Law Commission Report – Types of Incorporated Societies

A Diverse Range of Incorporated Societies

The Law Commission’s Report, “A New Act for Incorporated Societies” records that “It is clear from Hansard that the original 1895 Act and the 1908 Act were intended to cover what might be referred to as members clubs. What the Act’s drafter, John Salmond could not have anticipated is the sheer diversity of bodies that have come to be incorporated as incorporated societies.”

The Report refers to societies such as national sporting bodies that are responsible for multi-million dollar budgets, racing clubs that organise major events, social service organisations that provide services to the community rather than necessarily providing services to their members, health-based organisations that provide services to the general public or those affected by a particular condition, or support those who are caring for those with particular conditions, professional bodies that may have a quasi-regulatory role like Law Societies, private clubs, industry groups that may represent particular industries or coordinate participants in a particular industry, and small sporting, hobby or community groups that may, or may not, have assets.

As the Report goes on to say:

This very diversity makes it difficult even to talk of the statute currently covering a single not-for-profit sector. In fact it currently covers, and we recommend generally it continue to cover, this broad range of organisations (so long as the individual societies adhere to the essential characteristics of the incorporated societies model). The traditional clubs and associations that perhaps were the object of the original 1895 Act and the current 1908 Act focus on the needs of their particular members, while social service or health organisations, for instance, are more focused on those in the community that need their help. Indeed, membership of a traditional club or association carries with it an expectation of benefitting from the club and the notion of being involved in the governing of the club, electing officers and committee members and holding them to account through general meetings. Membership in a social service or health organisation may in many ways be a token of support for that organisation. …

It is clear from its Report that the Commission has been conscious of the need to recognise that diversity by recommending retention of ease of incorporation, while modernising the minimum requirements of society constitutions, modernising means by which societies operate, requiring that complaint and grievance procedures be included in society constitutions, and increasing the accountability of those in governance.

Creation and Registration of Bodies Corporate Separate from the Members

“The central purpose of the Incorporated Societies Act 1908 is to enable the creation and registration of a body corporate that is separate from its members and which can incur obligations and hold property in its own right,” according to the Law Commission’s Report recommending reform. The Commission’s review therefore “focused on achieving a modern membership-based corporation statute for those who do choose to associate in a corporate form for not-for-profit motives,” and recommends that any replacement statute should retain the “central purpose” of the 1908 Act.

Incorporated or not?

As the Report notes, not-for-profit organisations can choose not to incorporate, although this means that the unincorporated body lacks legal personality in its own right, and that members share the organisation’s liabilities as well as its assets. The Commission considers that, because of “the relative ease of incorporation through the Incorporated Societies Act in New Zealand” there is no need to create “a special form of personality for unincorporated bodies.” Rather, “The focus ought to be on providing a statute which provides a form of incorporation that is as accessible as possible.”

Societies as Companies?

“There is nothing inherent in the limited liability company model that requires companies to be run for profit or to provide a return to their shareholders,” according to the Report, but the Commission does not recommend abandoning our proven incorporated society model in favour of the “community interest company” structure recently adopted in the United Kingdom.

Changes for Charitable Societies

The Commission summarises the issues around societies that might currently register under either the Incorporated Societies Act or Charitable Trusts Act as follows:

We acknowledge that there is much commonality between what is needed for incorporated charitable trust boards and incorporated societies. Nevertheless, there are difficulties in completely equating incorporated societies with charitable trust boards. Incorporated societies are member-driven institutions. The statute is designed to protect membership involvement and a degree of democratic decision-making. Trusts are not about membership participation, nor are they about democratic decision-making across a membership base, but rather are a way of holding and distributing property. Nor is it clear to us that the same rules relating to concepts such as limitations of liability are necessarily applicable to a charitable trust board as they are to an incorporated society. The duties of trustees are different from those of committee members.

The Law Commission therefore recommends that “Charitable societies should no longer be able to incorporate under the Charitable Trusts Act 1957. Those that are currently incorporated under that statute should transition to become societies incorporated under the new incorporated societies statute.”

Other Types of Incorporation

The Commission’s Issues Paper 24 raised the possibility that we might have only one statute for the incorporation of bodies that are not companies. Many submitters raised concerns about the Agricultural and Pastoral Societies Act 1908 (and special statutes enacted to assist individual A & P Societies), the Industrial and Provident Societies Act 1908, and even the Friendly Societies and Credit Unions Act 1982. The Commission has declined to address those issues in any detail, but does recommend that the new “… statute should provide an easy and efficient mechanism for agricultural and pastoral societies to transfer registration voluntarily from the Agricultural and Pastoral Societies Act 1908 to incorporation under the new Incorporated Societies Act.”

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.