Significant Changes to the Incorporated Societies Legislation
Clubs and not-for-profits need to review their rules now to ensure they meet the new requirements or have time to make changes if they do not.
The 114 year old Incorporated Societies Act 1908 has been replaced. The Incorporated Societies Act 2022 (the Act) passed into law on 5 April 2022. Much of the new Act’s requirements become mandatory in October 2023, although some requirements do not take effect until December 2025. We summarise the key parts below.
Significant change – requirement to re-register
Arguably, the most significant requirement of the new Act is that all societies must re-register with the Registrar of Incorporated Societies no later than 1 December 2025.
To re-register, a society’s rules will need to meet new requirements set out in the Act. While most societies’ rules will already include most of these requirements, it is very likely they won’t include all of them – which won’t be good enough. It is really important that societies get their rules checked and updated (if required) to ensure they are compliant.
The new requirements, that most societies’ rules will not already provide for, include:
- Dispute resolution procedures which must be consistent with “natural justice” and align with the dispute resolution procedures set out in the Act;
- Processes for keeping the register of members up to date. The requirement to maintain a register of members is not new, but the requirement to keep it up to date is;
- A method for electing a contact person (or up to three persons) for the Registrar to contact on behalf of the society;
- More detail on the composition and procedures of society officers and its committee.
Failing to re-register before 1 December 2025 will mean a society ceases to exist. This could cause serious repercussions for clubs that, for instance, own assets, have entered into contracts, or hold bank accounts. An application can be made to the Registrar to have the society restored if a society doesn’t re-register in time.
Other Key Changes in the New Act
The minimum number of members needed for a society has been reduced from 15 to 10 members. If a society’s membership drops below 10 the Registrar can apply to liquidate the society or remove it from the register.
Financial reporting standards
There are new financial reporting standards for societies. All societies will need to file annual financial statements, but what is required for the financial statements will depend on the society’s size. Those societies which have operating expenses and total assets of at least $50,000 will need to file financial statements that are professionally prepared and in accordance with general legal accounting practice. Only ‘small societies’ with less than $50,000 worth of assets or annual operating expenses are now permitted to file statements that simply show income and expenditure, assets and liabilities of the society and any charges over the assets over the course of that financial year.
While a lot of clubs will already outsource their existing requirement to complete financial statements (so the new requirements won’t result in any changes), this will be a new requirement for many – particular those that may have low operating expenses but say own a building, or land or other fixed asset, or have $50,000 or more invested in term deposits.
Much larger organisations will need their financial statements audited.
While almost all societies will distil decision-making to a committee of members, this is now a requirement in the new Act. Every society must have a committee of at least three officers who will manage the affairs and operation of the society. Officers do not need to be members (similar to executive directors), but the majority of officers on the committee must be members.
Many societies will also already present annual reports to members as part of AGMs, but this too is a strict requirement set out in the new Act.
Officers of a society when making decisions for the society now face all the same duties that company directors face when making decisions for a company. This does mean that society officers, who, in many cases, are volunteers and help run the society (often in their own time) may face personal liability for their decisions for the society if they are ultimately to the detriment of the society.
While it’s likely the courts will place a high threshold as to whether a volunteer officer has breached any of the new duties, many clubs and other organisations may struggle to elect officers, or at least not without the organisation looking into placing officer’s insurance. However, this may well come at a cost the organisation cannot bear, and there are particular requirements for a society placing such insurance, and the society’s rules must first permit it.
Conflicts of interest
Committee members must now disclose if they have a conflict of interest. A conflicted committee member can take part in discussions relating to the matter in which they are conflicted but, subject to very limited exceptions, cannot vote in any decision of the Committee. A conflict will generally arise if the member has a financial interest in a matter.
Resolutions without a meeting
Helpfully (but perhaps in practice not so helpfully), a society’s rules can now permit resolutions to be passed in lieu of a meeting. Such resolutions will require approval of no less than a 75% majority of voting members to be passed. This is a high threshold and likely well beyond the number of members that would attend a general meeting (let alone vote in favour of a resolution), so it will be very difficult to ever pass a resolution without a meeting.
The requirement for societies to stamp a ‘common seal’ when signing deeds is removed. A society may now sign a deed in the same way as a company.
The new Act also includes a range of offences for non-compliance which officers, employees or members of the Society can be charged with and hold a maximum five years imprisonment and/or a maximum fine of $200,000.
Lesser offences hold a maximum of one year imprisonment and/or a fine not exceeding $50,000. The improper use of “incorporated”, “Inc”, or “Manatōpū” or any contractions or imitations of any of those words is also deemed to be an offence and holds a maximum $10,000 fine.
The new Act also includes 10 more minor infringement offences which if found liable hold a maximum $3000 fine for the society. These include failing to fulfil the duty to notify the Registrar of changes in officers, failing to maintain a register of members, failing to register financial statements and annual returns, and failing to notify the Registrar of a change of contact person.
Where to from here?
The new Act is well overdue and will certainly improve governance and effectiveness of clubs and other not-for-profit organisations. On the flipside, it does mean almost every club and not-for-profit will need to seek specialist advice over what is required to ensure compliance with the new Act and what is needed to re-register to remain in existence (if, of course, there is still a need for the organisation to remain in existence and incorporated body)
If you are need assistance with meeting the new legislative requirements for your Incorporated Society, talk to one of our Commercial specialists: