The Incorporated Societies Act 2022 passed into law in April 2022. This affects sports clubs, PTAs, and other not-for-profits that were incorporated under the former 1908 Act. You’ll know if this is your organisation, because its name ends with Inc. There is a transitional period for incorporated societies to re-register and update their constitutions. What’s different?

Membership

The minimum number of members is 10, rather than 15. That minimum number is ongoing, not just on incorporation. Members must consent to become a member, by completing an application form or similar, rather than the incorporated society declaring that a community of people are members.

Governance

The incorporated society will need to have governing body, such as a committee, rather than just officers. The committee must have at least three members, and a majority of the committee members must be members of the incorporated society.

Officers’ duties are modelled on company directors’ duties, such as acting in good faith, exercising powers for proper purposes, complying with the Act and constitution, reasonable care and diligence, not creating a risk of serious loss to creditors, not incurring obligations that the incorporated society can’t perform.

The 2022 Act sets out who is disqualified for being elected or appointed as an officer of the society due to bankruptcy, prohibition from being a director, criminal convictions or other statutory orders.

An AGM must be held within 6 months of financial year end.

Financial Reporting

Financial statements must be filed with the Registrar within 6 months of financial year end. An annual return must be filed annually also. While the format of the annual return is yet to be determined by Regulation, it will likely include the current committee members and a contact person for the society.

XRB accounting standards apply for financial reporting, but small societies not registered as charities will be exempt. Societies are considered “small” if total operating payments for the previous two years are less than $50,000, total current assets for the previous two years are less than $50,000 and it is not a 'donee organisation' for tax purposes and/or a registered charity.

A Society not registered as a charity will have to have its financial statements audited if its total operating expenditure is over a threshold (value to be determined).

Dispute resolution

The incorporated society will be required to specify its dispute resolution procedures in its constitution. This will deal with grievances between members, and between members and the society. Schedule 2 of the Act sets out an optional set of procedures, but the society can adopt its own set of procedures that meets minimum natural justice standards. This means that a society cannot ignore complaints from its members.

Distribution of surplus assets

If the society is liquidated or removed from the register after reregistering under the 2022 Act, it will not be able to divide any surplus assets between its members. The constitution will have to name a not-for-profit entity (or class or description of not-for-profit entities) to benefit from the surplus assets.

Timing

MBIE is currently working on regulations for all incorporated societies to follow. You can make submissions by emailing them at engage@societies.govt.nz .

All existing incorporated societies will need to re-register between October 2023 and April 2026. New incorporated societies before 5 October 2023 will register under the old Act and then re-register. New incorporated societies from 5 October 2023 will register under the new Act.

The incorporated society will need to include a copy of the updated constitution which conforms with the requirements of the new Act.

Where to found out more

It will take several months for the regulations to be finalised and then the incorporated societies will need to work with their members and lawyers to update their constitutions. There is a signup form to receive updates from MBIE during the transition period at the bottom of this MBIE article: https://is-register.companiesoffice.govt.nz/law-changes-for-societies/key-changes

Incorporated societies are a lot more complex than they were in 1908 and the 2022 Act reflects the increased need for governing bodies to be accountable to its members. Make sure that your incorporated society’s constitution is updated in time for re-registration.

-         Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

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A well-written article like this, which is general in nature, is no substitute for specific legal advice. If you want more information about the issues in this article, please contact your lawyer or MBIE.