[wlug_org] FWD: To incorporate or not to incorporate, info on ramifications.

[Wood Brent]

Hi y'all,

Figured I should forward this here as Tony has done a fair bit of work putting
this together, and it was to you all, not just me.....

As I understand it we generally agreed that there was no immediate need to
incorporate, but that the situation may change, depending on what activities
the LUG undertakes. (anyone frantically disagreeing please make some noise!)

Given the discussion at the last meeting over this, I suggest this is stated
clearly on the wellylug list & at the meeting (I won't be at the meeting- a few
hundred miles too far south :-)

I think this is a very useful summary which should be on record on this list,
and be referred to if the issue crops up again, which was also Tony's intent.

Brent

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

--- jumbophut <jumbophut@gmail.com> wrote:

> Date: Fri, 27 Aug 2004 14:48:14 +1200
> From: jumbophut <jumbophut@gmail.com>
> To: Wood Brent <pcreso@pcreso.com>
> Subject: To incorporate or not to incorporate
> 
> Hi Brent
> 
> I no longer subscribe to the wlug_org list, as it was doing my head
> in, so I'm posting this to you instead -- feel free to forward it to
> the other org subscribers.  It doesn't belong on the main list.
> 
> I'm not looking to relitigate the conclusions of the last meeting, but
> I felt it was important to get some well supported facts into the
> debate, because I heard some incorrect statements.  Inevitably, this
> issue will be raised again in future, and it will be useful to have
> the facts on hand when it does.  I'm not offering an opinion about
> whether or not to incorporate, just saying the legal situation is in
> either case.
> 
> So, here we go...
> 
> Substantial and authoritative information about incorporating can be found
> here:
>
<http://www.companies.govt.nz/pls/web/DBSLIBCT.Define_Search?p_access_no=19d70c63dac9a120847430ba51c08b93&p_application=LIB&p_current_level=1.41.6&p_folder_id=1717&p_error_msg=&p_error_comment=&p_first_order_field1=&p_first_order_field2=&p_first_order_field3=&p_last_order_field1=&p_last_order_field2=&p_last_order_field3=&p_doc_chkbox=dummy">
> 
> The relevant legislation is here:
>
<http://www.legislation.govt.nz/libraries/contents/om_isapi.dll?clientID=3007164462&infobase=pal_statutes.nfo&record={61861079}&hitsperheading=on&softpage=DOC>
> 
> I've drawn extensively on these, and won't bother attributing.  The
> bulleted stuff is taken verbatim from the Companies Office website.  I
> recommend you go and have a read if you doubt any of what I say below.
> 
> If the LUG decided to incorporate, it would have to:
> ====================================================
> 
> 1. Have a constitution
> 2. Pay $100 to register as a society (a one-off payment)
> 3. Submit annual accounts to the Registrar (Companies Office)
> 4. Hold at least one General Meeting per year
> 5. Either apply for charitable status or file an annual tax return.
> 
> The constitution would have to include at least:
> * The name of the society which must end in the word Incorporated 
> * The objects (purpose) of the society 
> * How people become members of the society and stop being members of
> the society
> * How the society can change its rules 
> * How meetings are called and held and how voting will take place 
> * How office holders within 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 is wound-up.
> 
> From the point of view of the Registrar (Companies Office), the annual
> accounts do not need to comply with generally accepted accounting
> practice (GAAP) or be audited, unless the Society's rules require it. 
> The Tax Commissioner _may_ frown on non-compliance with GAAP or a lack
> of audit, however.
> 
> Charitable status requires having the IRD approve the charitable
> purpose of the organisation.  Charitable societies pay no tax on
> retained profits and do not need to file a tax return.  However, it is
> difficult to achieve charitable status and many organisations instead
> apply for a simple non-profit designation.  Those non-profit societies
> do pay tax on retained profits above a certain amount ($1,000 I think)
> and do have to file an annual tax return.
> 
> Being an incorporated society does NOT exclude members from all
> liability.  In particular, if the society carries on illegal
> activities or operations involving financial gain, "the society and
> the members are liable to be prosecuted and fined. In addition, all
> members involved can be personally liable for any debts and
> obligations incurred by the society."  In short, all members have to
> trust all other members not to break the law or engage in activities
> involving financial gain.
> 
> If the LUG decides to remain unincorporated, then:
> ====================================================
> 
> * The LUG is based on an agreement (contract) between the members,
> that changes when people join or leave. The society does not have an
> existence separate from its members
> * Members can be held liable for the debts of the society 
> * The society cannot sue or be sued in Court. Any Court action would
> either be taken by, or against, the members individually
> * The LUG cannot own property or enter into contracts. 
> * The LUG is not required to have rules to govern it. This can become
> a problem if there are disputes about how the society is run
> * There are problems in gifting property (including money) to a
> society that is not incorporated.
> 
> Since the LUG has no explicit membership, most of these probably
> wouldn't apply (e.g. liability), but I am not a lawyer, so I can't say
> for sure.  Certainly no membership fee is paid for the LUG, and no
> membership records are kept.
> 
> =======================================================
> 
> I am interested to note that the Waikato LUG is incorporated, but
> hasn't filed a financial statement since incorporation, potentially
> putting it at risk of being de-registered.  This indicates that if we
> go the 'Incorporated' route, someone will have to keep a careful eye
> on responsibilities for meeting legal obligations.
> 
> I hope this has been informative.
> 
> Cheers
> Tony
> 
> -- 
> Tony (echo 'spend!,pocket awide' | sed 'y/acdeikospntw!, /l@omcgtjuba.phi/')
>