Are you involved with a society? If you are, you need to know about the incorporated societies act 2022

Introduction

Many community clubs and organisations operate as societies. Societies can either operate informally as unincorporated organisations or they can incorporate.

The purpose of incorporation is to create a legal entity that exists independently of its members and can therefore enter contracts, own property, incur debts and continue with perpetual succession independently of its members.  A particularly significant consequence of incorporation is that incorporation limits the liability of members/officers.  In contrast, the officers of an unincorporated society have unlimited personal liability for their actions on the society’s behalf.

Most existing incorporated societies operate under the legal rules created by the Incorporated Societies Act 1908 (the Old Act).

The Old Act dealt with the creation and winding up of societies, but it provides very little guidance for how they should operate during their lifetime.  As a result, a lot of rules were developed by the courts to manage how incorporated societies should operate.  Those rules are often difficult to find and apply to modern societies.

The purpose of the Incorporated Societies Act 2022 (the New Act) is to replace the Old Act and provide much clearer rules about how societies must operate.

The New Act

The New Act is important for almost all incorporated societies in New Zealand.  The only exceptions are societies registered under their own specific legislation (such as the Boy Scouts of New Zealand Act 1956).

A fundamental purpose of the New Act is to make the law of societies more accessible to everyone involved with running a society.  It does that by codifying the rules previously found in case law and text books.  It should now be easier for societies and their members and officers to understand the law as the answers to most questions can be found in the New Act.

The key principles of the New Act are:

1. societies are democratic and members have primary responsibility for accountability;
2. societies should operate to promote trust and confidence of their members;
3. societies are private and should be free of “inappropriate” government interference; and
4. societies should not distribute profits or financial benefits to members.

Key date:  5 April 2026

The New Act came into force on 5 October 2023.   Societies formed since then must incorporate under the new Act and meet its requirements.  Existing societies (that is, societies incorporated before 5 October 2023 and registered under the Old Act) must re-register under the New Act and meet its requirements by 5 April 2026.  Existing societies that fail to re-register by that date will be automatically dissolved.  That could create many problems, including loss of a society’s assets, so is definitely best avoided.

Existing societies have two options:

1. wind up and distribute their assets, in accordance with existing rules, on or before 5 April 2026; or
2. re-register under the new Act.

Winding Up

The processes for winding up are not changing and will largely depend on each society’s existing rules and the nature of each society.  If your society wants to pursue this option you should seek specific advice from your society’s lawyer and accountant.  This paper only covers re-registration processes.

Re-registration

For incorporated societies that want to continue beyond 5 April 2026, re-registration is essential.

The re-registration process provides an opportunity to reconsider the nature and structure of an organisation.  A key question for any society is whether it should continue as an incorporated society, or change to be a charitable trust.

Both incorporated societies and charitable trusts must be established to achieve specified purposes.  The key differences are:

1. societies are democratic and accountable to members whereas charitable trusts are generally autocratic and ultimately accountable to the Government; and
2. charitable trusts must have purposes that are legally “charitable” whereas societies do not have to be charitable (although they must be “not-for-profit”).

Four requirements for re-registration

The four key requirements for any society seeking re-registration are:

1. the society must review its constitution and update it if required to ensure that it meets the requirements of the New Act;
2. the society must have a governing body of at least 3 natural persons accepting responsibility for managing the society;
3. the society must appoint a contact person (for contact by the Registrar of Incorporated Societies (Registrar)); and
4. the society must have at least 10 members.

These are ongoing requirements that must be complied with after registration.  For example, if a society at any time has less than 10 members or 3 members on its governing body, it can be dissolved by the Registrar.

Constitution

The New Act is much more detailed than the Old Act in its requirements for a society’s constitution.  Constitutions will generally be longer than they used to be to include all the new requirements.

The New Act specifically provides that a constitution must deal with the following matters:

1. the name of the society (which must end with “Incorporated”, “Inc” or “Manatopu”);
2. the purposes of the society;
3. how a person becomes a member of the society, including a requirement that a person must consent to be a member;
4. how a person ceases to be a member of the society;
5. arrangements for keeping the society’s register of members up to date;
6. the composition, roles, functions, powers, and procedures of the committee of the society, including:
   1. the number of members that must or may be on the committee;
   2. the election or appointment of officers;
   3. the terms of office of the officers;
   4. the functions and powers of the committee;
   5. grounds for removal from office of officers;
   6. how the chairperson (if any) will be elected or appointed and whether that person will have a casting vote if there is an equality of votes; and
   7. the quorum and procedure for committee meetings, including voting procedures;
7. how the contact person or persons will be elected or appointed;
8. how the society will control and manage its finances;
9. the method by which the constitution may be amended;
10. procedures for resolving disputes, including providing for how a complaint may be made;
11. arrangements and requirements for general meetings (see sections 84 to 93), including:
    1. the intervals between annual general meetings;
    2. the information that must be presented at general meetings;
    3. when minutes are required to be kept;
    4. the manner of calling general meetings;
    5. whether and, if so, how written resolutions may be passed in lieu of a general meeting for the purposes of section 89;
    6. the time within which, and manner in which, notices of general meetings and notices of motion must be notified;
    7. the quorum and procedure for general meetings, including voting procedures (for example, whether votes may be cast by post or by electronic means), procedures for proxies (if any), and whether the quorum takes into account members present by proxy or casting postal votes or votes by electronic means; and
    8. the arrangements and requirements for special general meetings; and
12. the nomination of a not-for-profit entity, or a class or description of not-for-profit entities, to which any surplus assets of the society should be distributed on a liquidation of the society to enable the removal of the society from the register.

Drafting a new constitution can be time-consuming, but a well-drafted constitution is a valuable investment and significantly reduces the likelihood of member disputes and the costs of resolving them if they arise.   The New Act gives members rights to apply to the Court to enforce the terms of a constitution, so having a constitution that is clear and officers are willing to comply with is a key part of operating any society effectively.

The purpose statement is arguably the most important part of any constitution, as the whole purpose of a society is to achieve the purposes defined in its constitution, and the powers of the society and its governing body are limited to achieving those purposes.

The requirement for dispute resolution procedures may have the biggest practical impact on societies.  Drafting dispute resolution requirements can be difficult.  The Act sets out default rules that can be incorporated into a constitution directly or by reference, if preparation of bespoke provisions is too difficult.

How to re-register

Applications for re-registration must be made online (unless the Registrar agrees to accept a different form of application).  The application will need to include the constitution, confirmation that the society has at least 10 members and contact details for the society’s officers and the designated contact person.

What does a society need to do once it has been re-registered?

Once a society has been re-registered:

1. changes to the constitution need to be notified to the Registrar (including a copy of the complete amended constitution, not just the amendment) with appropriate certificates from an officer of the society;
2. changes to officers need to be notified to the Registrar;
3. changes to the registered address need to be notified to the Registrar;
4. changes to the contact person/s need to be notified to the Registrar;
5. the society must continue to have at least 10 members and 3 officers on its board;
6. the society must maintain a register of members which records:
   1. the name of each member;
   2. their last known contact details;
   3. the date their membership commenced;
   4. the names of members who ceased to be members during the last 7 years; and
   5. any other information required by regulations;
7. because all members must consent to being a member, societies must have a method of confirming and recording that consent (although obtaining confirmation of consent is not required for existing members of existing societies, it is required for all new members once re-registration has occurred);
8. societies must be prepared to answer requests from members for information about the society (although the New Act sets out grounds for refusing to disclose information (e.g. privacy of other members, commercial prejudice, irrelevance or where the request is frivolous or vexatious) the default requirement is for  disclosure to be made on request);
9. as a minimum, on request a society must provide to a member (at no charge) copies of the financial statements and minutes from the most recent annual general meeting;
10. the society will need to file an annual return with the Registrar, including filing of financial statements; and
11. the society must maintain an “interests register” to record the interests of officers.

Societies that are also registered charities need to remember that the notifications in (a) to (d) above also need to be given to Charities Services.

Meeting these requirements may be a challenge for some re-registering societies.  For example, some societies may not hold a record of members who have ceased their membership.  However, as noted above, when a society re-registers, it is legally required to maintain a register of members who have ceased to be members within the previous 7 years.  This obligation applies from the date of re-registration and there are no transitional provisions that allow societies to only start keeping records of former members from the date they re-register.  If a re-registering society has not previously kept records of its members and former members, it may not be able to comply with this requirement.  This could be problematic – society officers who fail to maintain a register of members can be liable for a fine of $100.  Re-registering societies should use their best efforts to establish a member register including details of former members for the 7 years prior to re-registration.  Hopefully, this potential problem will be addressed by updates to the regulations as part of the planned review process for the legislation.

Officer Duties

The New Act codifies the duties of officers, which were previously found in case law rather than the Old Act.  Effectively officers of societies have similar duties to company directors.  In summary, these legal duties are:

1. officers must act in good faith and in what they believe to be the best interests of the society;
2. officers must use their powers for a proper purpose;
3. officers must comply with the New Act and its regulations;
4. officers must exercise the care and diligence that a reasonable person with the same responsibilities would exercise;
5. officers must not act in a way that creates a “substantial risk of serious loss to the society’s creditors”;
6. officers must not allow their society to incur an obligation unless the officer reasonably believes that the society will be able to perform it; and
7. although officers can rely on professional or expert advice they can only do so if they act in good faith, make proper inquiry when that is warranted and have no knowledge that indicates such reliance is not warranted.

These duties are owed by officers to the society itself, not to individual members.

Breaches of these duties could result in personal liability for offices (as is the case for company directors).

Officers must also ensure that their society’s financial statements are audited if their society is not a charity and has had total operating revenue exceeding $3 million per annum for the previous two years.

Significantly, “officer” is defined to include both:

1. individuals appointed as officers under the society’s constitution; and
2. any other individual who can exercise “significant influence” over the management or administration of a society.

Managing conflicts of interest

The New Act sets out a detailed process for managing conflicts of interest.  In summary:

1. any officer with an “interest” as defined in the New Act in any matter relating to their society must disclose that interest to the committee and record the interest in the society’s interests register;
2. officers with an interest cannot participate in affected decision making processes (although they can participate in discussions).

Key points:

The key points to remember are:

1. If you are involved with an incorporated society that wants to continue to operate you need to ensure that the society re-registers under the New Act by 5 April 2026.
2. Re-registration will generally require a review of the society’s constitution/rules and, possibly, adoption of a new constitution that meets the requirements of the New Act.
3. Your society may need to adopt new record keeping procedures to comply with the requirements for:
   1. appointment of a contact person;
   2. maintaining the information required about members and former members;
   3. operating an effective conflicts register; and
   4. disclosure of information.

Please contact us at Harkness Henry if you need any assistance with any of these matters.

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.