The New Incorporated Societies Act – Guide for Societies

NOTE:

(i) These notes, prepared by Mark von Dadelszen, provide a brief overview of the more significant elements of the Incorporated Societies Act 2022 which has now replaced the 1908 Act.
(ii) New and existing societies should now be adopting new constitutions that comply with the new Act.
(iii) There are estimated to be 24-26,000 incorporated societies, and every currently incorporated society (including those incorporated as societies under the Charitable Trusts Act 1957) will be required, by 1 December 2025 to re-register under the new Incorporated Societies Act if the society wants to continue to have the rights and protections of being an incorporated society, and when re-registering it must have a constitution that complies with the new Act.

1. Incorporated Societies Act Reform

(a) The following is a brief background to the reforms:

    • The Incorporated Societies Act 1908 remained unchanged for over a century, except for minor amendments. By contrast, our companies’ legislation has been totally re-enacted six times since the Joint Stock Companies Act 1860 (1868, 1882, 1901, 1903, 1933, 1955 and 1993), all with regular amending Acts.
    • The Law Commission commenced a review of the 1908 Act in 2011, and its 2013 Report, A New Act for Incorporated Societies, recommended a complete overhaul of the Incorporated Societies Act 1908. A 2015 Exposure Draft of the Incorporated Societies Bill largely followed the Law Commission’s recommendations.
    • The Bill was modified during the Parliamentary process, and the most significant change was to reduce the reporting burdens that would otherwise have been imposed on smaller societies (those burdens were fundamental issues raised by this author and other submitters on the Bill).
    • The new Act received the Governor-General’s assent on 5 April 2022.

(b) The following principles in the Law Commission’s 2013 Report underpin the 2022 Act:

    • Societies are organisations run by their members, and those members have the primary responsibility for holding their societies to account. A group without members to hold it to account should consider an alternative form of incorporation (such as a trust).
    • Incorporated societies should not distribute profits or financial benefits directly to members (who join to achieve a shared purpose, and not for their personal financial profit from the activities of the society). This is a key feature that sets incorporated societies apart from most other types of incorporated entities.
    • Societies are private bodies that should be self-governing and largely free from inappropriate State interference.
    • The legislative regime should give societies some flexibility to adapt their operating environment to suit their purposes and their culture.

(c) The 2022 Act reflects the principles of modern good governance, and many of its provisions echo those required of companies.

2. Pecuniary/financial gain of incorporated society members:

The new statute continues (with minor exceptions) to prohibit societies from operating for the financial gain of their members and from distributing any financial gain (profit, dividend, or other financial benefit) to its members [sections 22-23]. However, a society is permitted to “trade” (run a business), reimburse members for reasonable expenses related to society, pay members for services on a normal “arm’s length” basis, and provide benefits and incidental prizes and discounts to the public including members or their families [section 24].

3. Society membership:

Minimum society membership is now 10 [section 74] (with corporate members still being equal to 3 individuals [section 14]). The Act now expressly provides that a person must consent to become a member of a society [section 76].

A register of members must be kept by every incorporated society, including the name of every member, the last known contact details of each member, the date on which each member became a member, and any information that may be prescribed by regulations [section 79], and, to avoid disputes, I strongly recommend that the consent required under section 76 should be obtained in writing and be retained in the membership records.

4. Member access to information:

There are now detailed provisions entitling a society member to make a written request to a society for information held by the society and specified in the request [section 80]. The member “must specify the information sought in sufficient detail to enable it to be identified,” and a society may decline to provide information [section 81] in the following, specified circumstances:

  • To protect the privacy of natural persons,
  • If disclosure of the information would, or would be likely to, prejudice the commercial position of the society or of any of its members,
  • If disclosure of the information would, or would be likely to, prejudice the commercial position of any other person, whether or not that person supplied the information to the society,
  • The information is not relevant to the operation or affairs of the society, or
  • The request for the information is frivolous or vexatious.

The society must [section 80], within a reasonable time, provide the information, or agree to provide the information within a specified period (but may require the member to pay a reasonable charge meet the cost of providing the information [section 80(3)(c)], or may refuse to provide the information (specifying the reasons for the refusal) [section 80(3)(d)]. If the member declines to pay “a reasonable charge to the society” (which must be specified and explained) to meet the cost of providing the information. Disputes over information requests (including any charge for providing information) may be referred to a Court [section 83].

5. Incorporated society constitutions:

Every incorporated society must have a written constitution that complies with the Incorporated Societies Act 2022 [section 25]. Society constitutions are required to be far more detailed than previously, and section 26 specifies what is required, and sections 27-29 should also be noted (the text in italics are not in the statutory sections):

26   What constitution must contain
(1) The constitution must contain the following matters:

(a) the name of the society (see section 11 which sets out grounds upon which the Registrar may decline to approve a society name, and those grounds also apply on a change of name (section 118)); and
(b) the purposes of the society (see section 12) see also sections 3(a), 8(1), 12(1)(a), 26(1)(b) and 200(1)(a); and
(c) how a person becomes a member of the society, including a requirement that a person must consent to be a member (see section 76); and
(d) how a person ceases to be a member of the society – section 26(1)(c); and
(e) arrangements for keeping the society’s register of members up to date (see section 79); and
(f) the composition, roles, functions, powers, and procedures of the committee of the society, including—

(i) the number of members that must or may be on the committee (see section 45) – section 45 required a minimum of 3 officers; and
(ii) the election or appointment of officers – section 46(2) requires an officer to certify in writing that they consent to appointment and are not disqualified from holding office, and see section 47 as to the required qualifications of officers; and
(iii) the terms of office of the officers – see sections 50-52; and
(iv) the functions and powers of the committee (see section 46); and
(v) grounds for removal from office of officers (see section 50(1)(b)); and
(vi) 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
(vii) the quorum and procedure for committee meetings, including voting procedures; and

(g) how the contact person or persons will be elected or appointed (see section 113, also sections 112, 114, 115 and 116); and
(h) how the society will control and manage its finances; and
(i) the method by which the constitution may be amended (see sections 30 and 31); and
(j) procedures for resolving disputes, including providing for how a complaint may be made (see sections 38 to 44); and
(k) arrangements and requirements for general meetings (see sections 84 to 93), including—

(i) the intervals between annual general meetings; and
(ii) the information that must be presented at general meetings; and
(iii) when minutes are required to be kept; and
(iv) the manner of calling general meetings; and
(v) whether and, if so, how written resolutions may be passed in lieu of a general meeting for the purposes of section 89; and
(vi) the time within which, and manner in which, notices of general meetings and notices of motion must be notified; and
(vii) 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
(viii) the arrangements and requirements for special general meetings under section 64(3) (unless that provision has been negated under section 67); and

(l) the nomination of a not-for-profit entity, or a class or description of notfor-profit entities, to which any surplus assets of the society should be distributed on a liquidation of the society or on, or to enable, the removal of the society from the register (see section 5(3) and subpart 5 of Part 5).

(2) Subsection (1)(j) does not limit a power to apply for an order, or take any other enforcement action, under Part 4.
(3) Subsection (1)(l) does not apply to a racing club within the meaning of section 5(1) of the Racing Industry Act 2020.

27   Constitution must not give members rights or interests in society’s property
The constitution must not purport to confer on any member any right, title, or interest (legal or equitable) in the property of the society.

28   Bylaws, and tikanga, kawa, culture, or practice, and other matters
(1) The constitution may contain any other matters that are not inconsistent with this Act or any other legislation, including providing for—

(a) whether and, if so, how the society can make bylaws:
(b) the society to express its tikanga, kawa, culture, or practice:
(c) reasonable penalties to be imposed on any member (and for the consequences of the non-payment of any subscription or penalty): (d) any other matter relevant to the society’s operations or affairs.

(2) A bylaw purportedly made by a society has no effect to the extent that it contravenes, or is inconsistent with, this Act, any other legislation, or the society’s constitution.
(3) The making, amendment, revocation, or replacement of a bylaw is not an amendment of the society’s constitution.

29   Effect of constitution
(1) The constitution of a society has no effect to the extent that it contravenes, or is inconsistent with, this Act or any other Act.
(2) The constitution of a society is binding, in accordance with its terms, as between—

(a) the society and each member; and
(b) each member.

(3) The constitution of a society is binding, in accordance with its terms, on each officer.
(4) Subsections (2) and (3) are subject to the rest of this Act.

Other provisions relating to society constitutions include:

  • A society constitution must not confer on any member any right to society property [section 27].
  • A society is empowered to make bylaws [section 28(1)(a)].
  • A society is empowered to express its tikanga or culture in its constitution and to make bylaws [section 28].
  • A society constitution is binding on the society. Its members and officers (committee) [section 29].
  • A Court now has some discretionary powers to amend a society’s constitution [section 35].
  • A society’s name cannot be changed by amending its constitution [section 37] but must follow the processes specified in sections 117-120.

6. Registered Office:

Every society is required to have a registered office in New Zealand [section 110].

7. Branches:

Relationships between a “parent” society and its branch societies created after 5 April 2022 will now be defined by those societies, not by legislation (previously, the Incorporated Societies Amendment Act 1920 provided for branches). Where a branch or group of branches of a society existed immediately before the commencement of Clause 17 of Schedule 1 to the Act (5 April 2022) and were incorporated under the Incorporated Societies Amendment Act 1920 sections 6 and 7 of the Incorporated Societies Amendment Act 1920 continues to apply to the branch or group of branches and to the parent society, with all necessary modifications, for the purposes of the 2022 Act as if those provisions were still in force.

8. Limitation of member liability:

(a) While a member is obliged to pay any subscriptions and other amounts owed to their society, members are not liable for a society’s obligations [section 78(1)], and the new provision is generally aligned to that in section 97, Companies Act 1993.

(b) Societies are now empowered to indemnify members and employees who act in good faith in pursuing a society’s activities [section 96], and to take out insurance for the purposes of that indemnity [section 97].

9. Legal capacity of societies:

Societies are deemed to have full capacity to carry on or undertake any business or activity, do any act, or enter into any transaction [section 18]. The new provision is generally aligned to that in section 16, Companies Act 1993.

Under section 123, a contract or other enforceable obligation may be entered into by a society by “2 or more officers of the society,” or “if the constitution of the society so provides, [by] an officer, or other person or class of persons, whose signature or signatures must be witnessed,” or by “1 or more attorneys appointed by the society under section 12.” In addition it may affix any common seal it may have to the document. A society may also appoint attorneys [section 124].

“A society must ensure that its name is clearly stated in every document issued or signed by, or on behalf of, the society that evidences or creates a legal obligation of the society” [section 121(1)].

10. Ultra vires actions:

The statute now expressly provides that no act of a society and no transfer of property to or by a society is invalid merely because the society did not have the capacity, the right, or the power to do the act or to transfer or take a transfer of property, with some protection for innocent third parties [sections 19 and 20].

11. Society committees:

Every society must have a committee of at least three “natural persons” [section 45(2)] with responsibility for the affairs of the society [section 46]. Those committee members must be qualified to hold office [section 47] (i.e. not be under 16 years of age, not an undischarged bankrupt, not prohibited from holding office, not convicted of specified serious offences in the last seven years, not banned from holding office, or is not qualified to hold office in terms of the society’s constitution).

12. Society contact person:

Every incorporated society is now required to have a statutory “contact person” at all times (with whom the Registrar may communicate) [sections 112-113]. The “contact person” must be eligible to be a society committee member, must be 18 years of age and resident in New Zealand [sections 112-116], and must also be a member of the society’s committee (it is likely that most societies will designate the secretary as the “contact person”).

13. Officers, duties, etc:

(a) Committee members must be appropriately qualified to hold office [section 47]; a natural person who has consented in writing to hold office, and is not disqualified from holding office (see section 14 below). The new statute provides that a contact officer, committee member or other officer of a society must retire if he/she becomes disqualified [section 50(1)(c)], and if a person is disqualified or banned from being an officer of a society but acts as one then he/she will be deemed to have all the relevant duties of an officer [section 47(4)].

(b) The actions of any person as contact officer, committee member or other officer will not be invalid merely because the person’s appointment was defective, or the person was not qualified for appointment to the relevant office [section 53].

14. Committee member disqualifications:

A person is disqualified from holding office as a Committee member if he/she is under 16 years of age, an undischarged bankrupt, is prohibited from being an officer of incorporated society under the new Act, is prohibited from being a director or taking part in management of an incorporated or unincorporated body under the Companies Act, the Securities Act, the Securities Markets Act, or the Takeovers Act, is subject to a property order under the Protection of Personal and Property Rights Act 1988, or does not comply with any qualifications for officers in the society’s constitution [section 47(3)].

15. Officers’ statutory duties:

Statutory duties are now imposed on society officers [sections 54-61], and are owed to society, including: to act in good faith and in the best interests of the society, to use powers for a proper purpose, to comply with the statute and with the society’s constitution, to exercise the degree of care and diligence of a reasonable person with such responsibilities, not to allow society activities to be carried on recklessly or in a way likely to create a substantial risk of serious loss to the society’s creditors, and not to allow the society to incur obligations that the officer does not reasonably believe will be fulfilled.

16. Conflicts of interest:

Under section 62, committee members of an incorporated society with a direct or indirect financial interest in a matter (where the committee member or any spouse, partner, child, parent, grandparent, grandchild, sibling, nephew, niece, uncle, aunt, or first cousin may obtain a financial benefit from the matter) are required to disclose, as soon as practically possible, that interest to the society’s committee, and:

  • That information must be recorded in a conflicts of interest register [section 63],
  • An officer who has disclosed a conflict of interest in a matter must not vote on that matter [section 64],
  • An officer prevented from voting because of a financial interest may, however, continue to be counted as part of the quorum [section 64(2)(a)], and
  • A register of officers’ disclosures must be maintained [section 73] and be open for officers’ inspection [section 73(2)], with a summary presented to each Annual General Meeting [section 86(1)(c)].

17. Financial records and annual reporting:

A major concern raised by this author and many others in submissions to the Select Committee considering the proposed new Act related to the proposed requirements on smaller and poorly resourced incorporated societies that would struggle to comply with some of the reporting requirements as originally proposed in the Bill introduced to Parliament in April 2021. and this was a central issue in my own Submissions to the Select Committee.

I was not alone in raising this issue, and the Act now provides in section that smaller societies (described in section 103 as those with total operating payments of less than $50,000, at balance date for the relevant period having the total current assets of less than $50,000, and at balance date of the relevant period, the society not being a donee organisation as described in section LD 3(2) of the Income Tax Act 2007) are only required to report its “the income and expenditure, or receipts and payments, of the society during the accounting period,” “the assets and liabilities of the society at the close of the accounting period,” and “ all mortgages, charges, and other security interests of any description affecting any of the property of the society at the close of the accounting period,” and “otherwise comply with requirements prescribed by the regulations.”

An annual return is required (with online annual returns being facilitated), with prescribed minimum annual return contents [section 109].

18. Complaints and grievances

(a) Every society constitution is now required to include detailed procedures to deal with internal disputes (complaints concerning misconduct of or discipline of members, and grievances brought by members concerning their rights or interests as members) [sections 38-44].

(b) A society constitution can provide for the imposition of penalties on society members [section 28(1)(c)].

(c) While societies will be free to continue, develop or adopt disputes procedures to meet their needs, their procedures and practices must satisfy the requirements for natural justice defined in Act [sections 38-44].

(d) Decision-makers in all classes of dispute need to be impartial and able to consider the issues without a predetermined view [Clause 8, schedule 2].

19. Statutory enforcement of obligations

The new Act provides that a society, a member, a society officer or the Registrar may apply to a Court for orders to enforce the constitution [section 134].

20. Statutory sanctions and powers

(a) The new Act provides for applications to a Court for orders for redress for officers’ breaches of duties [section 133].

(b) A member or a former member is empowered to apply to a Court for orders on the grounds that conduct of the society has been, is being, or is likely to be oppressive, unfairly discriminatory, or unfairly prejudicial to him or her [section 141].

(c) The new Act provides for infringement offences, and a range of new offences with meaningful penalties [sections 160-167].

(d) In addition to any other penalty, a Court has power, upon convicting that person of an offence under the new Act, to ban a person from holding a position of governance or management of an incorporated society or from being the contact officer of a society [sections 168-171].

(e) The Registrar now has powers of inspection relating to compliance with the Act [sections 244-247].

21. Terminating, restructuring and rescuing societies

(a) There are new statutory powers for the Registrar to remove a society from the Register, for instance at the request of a society or its liquidator [sections 174-183].

(b) There are new procedures to restore removed societies to the Register [sections 184-190].

(c) The new Act facilitates amalgamations of societies [sections 191-206].

(d) Other changes have been made relating to the winding up of societies [sections 208-230].

22. Transition to the new Act

The new Act provides for a transitional period through to 1 December 2025 [section 3(1)]. During this transitional period every existing society will need to check that its constitution complies with the new requirements (see Sections 4 and 5 above).

23. Conclusions

1. The new requirements placed on incorporated societies by the new Act (the trade-off in return for the benefits of incorporation) will be onerous for some and may prompt some fundamental reconsideration by some societies about questions such as the following:

(a) Why do we have a society, what need is it meeting, and are we fulfilling the wants and needs of our members – fundamentally what is our “purpose” or “mission”?
Do we need a society (with voting members) or might some other type of organisation (perhaps a trust) meet our needs.

(b) Might there be merit in considering combining forces with some other organisation or organisations providing similar community services (such as forming a combined sports club or combined cultural society)?

(c) Do we actually need to be incorporated? The main benefits of incorporation for most societies are that incorporation protects members from most personal liability for society activities and enables the society to enter into contracts for the benefit of its members.

(d) If we choose to remain incorporated, how will we meet the greater reporting and accountability requirements of the new Act? Will we need to pay or increase committee honoraria or engage some external professional help?

I urge societies considering discarding their incorporated status to think very carefully about the undesirable implications of such a move.

2. To avoid the pressure of having to revise a society’s constitution during the transitional period up to 1 December 2025:

(a) Societies being formed now should comply with the provisions in the Incorporated Societies Act 2022,

(b) Existing societies reviewing their constitutions now should consider the benefits of incorporation discussed in paragraph 1(c) above, and if the review proceeds draft a new constitution that complies with the provisions in the current Bill, and

(c) All other existing societies should consider the issues discussed in paragraph 2 above, and should then commence reviewing their constitutions now, even if they delay putting a revised constitution to their members until after the new Act is passed.

Mark Dadelszen is well-placed to advise on the implications of the proposed new Incorporated Societies Act, and he advises societies and trusts throughout New Zealand, involved in a wide range of activities. Mark was a member of the Reference Group advising the Law Commission on the review of the 1908 Act, and was engaged by MBIE to advise on the proposed model constitution as originally recommended by the Law Commission and later he contributed to the development of the Ministry’s society constitution-builder. He made Submissions (both for the New Zealand Law Society but also personally) to the Parliamentary Select Committee considering the Incorporated Societies Act 2022. Apart from having decades of practical experience in governance of societies and charities (for which service he was awarded a QSM in 2012), Mark is the author Law of Societies in New Zealand (the only specialist text on the subject in New Zealand, with a 4th Edition to be published by the end of 2022), and he writes regular articles on issues relating to societies and charities (see https://nfplaw.co.nz/articles/). For specific advice relating to the issues discussed in this article, please contact Mark at mark@nfplaw.co.nz.

This is one of a series of articles on societies and charitable trusts by Mark von Dadelszen, a lawyer and author of Law of Societies and Members’ Meetings (4th Editions of both books should be published in 2022 following enactment of the Incorporated Societies Act 2022.