What should a Society’s Rules cover?
Some of what should be in a society’s rules is required by law, but those requirements are (under the Incorporated Societies Act 1908 and Charitable Trusts Act 1957) very basic, and inadequate to provide the framework for good governance and good relationships between a society and its members and between the members themselves. The new Incorporated Societies Act will be far more prescriptive.
Before drafting any rules, the first issue to consider is whether the entity should be a society (basically a democratic organisation) or a charitable trust (with trustees who are normally not elected). If the entity is to be a society, it can be either non-charitable or charitable. If a society is to be incorporated it will usually be registered under the Incorporated Societies Act 1908, and but a charitable society can (at present) be incorporated under either the Incorporated Societies Act or the Charitable Trusts Act 1957. A charitable trust can only be incorporated under the Charitable Trusts Act.
That is a rather confusing explanation, but that is the way our law works. To add to the confusion, the Charitable Trusts Act 1957 refers to a society and a trust registered under the Charitable Trusts Act as a “Board,” and if the charity (whether an incorporated society or charitable trust) seeks registration with Charities Services there is a further registration process under the Charities Act 2005.
Where a society is registered under the Incorporated Societies Act 1908, section 6(1) provides that its rules must set out:
- The name of the society, with “Incorporated” as the last word in the name (not a requirement under the Charitable Trusts Act),
- The objects for which may be altered, added to, or rescinded,
- How general meetings of the society are summoned and held, and voting at general meetings,
- How officers of the society are appointed,
- The control and use of the common seal of the society,
- the society is established,
- How people become members of the society,
- How people cease to be members of the society,
- How the rules of the society
- The control and investment of the funds of the society,
- The powers (if any) of the society to borrow money,
- The disposition of the property of the society if it goes into liquidation, and
- Such other matters as the Registrar requires (a power seldom if ever exercised).
The Act also provides for certain express optional extras which may be included in the rules:
- Power to borrow,
- Power to impose fines,
- Power to make regulations and bylaws, and
- Other necessary provisions.
While these sections make express provision for what may be included in a society’s rules, these sections are empowering, rather than preventing the inclusion of other matters in rules. In practice, most modern rules contain far more than the minimum contemplated in sections 3, 4 and 6 (and this will be required under the new statute replacing the Incorporated Societies Act 1908). The Charitable Trusts Act 1957 is even less prescriptive, with section 10(3) saying that “If the Registrar considers that any documents accompanying an application do not disclose sufficient information regarding the trusts on which any property is held …, or regarding the purposes and constitution of any society, he may refuse to register the trustees or society as provided in this Part of this Act until such further information as he requires is supplied to him.”
Constitutional rules should match the particular needs of the entity, and desirable optional extras are likely to include:
- Providing for different classes of membership, and the rights and obligations of different membership classes,
- Authorising the recording of details about members,
- Setting out how subscriptions and levies are set, and the consequences of failure to pay subscriptions and other amounts due by members,
- Outlining procedures for dealing with complaints against and grievances raised by members,
- Covering whether and, if so how, previous members may be readmitted to membership,
- Detailing how elections are to be run, and (possibly) postal ballots,
- Providing for proxy voting (if allowed),
- Defining the roles of officers and how the entity is to be managed,
- Clarifying the relationship between members’ meetings and the executive,
- Clarifying when officers and members may receive payments for services and expenditure,
- Establishing what should be done when vacancies on the executive arise,
- Defining the roles of the chairperson and deputy-chairpersons, and
- Expanding on the roles of the secretary and treasurer.
Drafting society rules can be challenging, as each set of rules has to be crafted to the particular requirements of each society and must also be internally coherent and consistent. When a society has drafted its own rules it is particularly difficult for any lawyer then asked to check or to revise those rules. Personally, I prefer to start from scratch, and to graft onto a good generic template the necessary provisions to meet the specific needs of the client society and the requirements of applicable statutes.
With a new Incorporated Societies Act likely to become law within the next year, new societies (and existing societies revising their constitutions) should consider adopting rules which are likely to comply with the new statute.
For specific advice about any of the issues discussed in this article, please contact Mark at mark@nfplaw.co.nz.