New Incorporated Societies Act – The update is finally legislated!

It’s been a long time coming but as of 5 April 2022 we now have new legislation governing incorporated societies in New Zealand – the Incorporated Societies Act 2022. 

The previous Incorporated Societies Act was first passed in 1908 and was one of the oldest, essentially unchanged, pieces of legislation still in place in NZ. However a reform process which kicked off in 2011 after a Law Commission review noted that “the 1908 Act was uncomfortably old” and suggested  a pretty comprehensive overhaul. 

After many years of delays, due largely to this update being “important but not urgent” a new and updated Act finally received Royal Assent last week.  

Changes focus on improving and modernising the governance framework as well as codifying case law into the Act.  

This legislation change will impact a lot of entities. Similar to charities, we seem to be very good at establishing incorporated societies in New Zealand. The Registrar of incorporated Societies advises that there are around 23,000 entities registered as Incorporated Societies with the Companies Office. 

Of that number, an estimated 9,000 are also registered charities with Charities Services. Extrapolating that out, given that there need to be at least a minimum of 15 members of an incorporated society under the 1908 Act that means a lot of people should be interested in this change… and yet how many of us can relate to the occasional difficulty securing a quorum for the AGM!

What do some of the key changes mean?

They will require all incorporated societies to take some action. 

The 2022 Act requires a number of things to be included in all Constitutions such as the composition, roles, powers functions and procedures of the committee (governing body). While many societies may have amended their constitutions over the years to include such good practice clarity, these are now required by all and hence all societies will need to check if their constitution is compliant

All societies now require a governing committee of at least 3 officers. While most will have such a committee in place, the 2022 Act is more explicit about both who can be an officer as well as what their duties are.

On reading the duties they may appear to many to look like “motherhood and apple pie” principles. However they are essentially the codification of existing common law duties such as the duty to act in good faith and in the society’s best interests, the duty to exercise powers for a proper purpose, and a duty of care.

Officers also have to disclose any conflicts of interest and there needs to be a clear process for managing these.

Under the 1908 Act it required 15 members to form a society. This has now been decreased to 10 members. However the 2022 Act is more explicit around membership and requires that a society must have at least 10 members at all times.

Incorporated societies must now have a clear disputes resolution process to be able to deal with member grievances and complaints. Like the approach of much of the new Act, it specifies what is good practice and sets out minimum requirements. Any society can always go beyond the statutory minimum if they deem that helpful to the smooth running of their organisation.

Similar to the reform of the Trusts Law, incorporated society members can seek information about their society increasing the transparency.

Also related to transparency the 2022 Act is more explicit around financial reporting. Different financial reporting requirements are specified based on the size of the society. This is seeking to balance improved understandability and comparability between societies by requiring them to adopt specified financial reporting standards, as well as balancing the cost/benefit equation by allowing small, simple entities to report very simply.

Larger societies will also be required by law to be audited and to file these on the public register.

When does all this happen?

Acknowledging the voluntary and under-resourced nature of many incorporated societies there is  a reasonable runway of time before the requirements of the new Act are mandatory.  Hence key provisions of the act wont come into force for 18 months and some aspects implemented beyond that date. 

However time marches on quickly and we suggest if you are involved in an incorporated society that you seek to understand the changes and plan appropriately to take action. 

We at RSM will continue to share updates and alert you to guidance that should be of assistance.

Links

Would you like to discuss this topic further?

Please email us to submit a question or click on the author below to directly discuss this article

CONTACT us

Authors

Wayne Tukiri
Audit & People Partner
Craig Fisher
Consultant