How relationships between national and local bodies are determined
Local or regional organisations in the New Zealand community sector are often part of a larger national parent organisation, which is usually an incorporated body.
The relationships between the national and local components, and the rights and powers of each component, will depend on the rules of the national body and of each local group, and on whether the local organisations are separately incorporated.
The rules of the different bodies will determine how much control the national body has over its local components and how much autonomy the local organisations will have.
The rules will also determine the extent to which the local groups can control the national body. If the local organisations are members or shareholders of the national body, the local organisations will have an inherent right to participate in managing the national body.
The Incorporated Societies Amendment Act 1920 sets out the rules for incorporating branches of societies and their relationship with the parent organisation. It will no longer be possible for branches to be incorporated under this Act from October 2023 (as a result of the 2022 Act). However, the existing rules governing the relationship between the branch and the parent organisation continue to apply until the Registrar receives a notice from the parent society and the branch (see the 2022 Act, Schedule 1, clause 17).
Presumably, parent societies and their branches will only notify the Registrar when they have re-registered under the 2022 Act and worked out how their respective constitutions will provide for their relationship.
Until then, the information below remains relevant.
Incorporation of local organisations
Incorporated Societies Amendment Act 1920, ss 2-4
In some national structures each local organisation is separately incorporated, giving it a different legal status and some additional rights and powers, such as the power to own property and enter into contracts in its own name. In other structures, there is an incorporated parent body with one or more unincorporated groups or committees operating locally.
There is a specific procedure under the incorporated societies legislation for incorporating a local component (“branch”) of a parent incorporated society.
There is no provision under the Charitable Trusts Act 1957 for incorporating the local societies or groups of a charitable trust board.
Note: For a clear understanding of the relationships between the different components of particular bodies, you should read the rules or constitutions of each body. The Incorporated Societies Register website provides access to the rules or constitutions of all incorporated societies.
Management in national structures
National structures with incorporated local groups
Incorporated Societies Amendment Act 1920, s 5
- National control over local groups – In national structures where the local organisations are separately incorporated, the management committee of the national body does not have an automatic right to be involved in managing the local organisations. If the purpose of the national body is to be a regulator of the local groups, then the rules or constitutions of the local organisations should allow the national body to give directions to them.
- Management and administration at local level – The rules applying to the incorporated local branches of incorporated societies are mostly the same as the rules applying to incorporated societies generally (see “Choosing the right legal structure for your group / Incorporated societies”).
- Local control over national body – The management committee of an incorporated local group can exercise some limited control over its national body if it’s also a member and shareholder of the national body. Otherwise the local group does not have an automatic right to be involved in managing the national body. To achieve this, the national body’s management committee should consist of representatives of each of the local groups.
National structures where local groups are not incorporated
Unincorporated local organisations are usually constituted under the rules of their national body. The extent to which the rules of national bodies govern the management and procedures of the local groups will vary:
- Management and administration at local level – A local group can have its own rules for the management of the group and its procedures, so long as those rules don’t conflict with the parent body’s rules.
- National control over local groups – The rules of a local organisation can prevent the national body having managerial oversight over it only if the national body’s rules don’t conflict with this. If the national body’s rules cover the management and procedures of the local groups, a local group can’t override those rules by making different rules of its own. Given the extent to which a national body can be bound by and held responsible for the actions of its unincorporated local groups, it’s best practice for the rules of the national body to explicitly state that it has the right of managerial oversight of the local groups.
Civil and criminal liability in national structures
Liability in national structures with incorporated local groups
An incorporated local organisation is not legally responsible (“liable”) for any civil or criminal penalties that the courts award against the national body unless:
- the local group acted jointly with the national body in the acts or omissions that resulted in the penalty, or
- the local group has agreed to indemnify the national body, or the local group’s rules require it to do this, or
- the local group later ratifies (formally confirms) the relevant act or omission of the national body.
The same rule applies to the national body’s liability for civil or criminal penalties awarded against a local group.
Liability in national structures with unincorporated local groups
A parent body will generally be liable (usually jointly with the members of the local group) for any wrongful acts that the local group does on the national body’s behalf.
A parent body may be able to exclude or limit its liability for civil penalties (such as damages for negligence) resulting from a local group’s actions, by including an exclusion or limitation of liability clause in the national body’s rules. However, these clauses may not always be legally valid, particularly when the person committing the wrong and the person claiming the protection of these clauses are part of the same organisational structure.
A national body should make sure it properly monitors the actions of its local groups, to reduce the risk of it incurring civil or criminal liability.
Capacity to enter into contracts
National bodies are usually incorporated and are therefore able to enter into contracts in their own right.
A local organisation that is separately incorporated will also be able to enter into contracts in its own name. Unincorporated groups can’t do this and must instead enter into contracts in the names of their members.
Power to hold property
A national body is usually incorporated and can therefore hold property in its own right. Any property that is transferred or left to the national body in a will can be dealt with as the body chooses, according to its rules and any relevant legislation.
Each local organisation will have influence over property owned by the national body only to the extent that it can exercise management rights over the parent body. Unless the national body holds the property on trust, the property will be available to be distributed to creditors if the national body is liquidated.
Incorporated local groups
If a local organisation is incorporated it can hold property in its own right. Any property that’s transferred to the group, or left to it in a will, can be dealt with as the group decides, so long as it complies with the rules of the group, the Incorporated Societies Act, and the terms on which the property was transferred or gifted to the group.
The national body has influence over the property only to the extent that it has management rights over the local group. Unless the local group holds the property on trust, the property will be available to be distributed to creditors if the local group is liquidated.
Unincorporated local groups
When a local group is not incorporated, any property transferred or left to it in a will, will be owned by the people who are the members of the group at the time. The property will then be dealt with according to the group’s rules.
This poses a risk for the national body if the local group isn’t subject to any formal rules, or if the group’s rules can be changed without the national body’s agreement. The local group members could potentially deal with the property for their own benefit and neglect the purposes of the larger organisation. To prevent this happening:
- ownership of the organisation’s property should be restricted, as far as possible, to incorporated bodies that are controlled by the national body
- the amount of property held by local groups should be kept to a minimum
- any local group holding property should be subject to a rule that the property can only be dealt with to further the purposes of the organisation.