societies Act doesn’t specify any general duties for a society’s officers.

In general, all officers of a society have a duty to:

act in good faith and in the society’s best interests
exercise their powers for a proper purpose
act in accordance with the society’s rules and objects
ensure the society’s affairs are carried out in a way that does not create a substantial risk of loss to the society’s creditors
ensure that the society does not incur an obligation that it can’t fulfil
take reasonable care in exercising their duties
ensure that they don’t profit personally from their position of trust.

The society’s rules can provide for officers to be indemnified for costs and liabilities that they incur through committing wrongful acts in good faith while properly serving the society. The society can also take out “Directors and Officers” insurance to protect their officers and in some cases entire committees.

A society’s officers can potentially face financial penalties under the Incorporated Societies Act if the Act is breached. For example, each officer can be fined up to $1,000 for failing to provide documents that the Registrar of Incorporated Societies has asked to inspect.

Apart from potential criminal liability (for theft for example), an officer may also be personally responsible to third parties under civil law for breaches of trust or fiduciary duty if they act outside the society’s rules and objects, or for “conversion” of property.

Can officers be paid?

Members may be paid as officers of a society and may be eligible for prizes. If the society has tax-exempt status as a charity, members can be paid for services only if the payment is reasonable and is no more than would be paid to a non-member.

The rules should be very clear about any right of management committee members and officers to receive an honorarium or to be reimbursed for out-of-pocket expenses.

Officers who become paid employees of the society should resign from their position as officer, to avoid any conflict of interest (a conflict between their personal interests and those of the society).

Ongoing administration

Administrative requirements for incorporated societies

Incorporated Societies Act 1908, ss 18(2), 22-24, 34A

Registered office – When it incorporates, the society must register its physical address with the Registrar of Incorporated Societies, and must notify the registrar of any changes to this. (A society need only put their physical address in their cover letter rather than in the actual rules. The rules need only indicate that the registered office is in New Zealand. This prevents needing to change the rules each time the society’s registered office changes).
Register of members – The society must keep a register of members, listing names and addresses and when each member joined.
Annual financial statement – The society must file an annual financial statement with the registrar, including a statement of income and expenditure for the last financial year, a balance sheet of assets and liabilities, and a list of the securities affecting any of the society’s property. The financial statements must be approved by the members at a general meeting, and an officer must certify that the members have approved it. The statements don’t have to be audited, unless the society’s rules require this. (Note however the new financial reporting standards.)
Changes to rules – Any change to the rules must be signed in duplicate by at least three members and must be filed with the registrar, along with the minutes from the meeting where the members agreed with the changes. A statutory declaration made by a member or lawyer must confirm that the change was made as required by the society’s rules. This can now be done online at: www.societies.govt.nz/cms/customer-support/learn-about-our-online-services/file-rule-changes-online/file-a-societys-rule-change-online
Registrar’s powers of inspection – The registrar can require the society to hand over any registers, records or other documents so that the registrar can monitor whether the society is complying with the Incorporated Societies Act.
Reporting by charities – Incorporated societies that register as charities also have some specific reporting requirements (see “Charities and charitable status / Administrative responsibilities of registered charities” in this chapter).

Winding up the society (liquidation)

What is “liquidation”?

Liquidation is the process that brings an incorporated society’s existence and activities to an end. Its purpose is to collect the proceeds of the society’s assets and distribute them to the members, unless the rules require otherwise.

If the society has charitable status, any surplus assets must be distributed to other charitable organisations within New Zealand that have similar aims. If a charity is deregistered, there will be a tax on its net assets (see “Charities and charitable status / Removal from the Charities Register” in this chapter).

Voluntary liquidation

Incorporated Societies Act 1908, s 24

The members of an incorporated society may voluntarily put it into liquidation by passing a resolution to this effect (by either a simple majority or a three-quarter majority according to their rules) and appointing a liquidator (if there are any assets to liquidate) at a general meeting.

This decision must be confirmed by another resolution (again, passed by a simple or three-quarter majority, according to their rules) at a second general meeting held no earlier than 30 days after the initial meeting.

Compulsory liquidation by the High Court

Incorporated Societies Act 1908, s 25

The High Court can put an incorporated society into liquidation in various situations – for example, if the society is unable to pay its debts, or its membership falls below 15.

An application to the court to have a society put into liquidation may be made by the society itself, a member, a creditor of the society, or the Registrar of Incorporated Societies.null