The Incorporated Societies Act 2022 ("New Act") has come into force as of 5 October 2023, replacing the century-old Incorporated Societies Act 1908 ("Old Act"). This new legislation brings significant changes for the 24,000 Incorporated Societies in New Zealand. Here, we summarise the key updates, focusing on the necessity for re-registration and some important operational changes. We'll discuss changes to Tier 3 and 4 Financial Reporting in a subsequent article.
Re-registration Requirement
All existing Incorporated Societies must re-register under the New Act by 5 April 2026. Until re-registration, they remain governed by the Old Act. Societies formed after 5 October 2023 automatically fall under the New Act.
If a society chooses not to re-register, it can appoint a liquidator or apply for dissolution, according to its rules. Failure to re-register by the deadline could lead to severe consequences, such as losing the ability to make decisions regarding its assets or even losing its separate legal identity, potentially making individual members liable for its debts.
Key Changes Under the New Act
The New Act introduces several crucial changes, including:
Constitution Requirement: Each Incorporated Society must have a constitution that meets the requirements specified in the New Act. Societies may need to add or revise rules to comply with these standards.
Management Committee: Societies must have a committee with at least three officers responsible for managing operations. Officers must act in good faith, exercise reasonable care, and comply with the society’s constitution and the New Act.
Membership: Societies must have at least ten members and maintain a register with members' consents, contact details, and membership dates.
Naming and Language: Society names can end with "Incorporated", "Inc", or "Manatopu" and can be in either Te Reo Māori or English.
Financial Reporting
The New Act brings new financial reporting requirements:
Accounting Standards: Unless a society is small, it must prepare financial statements in accordance with the accounting standards issued by the External Reporting Board (XRB). A society is considered small if it meets all the following criteria:
Spent less than $50,000 in each of the two preceding financial years.
Had liquid assets of less than $50,000 at the end of the two preceding financial years.
Is not a donee organisation for tax purposes or a registered charity.
Audit Requirement: Societies not registered as charities must have their financial statements audited by a Qualified Auditor if their total operating expenses are $3 million or more in each of the two preceding years.
Obligations Once Registered
Once re-registered under the New Act, societies must:
Hold an Annual General Meeting within six months of the balance date.
File financial statements and an annual return with the Registrar within six months of the balance date.
Obtain consent from all new members.
Keep an interests register to record conflicts of interest.
Consequences of Non-compliance
Failing to re-register by April 2026 means the society will cease to exist. Reinstatement is possible but avoidable through timely action. Officers may face fines up to NZ$50,000 for prohibited activities carried out with their authority. More severe offences, like fraudulent use of society property, could result in imprisonment or fines up to NZ$200,000.
The New Act also increases penalties for breaches that were already prohibited under the Old Act, underscoring the importance of compliance.
Support and Assistance
For any assistance regarding governance, changes in financial reporting or anything else that this new act brings about, please contact Maris at maris@mytwocents.nz. Maris, our Not-for-Profits Accountant Specialist has an extensive auditing background and significant experience in the not-for-profit space. She is ready to help implement any required changes in your organisation, making sure you are well-prepared for the transition.
