Incorporated Societies Act 2022 gains Royal Assent
The new Incorporated Societies Act 2022 (the 2022 Act) was signed into law on 5 April 2022. The 2022 Act replaces the Incorporated Societies Act 1908 which has been in force for over 114 years and is considered to be outdated for modern-day governance requirements.
With the 2022 Act coming into force, all existing incorporated societies will be required to re-register with the Registrar of Incorporated Societies by the later of 1 December 2025 and the date that is two years and six months after the commencement of certain transitional provisions contained in the 2022 Act.
All existing incorporated societies will thus have a transitional period of approximately three and half years within which they must re-register with the Registrar of Incorporated Societies.
Applications for re-registration must be accompanied by a copy of the incorporated society's constitution, and such constitution must be compliant with the requirements set out in the 2022 Act.
As detailed in our July 2019 edition of Accounting Alert, the 2022 Act introduces new reporting and audit requirements for incorporated societies as well as a number of changes to governance requirements.
Changes introduced by the 2022 Act include:
- Introducing a requirement to have a governing body (e.g, a committee). Merely having officers will not be sufficient. Committees will need to have at least 3 members, and a majority of the committee members must be members of the incorporated society.
- Specifying certain factors that will disqualify a person from being an officer of an incorporated society.
- Introducing duties for officers of incorporated societies that will result in officers having duties akin to those of company directors. The officer duties codified in the 2022 Act include requirements that all officers must:
- act in good faith and in what the officer believes to be in the best interests of the incorporated society
- exercise their powers for proper purposes
- exercise the care and diligence that a reasonable person with the same responsibilities would in the same circumstances
- not agree to, cause or allow for, the activities of the incorporated society to be carried on in a manner that is likely to create a substantial risk of serious loss to creditors
- not agree to the incorporated society incurring an obligation unless the officer believes on reasonable grounds that the incorporated society will be able to perform the obligation when required to do so
- not act, or agree to the incorporated society acting, in a manner that contravenes the 2022 Act or constitution of the incorporated society.
- Allowing a mechanism for members to obtain information from officers to allow for improved accountability of officers.
- Providing for certain criminal offences, such as officers providing false or misleading statements (knowing them to be so), dishonestly using their officer position, fraudulently using incorporated society property and falsifying records, documents or the Incorporated Societies Register.
- Prescribing that annual financial statements must be prepared and registered by all incorporated societies and prescribing the required reporting standards which are dependent on the size of the incorporated society.
- Specified not-for-profit entities (i.e., those entities having in each of the 2 preceding accounting periods of the entity, the total operating payments of $140,000 or more) are required to prepare GAAP compliant financial statements.
- Small societies1 can choose to prepare either (i) GAAP compliant financial statements, (ii) a non-GAAP standard that applies under the 2022 Act or (iii) minimum requirements as set out in section 104 of the 2022 Act.
- Prescribing that large incorporated societies as set out in the Regulations are required to have their financial statements audited.
- Requiring an ongoing minimum number of at least 10 members (the Incorporated Societies Act 1908 currently only requires a minimum number on incorporation but does not provide for any ongoing minimum number of members). In addition members will need to consent to become a member of an incorporated society and incorporated societies will need to make sure they have processes to ask for, and record, that consent.
- Requiring all incorporated societies to have a procedure contained in their constitutions to resolve disputes
Due to the significant changes introduced by the 2022 Act, we highly recommend that all incorporated societies review their existing rules/constitutions to ensure they will be compliant with the requirements of the 2022 Act and, if not, to take steps to make the necessary modifications.
In addition, all incorporated societies should assess what accounting framework will apply to them for financial reporting purposes, and for those large incorporated societies captured by Regulations plans to appoint an auditor should be made.
Consideration will also need to be given as to whether existing officers of incorporated societies will continue to meet the officer criteria set out in the 2022 Act.
1A small society is one that has:
(i) in each of the 2 preceding accounting periods of the society, the total operating payments of the society are less than $50,000; and
(ii) as at the balance date of each of the 2 preceding accounting periods, the total current assets of the society are less than $50,000; and
(iii) at the balance date of the accounting period, the society is not an entity described in section LD 3(2) of the Income Tax Act 2007 (a donee organisation).
For more on the above, please contact your local BDO representative.
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