Work in Progress.

New Zealand Incorporated Society HOWTO.

Author: DanielLawson

Introduction

Turning a club or society into an Incorporated Society (IS) is a reasonably straightforward thing to do, however there are a lot of things that aren't obvious to start with. When the Waikato Linux Users Group decided to go down this path, it took a long time before everything was made obvious. Hopefully this resource will help other clubs of any nature painlessly work their way through the steps required.

Why should our society Incorporate?

The biggest single point of Incorporating a club or society is that it becomes a separate legal entity. It can conduct business, own property, and hold assets. These are all held separately from any one member of the society, so the club as a whole is protected from its members. Its members are also protected, as they are not help personally liable for any debts the society may owe. Quoting from the NZ Companies Office1? on the benefits of becoming an Incorporated Society:

There are four main advantages of being an incorporated society:

• The society becomes a separate legal entity from its members. As a result, it can lease, rent, buy/sell property, borrow money and enter into contracts in its own name. The society also becomes capable of perpetual succession - that is, its existence continues despite membership changes.
• Members have no personal liability for the debts, contracts or other obligations of their society.There are two exceptions to this. The first is where debts or obligations are incurred from operations involving financial gain. In such circumstances, the members involved in the operations become personally liable for the debts and obligations. The second exception is where debts or obligations are incurred as the result of unlawful actions. Again the members involved become personally liable.
• As the rules of the society must meet the minimum requirements laid down in the Act, there is some certainty as to the way the affairs of the society should be conducted.
• Members can have no individual claim on the property of the society except where the rules state that surplus assets are to be distributed to members when the society is put into liquidation. Therefore property belongs to the society and no individual has personal interests or rights in the property.

If you want to put across a more "professional" image, or intend to apply for fundraising for projects, or want to collect fees in a structured manner, then perhaps becoming an IS is a good decision.

Why shouldn't our society Incorporate?

The biggest reason is time, in my opinion. It is a lot of hassle. Also, once you have a set of rules in place as to how the society must operate, you actually have to follow this. The benefit might actually be fairly minimal for your society.

Financial Requirements

It's worth stressing that if your club or society becomes an IS, then there are some fairly strict requirements about how finances are handled that will impact upon your non-profit (and therefore tax-exempt) status. In particular, being a non-profit society implies that funds the society raises are not distributed back to its members. The society can employ people, and I believe can pay honorariums to its committee, however these have to be fair and current market rates.

Steps to follow

• Preparation
• Write your charter.
• Register
• Financial / Tax responsibilities

Preparation

In preparation, you should definitely read the NZ Companies Office document on 'Registering an Incorporated Society'1?. I'd also suggest you try and talk things over with the majority of your society - perhaps over the course of a few meetings. Everyone needs to understand what is involved, and needs to understand that you are making the leap from a group of people who hang out occasionally, to a legal entity with rules and responsibilities.

Write your charter

The NZ Companies Office has a sample set of rules that you can use to form the basis of your charter. It's not complete however, and I'd recommend referring to the charters of other NZ based ISs, for example the Waikato Linux Users Group has their charter online at http://www.wlug.org.nz/WlugCharter.

See the note about Tax responsibilities below as well

Register

In order to register you need fill in an 'Application to Incorporate a Society', and a 'Statutory Declaration of Rules'. Both can be found online at the NZ Companies Office, which unfortunately uses javascript so I cannot directly link to these forms. At the time of writing, the relevant part of the NZ Companies Office online library was here

In order to complete the Application, you will need 15 members to sign and witness the form.

The declaration of rules must be filled in with a Justice of the Peace. There are usually several of these in any town, so it shouldn't be a problem finding one.

Financial / Tax responsibilities

Just because you're an IS doesn't make you tax-exempt automatically. The first thing you should be doing as an Incoporated Society (ie, as soon as you get your Certificate of Incorporation back from the Companies Office) is obtaining an IRD number, opening bank accounts, and applying to the IRD for tax exempt status.

One thing to be aware of here is that the IRD has certain requirements that must be met by your rules before you can qualify for tax-exempt status. It is probably worth submitting your proposed rules or charter to the IRD for verification before you register with the Companies Office. This is merely a time-saving device however - if the IRD wants you to make changes to the charter, you have to have a special meeting to make the changes, get them verified by a JP, and register them with the Companies Office again.

Subs, Fees, Grants, and Donations are not taxable as an Incorporated Society. You pay tax on interest earned, and there may be other forms of income which an IS will pay tax on. However, if you are not tax-exempt, you will have to fill in tax returns and so on every year.

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1?http://www.med.govt.nz/ri/co_reg/incsociety1.html