Extinction or a chance to renew?

A recent news story reported fears that the new Incorporated Societies Act 2022 wasn’t designed for, or useful to, small volunteer-led not-for-profit organisations, and could push these organisations into extinction.

A more positive take on this is that the new Act provides a great opportunity for organisations to reflect on their purpose, why they exist and to review their constitutions and practices. This could result in changing to a different legal structure that might better suit their current and future needs. But if a society does decide to reregister, they will be able to benefit from the improved governance practices brought in by the Act.

It’s an opportunity to reset and improve the governance practices and outcomes for societies.

Incorporated societies have long been an integral part of New Zealand society. Thousands of incorporated societies across New Zealand exist to promote a broad range of activities including, sport, social services, education and environmental protection.

Many societies have considerable trust placed in them, which presupposes high levels of probity and accountability. They are generally funded by contributions from members, donors, grants or with the assistance of tax concessions. Many societies are also registered charities.

Work to update the 114-year-old Incorporated Societies Act 1908 began in 2010 with a review by the Law Commission. This review concluded the 1908 Act was, unsurprisingly, out of date, deficient, incomplete, inaccessible, unclear and even inconsistent with incorporated society and governance principles. These issues made the 1908 Act extremely difficult for societies to comply with.

The IoD and many other incorporated societies made submissions as part of this review, and on the exposure draft of the Incorporated Societies Bill in 2016.

The Incorporated Societies Bill was introduced nearly three years ago, in March 2021. Its primary objective was to create a modern framework of basic legal, governance, and accountability obligations for incorporated societies and those who run them. The IoD, like any other incorporated society, was able to commence reviewing its constitution in anticipation of the changes proposed.

Our support for the Bill was premised on the following principles:

• Societies are organisations with members who have the primary responsibility for holding the society to account.
• Societies are private bodies that should be self-governing and, as far as possible, free from government interference.
• Societies should not distribute profits or financial benefits to their members.

In our submission, we noted the changes proposed in the Bill were significant and that good guidance would be required to support organisations to successfully transition to the new regime, and to ensure volunteers were not deterred from serving on committees and contributing to community activities.

In our view, this has been achieved – with very comprehensive support and guidance available at MBIE’s Incorporated Societies Register and law changes hub for those wishing to transition to the new regime.

We are aware that many sporting organisations, and other community groups, have also developed very good guidance material to support their members. There is ample time to complete the re-registration process under the Incorporated Societies Act 2022, which is open until April 2026.

Comprehensive guidance is available to incorporated societies on how to re-register (or register as a new society).

It’s not the intention of this article to set out what’s required to re-register, because that has been clearly set out elsewhere. In particular see MBIE’s Incorporated Societies website includes guidance such as:

• New legislation for incorporated societies (an introduction to the law changes).
• Getting ready for registering covering the key changes brought in by the Act and what existing incorporated societies need to do to re-register before April 2026, if they want to remain as an incorporated society.
• The Incorporated Societies law changes hub provides guides highlighting the key changes and what you’ll need to do to get ready for reregistering, including:
• Applying to reregister your society (how to apply, and what you’ll need to provide).
•  The law changes hub also includes a constitution builder tool which includes mandatory, recommended, and optional rules to assist societies create a constitution that complies with all the new requirements of the ISA 2022.

There are many other resources, guides and webinars on the Incorporated Societies website, including how to run your society. There’s even information for society-based charitable trust boards – incorporated under the Charitable Trusts Act 1957 — who now have the opportunity to re-register under the Incorporated Societies Act 2022, if they don’t want remain registered under the Charitable Trusts Act.

Guidance from other community groups and organisations

Many groups have already developed guidance for their members and as well as developing constitutional templates that organisations can adapt to their needs. See for example:

• Sport NZ’s Incorporated Societies Act 2022 and Regulations which includes constitution templates, guidance notes, a checklist, and even a FAQ section. The latter provides guidance on the pros and cons of different legal structures for groups taking the opportunity to reflect on the best structure for their needs, going forward. 
• A toolkit produced by Community Law has information for incorporated and incorporated societies
•  Clubs New Zealand Inc released a model constitution in March 2023 to ensure that its member clubs were supported as they transition to the new regime.

When considering whether or not to re-register as incorporated society, it’s worth reflecting on the core benefits registration provides. This includes having a separate legal identity, which ensures the longevity of the organisation, beyond its current members. It also means the society’s members are not personally responsible for debts and other obligations that the society takes on. 

For the estimated 24,000 incorporated societies in NZ involved in a wide array of purposes, the updated Act is a great opportunity to reset and refocus. Many organisations have had to deal with the impacts of not having good governance practices in place, including disputes between members, fraud, financial loss, reputational damage, and even long running civil and employment disputes. These can require a huge amount of expenditure (of the organisations usually limited resources) and volunteer’s time to resolve. Too many organisations have suffered loss and failed to achieve what they were created to do, as a result of not having proper governance practices in place, including the appointment processes for the people who lead them.  

We consider that the new Act is a great opportunity for existing incorporated societies to carefully consider the way forward, reflect on the purposes of the minimum governance requirements it contains, and how they will enable their organisations to prosper.

With the guidance available through MBIE/Incorporated Societies Register and other networks, it’s possible for boards to assess the value good governance practices can bring to their organisation.

Ultimately this will be for the benefit of the officers running the society, its members, stakeholders and community they were set up for.

Getting to Grips with Not-for-Profit Governance

A new book by Pierre Woolridge can help guide those involved in not-for-profit sector governance. There are some 45,000 NFPs in New Zealand: 24,000 incorporated societies, and 28,000 charities (7,000 of which are also incorporated societies). Woolridge draws on his personal experience to offer tips and tricks for those new to the game, or looking to refresh their skills.