Many community groups will not need to incorporate – for example, if your group is intended to exist for only a short period (perhaps because it’s been formed to organise a particular event, or to respond to a particular time-limited issue), or if you don’t intend to seek funding from funding agencies (who often require applicants for funding to be incorporated). In those cases, it may not be worthwhile to incur the cost of becoming formally incorporated and to take on the ongoing obligations – reporting requirements for example.
However, it’s important to understand the limitations of remaining unincorporated – for example, the risk for individual members that they will be held personally responsible for obligations the group takes on.
Benefits and limitations
Benefits of being unincorporated
- No incorporation process – You will not need to go through the relevant administrative process, including providing an application and supporting documents, and showing that you meet all the relevant requirements (for example meeting the legal definition of “charitable purpose” if you want to incorporate as a charitable trust board).
- Fewer ongoing requirements – By incorporating, your organisation will take on a number of ongoing administrative requirements – for example, incorporated societies must maintain a register of members and file annual financial statements with the Registrar of Incorporated Societies (see “Charities and charitable status / Administrative responsibilities of registered charities” in this chapter).
- Fewer costs – There may be registration fees involved with becoming incorporated, and you may also need to pay for legal advice.
- Flexibility – By remaining unincorporated, your organisation is free to organise its structure and operations as it chooses. For example it won’t be necessary to ensure that its rules meet all the requirements of the relevant Act (such as the Incorporated Societies Act).
Limitations of being unincorporated
- Membership status is uncertain – The relationship between members in unincorporated groups is often uncertain. There may therefore be doubts about membership rights and obligations, including how people become or resign as members, how complaints and disputes are to be dealt with, and when and how members may be disciplined or expelled.
- Unclear rules and rights – Unlike incorporated groups, unincorporated groups do not have to have rules. However, if there are no rules, or if the rules are unclear, it may be difficult to resolve disputes. Even when an unincorporated group does have rules, it may still be difficult to prove how the rules were adopted, whether more recent members agreed to them, and whether the rules are binding on members.
- No perpetual existence, no legal standing – Unincorporated groups are not separate legal entities. They do not have a continuing existence independent of their members, and they have no legal standing to own property or borrow money in their own name. Because of this it can be difficult to obtain funding.
- Personal liability – Potentially, the members of the group’s committee, and possibly all members, are personally responsible (“liable”) for any obligations the group takes on, and for any judgment made against the group by the courts.
Committee members are likely to be personally responsible for the group’s debts and for debts incurred by an employee of the group, particularly if the committee members knew the debt was being incurred or they agreed in some way to the transaction. They are also likely to be personally responsible to a person who suffers damage as a result of the negligence of an employee or other person involved in the group – for example, failing to organise an event properly.
Individuals who are liable (either the person who committed the wrong or the committee) may have the right to be indemnified (paid back) out of any property the group members hold individually, if the group’s rules provide for this.
Rules for unincorporated groups
Why have written rules
The rules of unincorporated groups will derive from an agreement between the members, or an implied agreement based on past practice, or both.
To operate smoothly, an unincorporated group should record its rules and processes for managing the group’s affairs and making decisions. Having detailed written rules helps to determine what is right and wrong if disputes arise.
What should the rules cover?
It’s good practice to have written rules stating:
- the group’s name
- the group’s objects or purpose
- how a person becomes and stops being a member, and any obligations that members have
- how the group will resolve disputes between members
- how general meetings will be convened
- the method of voting at general meetings
- what officers (such as chairperson and treasurer) will be appointed to any committee, and how they will be appointed
- the control of finances and financial accounts
- how the group’s rules can be changed
- how to dissolve the group.
Decision-making and management
The group’s rules should clearly state its decision-making processes, including:
- which decisions need to be approved by the ordinary members
- if voting is to be used, who can vote
- the procedures for voting (for example, a show of hands) and whether members can vote by proxy, post, email or secret ballot
- how many people must agree in order for there to be a valid decision (for example, a simple majority)
- specific decision-making for groups using Te Tiriti informed processes
- The approach for achieving consensus if this is the preferred decision making process.
Managing the group’s affairs
The management of most unincorporated groups is usually delegated to a committee of members.
If the rules require a management committee to be appointed, the committee has no authority to bind ordinary members, unless the rules state otherwise.
It’s useful for the group’s rules to deal with financial controls and investment of the group’s funds. It will help the group operate smoothly for the rules to clearly state who is responsible for keeping proper accounts and the procedures for receiving and withdrawing funds (for example, a requirement for the signatures of two committee members).
Umbrella organisations and unincorporated groups
If your group does not want to incorporate, it could instead become part of an existing umbrella organisation that is incorporated. This would allow your group to get on with its work without the costs and responsibilities of being incorporated itself. (See “Choosing the right legal structure for your group / National bodies and local organisations” in this chapter.)
There should be a written agreement between the group and the umbrella organisation to make sure the relationship is clear. Both sides should get legal advice before signing any agreement.
An umbrella organisation can receive and pass on any money to groups that are within its structure, and can charge a handling or administration fee for its services.