Appendix
5 Non-Profit Groups and Incorporated Societies
Type of Income Taxation Exempt Entity
The SFF project group will need to consider the type of entity under which it will operate. There are two options:
Option one: Non-Profit Group (most common & recommended)
Option two: Incorporated Society (If you are applying for additional funding other than from the SFF, other organisations may, as a condition of application, require you to be an incorporated society).
Non-Profit Group
Background
A non-profit group operates along similar lines to an incorporated society but requires less rules and objects (objectives) and does not need to be registered under the Companies Act. As SFF projects do not intend to produce a profit it is possible to apply to the IRD for tax exempt status without being incorporated.
The section of the Act which applies to non-profit bodies is Sec DJ 17 which states:
“Any society, association or organisation;
- Which is not carried on for the profit or gain of any members or shareholders, and
- Whose rules or constitution prevent it from distributing any property or money to any member or shareholder, is a non-profit body.”
Under section CB 4(1) (b) of the Act, the income of any society or association established mainly to promote or encourage scientific or industrial research is tax exempt.
A non-profit group should have, as a minimum, the following:
A constitution or set of rules which covers:
- aims/purpose of the group;
- payments to members;
- winding up procedures;
- how the rules can be altered.
A simple example of a constitution for a non-profit group can be found in Appendix 6.
Advantages of a Non-Profit Group include being easier to form, with less compliance (i.e, no requirement for annual accounts to be audited). However a disadvantage of a Non-Profit Group is that members would be liable for any debts or other liabilities incurred by the group that were not able to be met from funding. Although sound financial and project management should prevent this circumstance from arising.
Liquidation of a Non-Profit Group
At the end of the project or when a different group structure is required it may be necessary to liquidate your non-profit group.
To do this have members pass a Special Resolution of the group that the project be liquidated. Ensure that if the project has any remaining funds that these are dealt with in accordance with the rules or constitution of the group.
Write to the IRD notifying them that the society has been liquidated, stating the society’s financial position, i.e., assets, liabilities, unspent funds (an example letter is attached in Appendix 7).
Incorporated Society
Background
An incorporated society is a group or organisation that has been registered under the Incorporated Societies Act 1908 and, when incorporated, is authorised by law to run its affairs as though it were an individual person.
An incorporated society is predominantly set up to limit liability of the group members. There is a cost involved and this should be taken into account when making application for funds. The cost would vary depending on the size of the project and complexity of the rules required.
Full details relating to incorporated societies are available on www.societies.govt.nz.
While it is possible to set up an incorporated society by following the procedure outlined on the Societies website (www.societies.govt.nz) it is recommended that a lawyer or accountant is at least consulted regarding this process.
Any group of 15 or more persons may apply to become incorporated under the Act.
An incorporated society can do anything provided:
- its activities are lawful;
- its activities are not for financial gain of the members (profit making from an incorporated society’s activities for distribution to members is prohibited);
- its activities are authorised by the “objects” (objectives) in its rules.
Advantages of an Incorporated Society
- The incorporated society becomes a separate legal entity from its members.
- Members have no personal liability for the debts, contracts or other obligations of their society with two exceptions.
- where debts are incurred from operations involving financial gain; in such circumstances, the members involved in the operations become personally liable for the debts and obligations.
- where debts or obligations are incurred as the result of unlawful actions, again the members involved become personally liable.
- As the rules of the incorporated 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. Therefore property belongs to the society and no individual has personal interests or rights in the property.
Disadvantages of an Incorporated Society
- It is a very formal process that is time consuming to set up.
- There is a cost involved which could be significant if a lawyer was retained in the incorporation process (depending on the complexity of the rules required).
- There are a much wider set of rules that must be included to become incorporated.
- An audited set of annual accounts must be submitted annually to the Registrar of Companies.
- The group should be formally liquidated at the end of the project.
Procedure for Incorporation
Before incorporation can take place you will need to do the following:
- choose a name for the group;
- prepare two printed or typewritten copies of the rules (see below for rules required);
- make a statutory declaration as to the adoption of rules in the prescribed form (you can download this form from www.societies.govt.nz);
- complete two copies of the Application for Incorporation form (you can download this form from www.societies.govt.nz);
- prepare a notice of the location of the registered office.
The Rules (Constitution) of Incorporated Societies
The following is an outline of what must be covered in the rules of an incorporated society. (for a full list of what the rules must cover, as they are stated in the Act see Appendix 8).
- the name of the society (ending with the word Incorporated);
- the objects (objectives) for which the society is established;
- how people become members of the society and stop being members of the society;
- how meetings of the society will be called and held and how voting will take place;
- how officers of the society will be appointed;
- how the society’s funds will be controlled and invested;
- the powers (if any) that the society has to borrow money;
- how any property of the society will be distributed in the event of the society being wound up;
- how the rules of the society can be altered.
- consult a lawyer or accountant who can help you develop a set of rules to suit the specific present and future needs of your society;
- visit your nearest Registrar of Incorporated Societies (www.companies.govt.nz) and copy the rules of a society similar to yours. These can then be adapted to suit your needs.
Application for Incorporation
The application for incorporation is made on a form called ‘Application to Incorporate a Society’ (form no. Comm Aff3) (you can download this form from www.societies.govt.nz). The application must be made by a minimum of 15 persons who are members of your society.
Statutory Declaration
Two further requirements for incorporation are:
- a majority of the members of the society must have consented to the application for incorporation;
- the rules presented with the application are the rules of the society.
To ensure that this is the case, an officer of the society, or its solicitor, is required to make a statutory declaration to this effect on a form called ‘Incorporated Society Rules Statutory Declaration’ (form Coff Aff4) (you can download this form from www.societies.govt.nz).
For complete information on how to become an incorporated society refer to the Societies website (www.societies.govt.nz). This website also includes forms that will be required and other information relating to Incorporated Societies.
It is recommended that a lawyer be consulted as part of the incorporation process
Liquidation Process – Incorporated Society
Have members pass a Special Resolution of the society that an application is made to the Registrar of Incorporated Societies so that the society can be removed from the register.
If the Society has any remaining funds ensure that these are dealt with in accordance with the group rules and constitution.
Complete a Request to Remove a Society from the Register form (you can download this form from www.societies.govt.nz) and send to the Registrar of Incorporated Societies, Ministry of Economic Development, Private Bag 92061, Auckland Mail Centre 1020.
Write to the IRD notifying them that the society has been liquidated, stating the society’s financial position, i.e., assets, liabilities, unspent funds (an example letter is attached in Appendix 7).
Contact for Enquiries
Fund Administrator
Sustainable Farming Fund
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
Tel: 0800 008 333
Fax: 04 894 0746
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