What Is An Incorporated Society in NZ

11 November, 2021 | Peter Smith

An incorporated society is a legal entity for a not-for-profit group or organisation.  The organisation must have at least 15 members.  Further, the organisation must have a purpose other than running a business for profit.  An example of an organisation that can become an incorporated society is a sports club or charity.

The stakeholders in an incorporated society are its members.  The members must be able to vote, in a democratic manner, for a committee or board that runs the day-to-day activities and finances of the society.  The committee is accountable to the members.

The committee will usually have a chairperson, secretary and treasurer, plus committee persons.

Incorporated societies are entities that have separate legal status from their members – meaning that a society can lease, buy and sell property, rent, borrow money and sign contracts in the name of the society.  Individual members are not personally obligated for contracts entered into by the society, although they still have obligations as members of the society to abide by the rules of the society.

How to become an incorporated society

To become an incorporated society an organisation must register under the Incorporated Societies Act 1908 (“the Act”).  Incorporation gives the organisation its own legal identity.  The application for incorporation is made to the Companies Office (part of the Ministry for Business Innovation and Employment (“MBIE”)).

Once registered with MBIE, an incorporated society will continue to exist as long as it complies with the requirements of the Act or until the members resolve to bring the society to an end.  Creditors can also apply to wind up a society if the society becomes insolvent.

Membership

Incorporated societies must have a minimum membership of 15 people.  The members of an incorporated society can change but the identity of the society remains the same.  No single individual member of a society can have a personal interest in any of the society’s assets, as the property of a society is held by the society, rather than by its members.

Legal obligations

An incorporated society must act in a lawful manner, within its own rules, and must not make money for the benefit of an individual member when carrying on any activity.  There are legal obligations imposed on all incorporated societies, by their rules and by the Act.

The Act details the matters that should be covered by the rules of a society.  These matters include:

• The society’s object/purpose;
• The rules for becoming a member;
• How meetings are held;
• How officers are appointed;
• How official documents are signed;
• How the rules of the society can be altered;
• How the funds and property of the society are controlled;
• How to wind up the society.

Tax

All incorporated societies must meet their tax obligations (GST in particular).  Depending on the turnover of the society, there are rules as to how the financial statements of a society are to be prepared.

Many incorporated societies are entitled to the first $1,000 of income tax as exempt income.  Strictly amateur sports clubs are entitled to receive all of their income tax free.

Licensing

Some of the activities of incorporated societies may require licensing or approval from local government.  These activities may include:

• Holding street stalls;
• Fundraising that involves the sale and purchase of alcohol;
• Running Housie (a New Zealand name for a gambling game similar to Bingo);
• Casino evenings;
• Raffles.

Fundraising and financial gain

Incorporated societies must not make money for the benefit of individual members.  There are exceptions however to this rule.  These exceptions include:

• A society’s property can be divided among its members when the society is dissolved.  A society that is charitable cannot however distribute its assets among its members if it is wound up or dissolved;
• Members of a society can receive a salary as employees or officers of the society;
• Members of a society can compete with each other for “members only” events or trophies or prizes, other than for money prizes;
• Members may benefit personally when they would have been entitled to financial gain as employees being paid a reasonable salary, whether or not they were members of a society;
• Where an incorporated society exists to regulate an industry or trade or to promote better practice, funds raised by the society can be put towards these purposes.  Societies however cannot be involved in the business of the industries or trades which they promote.

If a society is found to be engaging in business, which is not permitted, both the society and its members face prosecution and fines.  Furthermore, members of a society may be held liable for any debts an obligations that are suffered by the incorporated society should the business activities lead to the bankruptcy or insolvency of that society.

To incorporate your organisation as an incorporated society or to make sure that it is complying with the Act, it is important that you be familiar with the Act which can be found here.

You should consult a legal professional to help you to set up an incorporated society and to assist with compliance with the law.  Smith and Partners can help with all your queries and advice surrounding incorporated societies, to set up an appointment, contact incorporated society expert, Peter Smith by email at peter.smith@smithpartners.co.nz or email peter.smith@smithpartners.co.nz