Running an incorporated society
Once a society is incorporated it must be run lawfully and in accordance with the Incorporated Societies Act 1908 (the Act). Information on these obligations, and what happens if they aren’t met, is provided below.
A copy of the Act and Regulations can be viewed on online for free at www.legislation.govt.nz, or can be purchased from some bookstores. Its recommend that people involved in running a society (particularly the society’s officers) obtain a copy of the Act and become familiar with its contents. When new people are elected to run the society, it is important for the outgoing executive to provide information about how to run the society.
As with any person or organisation, an incorporated society must comply with the laws of New Zealand. This includes not undertaking criminal activities, meeting any tax obligations and complying with any government agency requirements that may apply to the society’s activities:
- For information about a society’s tax obligations, refer to the Inland Revenue Department www.ird.govt.nz
- Contact the Department of Internal Affairs for information about running events involving gambling (for example housie) or applying for community grants www.dia.govt.nz
- Contact your local council for information about running events and compliance with local bylaws, for example holding a street fair
- For information about selling liquor at society functions, refer to the District Licensing Agency associated with the District or City Council nearest to where the event will be held.
Activities in accordance with the rules of the society
One of the advantages of being an incorporated society is that the society has a set of rules that determine how it should be run.
Societies must hold meetings. Where all members of the society are invited to attend a meeting, it is called a general meeting. Depending on the structure of the society, it may also hold committee or sub-committee meetings to deal with specific issues. Ordinary meetings are held when members of the society get together to participate in society activities.
An incorporated society is required to hold at least one general meeting a year, at which the members approve the society’s annual financial statement. This meeting is usually known as the annual general meeting (AGM). In addition to approving the annual financial statement, the meeting will elect officers (e.g. a secretary) and approve any necessary rule changes. A society’s rules may allow for other general meetings to be held during the year e.g. special general meetings which may be required if there is a need to consider some urgent or important matter that cannot wait until the next AGM.
The society’s rules are required to set out several matters with respect to general meetings:
- How notice of a general meeting should be given to members
- How business at a general meeting is to be conducted e.g. requirements for proposing resolutions or nominating people for election
- How members may vote.
If these rules are no longer appropriate, they should be amended. An amendment to the rules is not valid until registered by the Registrar. Until then the existing rules must be followed.
There are a number of commercial publications available from bookstores that deal specifically with how to run a meeting, including taking minutes, recording resolutions and how to debate issues.
Restrictions on money-making activities
An incorporated society is a non-profit organisation. The Act specifies that a society must not undertake activities for financial gain (referred to in the Act as "pecuniary gain"). Financial gain is making a profit with the intention of passing that profit on to some or all of its members. A society may, however, make money e.g. through entry fees or other fundraising, and retain that money and use it to further its objects. The Act specifically provides for several situations that may otherwise be considered financial gain:
- The property of a society can be divided amongst its members when the society is dissolved
- If the society is established to protect or regulate a trade, industry or similar undertaking that the members are involved in. The society itself cannot take part in the trade, industry or similar undertaking
- Members of a society can receive a salary as an employee or officer of the society
- If the member would have been entitled to the financial gain whether or not they were a member of the society
- Members of the society can compete with each other at members’ only society events for trophies or prizes, other than money prizes.
If the society is found to be engaging in operations involving financial gain, both the society and the members are liable to be prosecuted and fined. In addition, all members involved can be personally liable for any debts and obligations incurred by the society.
An incorporated society is a separate legal entity. It can enter into a contract as if it were a natural person i.e. an individual. The Act provides some specific requirements for a society entering into a contract:
- If the contract is the type of agreement that would need to be in a deed if it was between individuals, then the society must also have a written contract and it will need to be executed under seal. For example, an agreement to sell or buy land
- If the contract is the type of agreement that would need to be in writing if it was between individuals, then the society will also need a written contract signed by a person (usually an officer) with the express or implied authority of the society
- If the contract is the type of agreement that would not need to be in writing if it was between individuals, then the society is not required to enter into a written agreement if it is entered into by a person (usually an officer) with the express or implied authority of the society.
Societies should consider the following when entering into a contract:
- Is the purpose of the contract authorised by the rules and objects of the society? The rules may allow a society to borrow money, but is the money going to be used for a purpose covered by the objects of the society?
- Who is authorised to enter into the contract on behalf of the society?
Maintaining a register of members
The Act requires that every society keep a register of all its members. For each member the register should record:
- The date they became a member.
The Registrar can require a society to provide a list of all members, verified by an officer of the society.
In addition to maintaining a register of members, societies should consider what other types of information or records they need to retain. This may be affected by the size, structure and activities of the society.
Documentation that should be retained to enable a society to complete its financial records would include:
- A numbered receipt book and duplicate copy
- A bank deposit book
- All current and used cheque books
- All bank statements
- All invoice and payment authorisations
- A receipts and payments journal
- A petty cash payments book.
All these items are readily available from a commercial stationer.
All societies must adopt a common seal on incorporation. The rules of the society will set out when the common seal should be used and how. Generally it is used on legal documents and contracts that the society enters into.
A common seal is usually a rubber stamp that includes the name of the society and the words "common seal". Contact a commercial stationer for information about ordering a seal.
Creating a branch
A society that has members in a number of regions may want to establish branch societies. The Incorporated Societies Amendment Act 1920 sets out the procedure for incorporating branches. This procedure is generally the same as the procedure for incorporating a new society.
A society may submit an application to incorporate just one branch, or a number of branches may be incorporated as a group. In either case there must be a minimum of 15 members in each branch, a majority of whom consent to the application for incorporation. Where incorporation is sought as a group, the majority of each branch within the group must consent to the application.
Meeting ongoing filing requirements
A society is required to meet ongoing filing requirements with the Registrar.
Annual financial statements
Every year an incorporated society is required to register a copy of its annual financial statement (accounts). Failure to do so can indicate that the society is no longer operating and the Registrar may take steps to remove it from the Register. If the incorporated society is removed from the register it will no longer be a separate legal entity.
Information in the financial statements
Under the Incorporated Societies every incorporated society must file a certified copy of its annual financial statement with the Registrar. The annual financial statement will include the following information:
- The income and expenditure of the society for the previous financial year
- The assets and liabilities, as at the close of the financial year
- All mortgages and secured loans of any description, affecting any of the property of the society, as at the close of the financial year
- The society's full name
- The financial year that the financial statement has been prepared for.
When filing the paper document, an officer of the society must certify that the financial statement was submitted to and approved by the members of the society at a general meeting. The wording for this is provided on the Financial Statement coversheet. Alternatively, the following wording should be attached or endorsed on the financial statements:
"I certify that this financial statement has been submitted to and approved by the members at a general meeting ...............................(society name)
Held on the ...... day of............................. 20..
The Act does not make a society appoint an auditor UNLESS the rules require an auditor be appointed. Depending on the complexity of the society’s finances, it may be desirable for a society to appoint an auditor. An auditor does not need to be a member of the Institute of Chartered Accountants of New Zealand, but a qualified person is preferable.
Why is it important to file financial statements?
Failure to file a copy of the annual financial statement may indicate to the Register that the society is no longer operating. The Registrar may then take steps to dissolve (remove from the register) the society.
Alteration to rules
Alterations to the rules of a society will not take effect until they have been registered and cannot be used to run the society. This includes changing the name of an incorporated society.
Updating address and organisational details
Changes to the registered office must be notified to the Registrar. To ensure that the Registrar can readily contact a society, it is important to advise the Registrar if the society’s address for communication changes.
Annual financial statements can be filed online at www.societies.govt.nz, along with changes to address or organisational details. You will need the registry key to access online document registration services for your society. Visit our online Information Library for more information about registry keys.
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