Law Commission Report – Establishing and Registering Societies

Status Quo

The Law Commission concluded that the existing system for establishing and registering societies is working reasonably well, but recommends some improvements.

Minimum membership

As the Commission observes “A minimum threshold requirement … is inevitably somewhat arbitrary.” Why section 4, Incorporated Societies Act 1908 set the minimum number of members for a new incorporated society at 15 is anyone’s guess, notwithstanding the fact that there are 15 players in a rugby team.

The Commission concluded “that the requirement to maintain a minimum number of members should be clearly stated to apply throughout a society’s existence as a body corporate. If being a membership-based organisation is important, it remains important once a society has been incorporated and commences operating. If the requirement is not on-going then there could even be a possibility of sham or shell incorporated societies. In our view the scheme of the Act is to permit the incorporation and operation of membership-based societies. An on-going requirement to maintain membership at or above the specified minimum level is a necessary part of this scheme.” This “strikes a balance between increased flexibility for small sport and hobby societies as well as social service organisations, while ensuring that incorporated societies remain membership-based.”

The Commission’s recommendations are:

The minimum membership requirement for incorporation of a society under the new statute should be 10 members, with 10 applicant members to be named on any application for incorporation. Corporate members should continue to count as three members.

The statute should provide that:

  • the minimum membership requirement continues after incorporation;
  • a society that falls below the 10 member requirement is not automatically deemed deregistered, nor are its actions invalidated only because it has insufficient members;
  • the Registrar may give not less than six months notice to any society that has insufficient members that it must bring its membership up to the required level or it will be removed from the register and its assets distributed in accordance with the society’s constitution and the Act.

Society names

The Commission is recommending a name approval regime modelled on the Companies Act provisions (without introducing the right to “reserve” a name):

The provisions for the names of societies under s 11 of the current Act should be replaced by a provision mirroring company name rules in s 22 of the Companies Act 1993, but without the requirement to first reserve a name. A suitable provision should set out that:

1.  An application to approve the name of a society must be sent or delivered to the Registrar with the relevant application to incorporate the society, and must be in the prescribed form.

2.  The Registrar must not approve a name:

  • the use of which would contravene an enactment; or
  • that is identical or almost identical to the name of another society, a company registered under the Companies Act 1993 or any other body corporate that is registered under a New Zealand Act; or
  • that, in the opinion of the Registrar, is offensive; or
  • if the name does not include either the word “Incorporated” or the word “Manotōpu”, or both words, as the last word or words of the name.

3.  The Registrar must advise the applicant by notice in writing whether or not the Registrar has approved the name and if the proposed name has been rejected the reason for rejection.

Branch societies

The Commission’s view is that societies legislation being drafted today without a prior history of providing for branches (i.e. the Incorporated Societies Amendment Act 1920) would not provide separately for branches. Their logic is clear: “Groups wanting to set up a national organisation and branch structure could instead arrange to incorporate as many societies as needed for their branch structure. Branch operations and relationships with the national body could be provided for in contracts between the parent society and the branch societies and in their respective rules. The exact nature of the relationships, including issues such as whether members would have double membership, would be a matter for the societies and their rules, not the legislation. The question of what happens when relationships between a parent society and a branch society break down, or when a parent society or branch is dissolved, could also be resolved through contracts and the relevant rules, including the grievance procedures that we recommend … each society should be required to establish.”

The recommendations are:

The Incorporated Societies Amendment Act 1920 should be repealed when the new statute comes into force.

The statute should make no separate provision for incorporation of branches, but any branch to be incorporated may be incorporated as a society in the normal way.

Any new branch incorporated as a society and its parent society may make constitutional amendments, enter into contracts to define their relationship or both, which should be registrable, but the Act should not place any restrictions or additional requirements on these other than those applying to all societies.

A grandparenting provision should be included in the statute and provide that branches incorporated under the Incorporated Societies Amendment Act 1920 will be described as societies from the commencement of the new Act; but ss 6 and 7 of the Incorporated Societies Amendment Act 1920 will continue to apply to each former branch and its parent society as if the Amendment Act had not been repealed.

The statute should provide that any former branch and parent society may at any time after commencement of the new Act choose to remove the application of the repealed provisions to their societies by providing appropriate notice to the Registrar.

This is one of a series of articles on societies and charitable trusts (originally published in the NZ Lawyer magazine) by Mark von Dadelszen, a Hastings lawyer and author of Law of Societies, 3rd Edition, 2013. If any reader has examples of issues that have arisen or questions about societies or charitable trusts that might be a suitable subject for one of these articles please contact Mark at mark.vondadelszen@bvond.co.nz.