Restrictions on money-making activities

The Incorporated Societies Act 1908 lists some specific examples of money-making activities that may be permissable. These include:

• A society’s property can be divided among its members when the society is dissolved.
• Members of a society can receive a salary as an employee or officer of the society.
• Members of the society can compete with each other at ‘members only’ society events for trophies or prizes, other than money prizes.
• A member may benefit personally where they would have been entitled to the percuniary gain whether or not they were a member of the society.
• Where an incorporated society exists to regulate an industry or trade, or to promote better practice, funds raised by the body can be put toward this purpose. The society cannot, however, take part in the industry or trade.

If a society is found to be engaging in operations involving percuniary gain, both the society and its members can be prosecuted and fined. In addition, all members involved may be held personally liable for any debts and obligations incurred by the society.

The Incorporated Societies Act 2022 (2022 Act) specifies that societies must not operate for the financial gain of any of its members. The 2022 Act is also specific about what does and doesn’t constitute financial gain.

What constitutes financial gain

A society will operate for the financial gain of its members if —

• It passes on any gain, profit, surplus, dividend or similar financial benefit to it members
• It has capital that is divided into shares or stock held by its members
• It holds property in which its members hold a disposable interest.

What doesn’t constitute financial gain

The 2022 Act sets out a number of scenarios where a society does not have a purpose of being carried on for the financial gain of its members merely because it will or may undertake certain activities. Some of these are:

• Where a society engages in trade.
• Where a society pays a member for something that is related to the purposes of the society and the member is a not-for-profit entity.
• Where a society distributes funds to a member to further the purposes of the society and the member is a not-for-profit entity, is closely related to the society and has the same or similar purposes to the society.
• Reimbursing a member for reasonable expenses legitimately incurred on behalf of the society or while pursuing the society’s purposes.
• Where a society pays a member a salary or wages or payment for services or enters into any other transaction with a member on arm’s-length terms.
• Where a society provides a member with benefits related to the society’s activities such as trophies, prizes or discounts on products or services in accordance with the purposes of the society:
• Where a society has its surplus assets distributed in accordance with the Act to a member that is a not-for-profit entity.

Officers can be prosecuted if a society is found to have been operated for the financial gain of any of its members. Additionally, a society can recover a financial gain from a member and the High Court can put a society into liquidation where financial gain is established.