The Incorporated Societies Act 2022 is the new governing legislation for all incorporated societies in Aotearoa. Since it has been 114 years since the last Act it’s not too surprising that there are some reasonably significant changes in requirements.
As noted in a previous article the changes focus on improving and modernising the governance framework as well as codifying case law into the Act.
This article seeks to look at some of the more fundamental considerations that societies will need to consider.
Firstly though, what are the principles of an incorporated society?
Before looking at the detail it is useful to consider the fundamental principles of the incorporated society entity type. Understanding these principles will help some organisations consider if the incorporated society remains the correct entity type to achieve their purpose.
These principles were helpfully articulated in the Law Commission’s 2013 report on incorporated societies:
- 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.
What is the aim of the changes?
Since alerting people to the new legislation we have received some negative feedback. This ranges from “Just more unnecessary compliance” to the more catastrophic end of the spectrum with “This will be the end of incorporated societies and volunteerism in New Zealand!".
We don’t agree with either of those views.
This will involve some change and work initially to comply with the new legislation. But in essence, we see this as codifying common law, common sense, and good practice.
Our Ministry of Business, Innovation and Employment sums up the aims of the new legislation quite nicely as to:
- Make societies more robust
- Help societies govern themselves
- Provide societies and their members with more constructive options when things go wrong.
For many well-structured and well run incorporated societies we expect the changes will have limited impact because they are already following good practice and have that baked into their approach policies, procedures, and systems.
A compliance frustration? A threat? Or a fantastic opportunity?
Humans don’t tend to naturally like change. It is uncertain and unfamiliar, at least initially, and we are wired from early evolution to be wary of change as a threat to our existence.
However with any change comes an equal amount of opportunity. This new legislation will require at least some level of action and change for EVERY incorporated society in New Zealand. As such it is a great opportunity to pause and look up and out and ask some fundamental questions:
Some such fundamental questions can include:
- Is there still a need for our organisation?
- Is a membership organisation the most appropriate structure?
- Should we merge or join another organisation to be more impactful?
- Should we be structured as we currently are? Eg should we have branches etc
- Does your incorporated society meet the principles of an incorporated society as noted above?
With officers who are elected, the member based approach of an Incorporated Society tends to become far more political than a Charitable Trust structure. Operating in this area we have seen a trend in recent years of Incorporated Societies shifting to become Charitable Trusts as the most popular alternative.
Charitable Trusts often have a more stable governance board with less risk of politicisation or chance that they will be taken over by a rogue group.
If a democratic membership model is not considered essential, or has become impractical or unworkable then an alternative entity structure such as a charitable trust can operate instead with a database of supporters or customers rather than members.
What has to be done when?
To skip to one of the most popular questions asked to date, there are different application dates of different parts of the Act with some of it yet to be determined as it requires yet to be issued Orders in Council.
However, much of it becomes mandatory 18 months from the date of Royal Assent which was 2 April 2022, that is, October 2023. All remaining aspects of the Act will be in force by 2026.
Of specific note is that every organisation must re-register under the new Act by 1 December 2025.
We understand that the logic of this relatively generous mandatory timeline runway was the recognition that some incorporated societies have limited resources or are staffed by volunteers. In addition, changes will be required to most governing constitutions and this will often require special meetings to be called for the required changes to be approved. Notice provisions etc will need to be followed.
Hence, while this mandatory application date may initially seem generous, we suggest you don’t delay in starting assessing what changes will be needed in your incorporated society.
Firstly a disclaimer, the new Act contains a lot of detail. It runs to 132 pages vs a total of 32 pages of the 1908 Act. As such, you will need to become familiar with all aspects of the detail. However we see the key changes are as follows:
- 10 members are required instead of 15 under the 1908 Act. But membership cannot drop below 10.
- If you have other organisations as members a body corporate (i.e. another incorporated society for example), this counts for 3 members out of the 10.
- Members must consent to be members and a record of their details retained by the society.
- All will need changing to comply with the Act to include certain specific areas and provisions including such things as:
- the composition, roles, powers, functions and procedures of the committee (governing body)
- Dispute resolution provisions etc
- A governing committee of at least 3 qualifying officers is now required.
- Must have a designated contact person that the Registrar can contact
- Qualifications of Officers
- Setting out some sensible restrictions - can't be undischarged bankrupts, convicted of dishonesty etc
- Conflicts of interest
- In a small country like New Zealand where people commonly wear many different hats perceived conflicts of interest will arise. Officers must disclose possible conflicts and clear provisions are needed in your constitution for how to deal with conflicts.
- Disputes resolution
- Clear procedures will be needed for member grievances and complaints. These will need to comply with natural justice provisions. Helpfully you can either adopt the provisions from the Act or create your own – as long as it meets the overall requirement of the Act.
- Transparency & accountability enhancements
- As a key means of regular formal transparency annual returns will be required.
- Information regarding the society can be sought by members.
- Specified financial reporting standards will be required to be followed. Which standards to be followed will vary depending on the size of the society. This tier system is similar to that which exists for registered charities in NZ. Key is that these standards are considered generally accepted accounting practice (GAAP) and hence financial information should be more consistent and comparable across the sector going forward.
- Large societies will be required to be audited
What do the key changes mean?
They will require all incorporated societies to take some action.
How much action will vary depending upon the current governance and constitutional arrangements of your society.
We urge societies to now actively engage with the change, with a positive view to enhancing the governance of your individual organisation, and helping further improve the sector as a whole.