What should a Society’s Rules cover?

2010 Article, updated October 2017   Some of what should be in a society’s rules is required by law, but those requirements are (at present) very basic, and inadequate to provide the framework for good governance and good relationships between a society and its members and between the members themselves. Before drafting any rules, the first issue to consider is whether the entity should be a society (basically a democratic organisation) or a charitable trust (with trustees who are normally not elected).  I discuss the elements of a charitable trust deed in another article.  If the entity is to be a society, it can be either non-charitable or charitable.  If a society is to be incorporated it will usually be registered under the Incorporated Societies Act 1908, and but a charitable society can (at present) be incorporated under either the Incorporated Societies Act or the Charitable Trusts Act 1957.  A charitable trust can only be incorporated under the Charitable Trusts Act. That is a rather confusing explanation, but that’s the way our law works.  To add to the confusion, the Charitable Trusts Act 1957 refers to a society and a trust registered under the Charitable Trusts Act as a “Board,” and if the charity seeks registration with Charities Services there is a further registration process under the Charities Act 2005. Where a society is registered under the Incorporated Societies Act 1908, s6(1) provides that its rules must set out: The name of the society, with “Incorporated” as the last word in the name (not a requirement under the Charitable Trusts Act), The objects for which the society is established, How...

Why Incorporate?

2010 Article, updated October 2017 In the first of this series of articles (“As common as dirt”) I outlined the disadvantages of unincorporated societies.  A 2007 Statistics New Zealand report stated that there were then some 97,000 Not-For-Profit entities in New Zealand.  It appears that less than half are incorporated, which I believe is a dangerous state of affairs.  To illustrate that point, in 2010 I was asked to advise on the potential liability of an individual who organises social events for a group of 40-50 people who share his recreational, travel passion.  I pointed out that if anything went wrong (for instance, if inclement weather closed an essential road) he could be personally liable for the resulting loss to the destination accommodation and service provider, which could run into thousands of dollars.  As a result his group clearly should incorporate. I have no doubt that for any society, other than the most basic, incorporation is highly desirable because of the clear practical benefits: An incorporated entity is recognised in law as a separate legal “person” from its members, in the same way a company is a separate legal entity from its shareholders.  From this recognition flow the other consequences and benefits of incorporation.  An unincorporated society is generally not recognised as a separate legal entity, and the High Court stated in Campbell v Scott [1995] 2 NZLR 345 at 348 that “Speaking generally, corporate bodies are persons in law distinct and separate from their members; unincorporate bodies are not.” However, this statement is somewhat at odds with the definition of a “person” in the Interpretation Act as “a body...

As common as dirt

2010 Article, updated October 2017   The vast majority of New Zealanders must belong to at least one community organisation, and many will belong to a dozen or more in their lifetime.  Few would not have contact with such entities.  At the most basic level are Home and School Committees and sports, cultural and social clubs, and few can escape involvement in such organisations whether as children or parents. Many are unincorporated (how many one can never know), but those incorporated by statute is recorded at 30 June 2013 (since then the Registrar has ceased producing an Annual Report): Societies incorporated under the Incorporated Societies Act 1908 at 30 June 2009 stood at 24,476, and Charitable trusts and societies incorporated under the Charitable Trusts Act 1957 at 30 June 2009 stood at 21,782. That means that there were about 90 in the population for every incorporated community organisation.  If you take all the unincorporated societies and clubs the ratio is perhaps closer to 50:1.  Whether I’m right or wrong, what the figures demonstrate is that, if not “as common as dirt,” such societies, clubs, associations and organisations are an important part of the fabric of our communities, facilitating much of our social, cultural, sporting, and religious life.  Without some such organisational model many things we take for granted could not happen. Given the importance of societies, it is noteworthy that the legislative framework for incorporation is legally somewhat archaic, with one statute dating back to 1908 (with a Bill to be introduced to Parliament soon?) and the other to 1957.  Lawyers are far more likely to be familiar with...

Poor Governance – Lessons from a Polytechnic

2010 Article, updated October 2017   According to a Dominion Post report (17 August 2010) a police investigation had begun after more than $750,000 was drained from Whitireia Polytechnic Students’ Association funds over a 12 month period.  An audit report is said to show that huge cash payments were made to former Association executive members, that about $17,000 was spent through excessive use of mobile broadband modems to surf the Internet, that mobile phone bills of five members of the executive averaged $700 a month, and that in June 2009 last year $20,000 was taken out of the Association’s savings account in cash and a further $10,000 by cheque, with the auditor unable to find any explanation for the withdrawals. In another story in the same issue, the Dominion Post reveals that the Vice-President of the Whitireia Students’ Association had convictions in 2007 for burglary and was convicted and discharged on more than 20 other charges, including 19 of peeping and peering and two of unlawfully being on a property. Arising from this second story, there must also be an issue about whether people convicted of crimes of dishonesty should be permitted to become involved in the governance and management of voluntary societies and trusts. Somewhat predictably, the newspaper’s editorial the same day focused on what I believe is a peripheral issue:  “Whitireia Independent Students’ Association is not the first student association to have trouble administering the fees it collects.  However, with $1 million missing from the association’s funds, it will add impetus to the campaign to make students’ associations truly voluntary. Good. There needs to be a good reason...