Incorporated societies – when do we have to act?
The Incorporated Societies Act 1908 is up for an overhaul. The Ministry of Business, Innovation & Employment (MBIE) released its Exposure Draft of the Incorporated Societies Bill in November 2015. The exposure period closed in mid-2016 with 116 submissions provided to MBIE for consideration.
So where is this at now and what do incorporated societies need to do?
The timeframe for any legislation overhaul process is obviously subject to change, due to the nature of our parliamentary process and the constant juggle which the Government and respective Ministries need to make regarding priorities. We also now have an election cycle thrown into the mix. However, taking that into account, a current expected timeline appears to the right.
What was the general flavour of the submissions?
As one would expect with any public consultation process, a wide range of feedback was received. However, we understand that the majority of the submissions were in favour of the overall reform. This is not too surprising when one considers the overhaul is of a 1908 Act which is really rather unspecific and out-of-date, and especially when one considers some of the large complex national organisations using the incorporated society structure.
Key findings of the Law Commission about the need for reform included:
- the 1908 Act lacking guidance about the obligations of those running societies;
- much of what is legally necessary for running a society not being set out in the 1908 Act; and
- the 1908 Act saying little about how internal disputes should be dealt with.
We would suggest the general positive support is also a function of the comprehensive consultation and excellent work that the Law Commission did on its original review.
Obviously, there have been some good, detailed suggestions provided to MBIE as to areas that may need further consideration and these are no doubt being worked through.
As with feedback RSM has received directly from our clients and contacts in the sector, there has been a minority not in favour. From these concerns expressed directly to RSM, our assessment of these is that most are fundamentally concerned with the challenges of change as well as perhaps the fear of the unknown. This is a perfectly understandable and very human reaction to any change. The negative minority is also much more prevalent, the smaller the incorporated organisation size. This is also understandable as the relative impact of any change and compliance cost impost often falls more heavily on the very small and resource-constrained entities.
However, we are reasonably confident that these fears are perhaps unfounded for a number of reasons:
- the quality of the original Law Commission review process;
- the common-sense nature of most of the suggested changes – that we believe will make operating incorporated societies much clearer;
- the relatively long, and staggered, timeframe to full implementation as noted above; the recent experience of significant change imposed on registered charities and the lessons learned from that; and
- the level of awareness as to the education and assistance to the sector being needed.
As pragmatic types, we appreciate that, as with any change, there will be some pain as individuals affected and the sector as a whole come to grips with what is required. However, we also suspect this is likely to be one-off in nature. We have also heard some fears that appear to be quite unfounded when compared with the proposed changes in the Bill that was exposed.
We are also confident that improved clarity regarding what is required to run an incorporated society should be of long-term assistance to those involved in this organisation type.
What do societies have to do and by when?
Looking at the timeline above one can see that it may well be the year 2023 or even later before the new Act is fully in effect. Add six or more years to your current age and think about that. It sounds like a long time.
However, we do not suggest inaction. Similar to other commentators on the Bill we foresee limited significant changes to the proposals to the likely new Act. This is because in our view they represent well thought-through and sensible changes to improve the governance and operation of societies, and they are not politically controversial. Hence, if an incorporated society is already planning to update or improve its constitution there is probably nothing to stop commencing action now, i.e. we would not delay making improvements merely because new legislation is coming. We recommend a good reading of the Bill should be a useful part of any amendment process.
We are also well aware from assisting various societies that effecting change can involve significant time. This is usually due to the need to comply with existing constitutional due process obligations to give notice of meetings, the requirement for special meetings, voting provisions etc.
Any review of a core document such as a constitution can also lead to fundamental strategic considerations which in any membership organisation always take time. Such a review also provides an excellent opportunity for reviewing clarity and to perhaps reset the organisation to better suit the environment in which it now operates.
Such fundamental considerations can include:
- Is there still a need for our organisation?
- Are our objects and purpose still relevant?
- Is a membership organisation still the most appropriate structure?
- Should we merge with or join another organisation(s)?
- Should we be structured as we currently are? E.g. should we have branches etc?
We suggest the following:
- If you are looking to establish a new incorporated society then it would be sensible to adopt a constitution in line with the provisions of the new Bill. Note that depending upon your timing there will be some provisions of the 1908 Act that may still need to be complied with. For example, in relation to the minimum number of members, this is 15 under the 1908 Act and only ten under the proposed Bill. However, given the lesser number of detail obligations in the 1908 Act, such issues are not likely to be considered any significant impediment.
- If you are an existing incorporated society and already thinking about making changes to your Constitution, then you should seek to incorporate the changes proposed in the Bill.
- All existing incorporated societies should remain alert to developments and plan for change longer-term in line with the new legislation.
The process of overhauling the Incorporated Societies Act 1908 will take some time. However, good things always do.
Craig Fisher FCA is an Audit Partner and Chairman of RSM, and is also a member of ADLS’ Council. Mr Fisher is a specialist regarding not-for-profit and charitable entity issues and can be contacted at firstname.lastname@example.org.
Wayne Tukiri CA is an Associate Director – Audit & People at RSM and has considerable expertise in not-for-profit and charitable entity issues. He can be contacted at email@example.com.