After more than 100 years, we have new legislation for New Zealand’s more than 23,000 incorporated societies, replacing the Incorporated Societies Act 1908. Not surprisingly, the 1908 Act no longer meets the needs of many of today’s incorporated societies which can be very significant entities managing considerable assets. The 2022 Act, which was passed into law on 05 April 2022, gathers up a century of case law and modernises the way societies deal with internal disputes, clarifies officers’ duties, and prescribes accounting standards for larger entities.
Under the 2022 Act, the essence of an incorporated society remains the same – that is, it is a private/non-governmental, self-governing, membership-based corporate structure to facilitate the pursuit of any lawful purpose, other than financial gain.
Although it has been enacted, many of the 2022 Act’s provisions will not take effect immediately. For example, for anyone wanting to create a new society:
- until October 2023, they must register under the 1908 Act;
- after that time, they must register under the 2022 Act.
In addition, the situation for any society registered under the 1908 Act (including those that register before the end of October 2023) is as follows:
- until October 2023, they remain subject to the rules in the 1908 Act;
- at some point in the period from October 2023 to around April 2026 (a period of about 2½ years), they must re-register with the Companies Office or they will cease to exist;
- as soon they re-register, they become subject to the rules in the 2022 Act. This means each society will become subject to the new rules at the time of its own choosing.
Transition Period
A transition period, until October 2023, is now in place to allow Regulations to be developed and give societies time to become familiar with the new regime. The Regulations will flesh out the details of the 2022 Act and will likely determine what information societies must provide to register or re-register under the 2022 Act. Societies and the public will have the opportunity to comment on the proposed Regulations.
Key Aspects of the 2022 Act
Maintenance of minimum membership: All societies will need to start with and maintain a membership of at least 10 members (with corporates continuing to count as 3 members for this purpose). The minimum under the 1908 Act is 15 persons.
No financial gain: Provisions relating to societies not operating for financial gain are fleshed out and tightened, to affirm that a society must not be carried on for the financial gain of its members and to clarify circumstances in which this requirement will or will not be breached. This includes a general prohibition of any distribution of surplus assets to members on winding up, with any such surplus instead needing to be distributed to one or more other not-for-profit entities.
Regulation of boards/committees and officers: Every society will need to have a governing body (board or committee) of 3 or more individuals who are members. The 2022 Act prescribes disqualification criteria for board/committee members and other officers, and sets out the core duties that they owe to their society, being:
- to act in good faith and in the best interests of the society
- to exercise their powers for a proper purpose
- to comply with the legislation and the society’s constitution
- to exercise reasonable care and diligence
- not to create substantial risk of serious loss to the society’s creditors
- not to agree to the society incurring obligations that it cannot perform
Mandatory contact person(s): Every society will need to have at least one New Zealand resident contact person (and may have up to 3 contact persons).
Membership: A person must consent to membership. There are new provisions relating to members’ entitlement to, and requests for, society information, and more detailed provisions regarding annual and other general meetings of members and (if a constitution permits this) member resolutions in lieu of such meetings.
Financial reporting and assurance: For societies to which updated financial reporting and assurance requirements do not already apply (eg under the Charities Act 2005 or Financial Markets Conduct Act 2013), the 2022 Act prescribes new, size-based, requirements for financial statements that must be prepared and filed by all societies. Large societies (to be defined by Regulations) will need to have their accounts audited.
Annual returns and register updates: The register will include more detailed society information and societies need to file annual returns and notify changes (including officer/contact person changes) to keep their registry information up to date.
Enforcement: The 2022 Act includes a range of provisions dealing with Court orders relating to the enforcement of a society’s constitution and bylaws, the enforcement of officers’ duties, oppressive, discriminatory, prejudicial operation of a society, recovery of impermissible financial gain from members, and various offences.
Maximum penalties for those running a society are up to 5 years in prison and/or a fine of up to $200,000.
The society is liable for an infringement fee of up to $3,000 for failure to comply with certain provisions, including a failure to:
- notify the Registrar of amendments to the constitution;
- register financial statements or an annual return;
- give the Registrar notice of change of contact person
What Should You Be Doing Now?
Although, it may seem like a long time until the April 2026 cut-off date, the 2022 Act is something that societies need to be turning their minds to now. A good start would be to review your society’s Constitution to determine whether it meets the requirements of the 2022 Act. Section 26 of the Act sets out what must be in the Constitution. Here is a link to Section 26:
https://www.legislation.govt.nz/act/public/2022/0012/latest/LMS100809.html?src=qs.
If you do not have a Constitution, do not panic. The Incorporated Societies section in the Companies Office website contains a helpful constitution builder tool to get you started. At the time of writing this article, the tool had not been updated to reflect the requirements of the new Act. You may therefore choose to wait for an update to occur or proceed to build a constitution and then manually work on the compliance aspect. The builder tool link is here:
Professional Help is Available
At Taylor Shaw, we can provide you with as much help as you need in getting to grips with your obligations under the 2022 Act, understanding the Regulations as they are raised, ensuring your constitution is compliant and achieving re-registration. If you need assistance on a society issue, please contact Graeme Randle or Ingrid Taylor and they would be happy to chat with you.
