Restrictions on money-making activities
What your society can and cannot do
An incorporated society is a non-profit organisation. Any activity your society carries out can make money for the society but must not make money for the benefit of individual members.
Your society can raise money to help achieve its purposes as set out in its constitution but it cannot make money to distribute to its members. For example, a society:
- can raise money to send a sports team to a tournament (if that is in line with its purposes), but
- cannot raise money and give it to its members to use as if it were their own.
If your society employs people, including society members, it can pay them for the work they do. Members can also be reimbursed for actual and reasonable expenses they have incurred on behalf of your 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 does not constitute financial gain.
What constitutes financial gain
Your 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 does not 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. For example, where your society:
- engages in trade.
- reimburses a member for reasonable expenses legitimately incurred on behalf of your society or while pursuing your society’s purposes.
- 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.
- provides a member with benefits related to your society’s activities such as trophies, prizes or discounts on products or services in accordance with the purposes of your society.
- pays a member for something that is related to the purposes of your society and the member is a not-for-profit entity.
- distributes funds to a member to further the purposes of your society and the member is:
- a not-for-profit entity
- is closely related to your society, and
- has the same or similar purposes to your society.
- distributes its surplus assets in accordance with the 2022 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.
Other guides in
Running your incorporated society
- Your responsibilities as an incorporated society
- Your society's constitution
- Dispute resolution procedures are mandatory
- Committees and officers
- Being a member
- Holding meetings
- Entering into contracts
- Records you should keep