[atlarge-discuss] Where To Incorporate

[David Farrar <david@farrar.com>]

To gain recognition as a legal body icannatlarge.org needs to register itself 
in an appropriate country.  This is very important because it will also confer 
limited liability on the members.  At present all members are equally and 
jointly liable for any costs of icannatlarge.org so if for example a defamatory 
statement was posted on our website then the members could have to pay any 
damages.

Recently InternetNZ had their lawyer prepared a document for another global 
body on the benefits of registering a non profit organisation under NZ law.  I 
have attached most of that document below for people to consider.

NZ has a particular statute for registration of non profit organisations which 
only incurs a one off registration fee.  Annual accounts and rule changes have 
to be filed but these are extremely minimal compliance costs.  The law merely 
states what provisions have to be included in your rules, but gives maximum 
flexibility as to what those provisions are - something very useful for an 
organisation that will probably only ever meet in cyberspace.

If the panel and the members would like to pursue registration under the New 
Zealand Incorporated Societies Act 1908 I would be happy to ask InternetNZ 
secretariat to arrange this, cover the cost of registration and for them to act 
as the contact address for matters relating to incorporation.  I can not 
guarantee InternetNZ will agree but they/we (I am the Secretary) have been long 
standing supporters of the at large so I am hopeful.

I suggest that the panel asks for alternative proposals for registration, and 
proceeds to a membership ballot in the next month.  This issue needs to be 
sorted quickly as it affect issues such as the constitution of icannatlarge.org.

Regards


DPF

- Paper attached

1.	Background 
1.1	You have asked me to advise on the feasibility and advisability of 
establishing the proposed xxxxxx as an incorporated body in New Zealand.  You 
have also asked me to indicate the steps which would need to be taken to attain 
incorporation, the compliance requirements following incorporation and the 
costs involved in both establishment and later compliance.
1.2	In short, I consider that a suitable course would be for the 
Association to be incorporated under the Incorporated Societies Act 1908.  That 
would provide the benefits of incorporation, including limited liability and 
perpetual succession, with maximum flexibility in setting the constitutional 
and governance arrangements and a minimum of compliance costs.  It would be a 
requirement under the Act that the Association may not exist for nor provide 
personal pecuniary advantage for its members, by virtue of membership.  
However, I understand that this limitation would be consistent with the 
preferences of the proposed membership. 
1.3	There are other possible forms of incorporation, but none have the 
advantages of proceeding under the Incorporated Societies Act.  This memorandum 
refers to the available forms of incorporation and the relevant features of 
each, and sets out in more detail the necessary steps and compliance 
requirements for incorporation under the Incorporated Societies Act.
2.	Available forms for incorporation 
2.1	Under New Zealand law, it is possible for an association of individuals 
or other ‘legal persons’ (corporations or government agencies) to incorporate 
as a company under the Companies Act, 1993, to form a trust to carry out their 
purposes or to incorporate as a society under the Incorporated Societies Act.
2.2	If the members of the association incorporate as a company, they would 
then be holding shares in the company with corresponding entitlements to the 
assets upon winding up, dividends from net profits and other rights which go 
with a commercial organisation.  These arrangements are unnecessary for the 
Association and I imagine may be inconsistent with the preferences or even the 
powers of some of the member organisations.  In addition, a company would be 
subject to income tax in New Zealand if it made a profit, and it would be 
required to prepare and file audited financial statements separately in respect 
of its New Zealand operations and its operations in other jurisdictions.  These 
and other compliance obligations would almost certainly incur a cost greater 
than otherwise necessary for the operations and member obligations of the 
organisation.  
2.3	If the association forms a trust, the members would have a great deal 
of flexibility under New Zealand law in setting up the governance 
arrangements.  If the purposes of the Trust were exclusively charitable, it 
could be incorporated under the Charitable Trusts Act.  However, the 
requirement for charitable purposes would raise some compliance requirements 
under New Zealand law and would be quite restrictive in the context of the 
proposed activities of the association.  In addition, whether or not 
incorporated, the association would be governed by the law of trusts.  This has 
the potential to cause difficulties and uncertainties in the governance and 
conduct of the association, particularly as the law of trusts has different 
applications in different jurisdictions and some jurisdictions do not recognize 
the concept at all.
2.4	If the association is incorporated under the Incorporated Societies 
Act, it will have the usual advantages of incorporation.  It will become a 
separate legal entity, with a continuing existence separate from its members or 
the individual members of its governing council.  It can hold assets, enter 
into contracts and bring (or defend itself against), legal actions for the 
enforcement of its rights.  As long as the rules deal with the minimum 
requirements, listed below, there is full flexibility for the organization to 
establish whatever membership and governance structure it wishes.  I believe 
that, as a separate corporation, it would be recognized under each of the 
relevant jurisdictions.  As with any body or organization it   must comply with 
the law generally, but specific compliance requirements are limited to filing a 
copy annually of its financial statements and any changes to the rules. 
2.5	A society incorporated under the Incorporated Societies Act would need 
to have only: 
(a)	an application by at least 15 individual members (or individual and 
corporate members, with each corporate members substituting for three 
individual members); 
(b)	a declaration that the members of the Association had agreed to apply 
for incorporation; 
(c)	a name which has been approved by the Registrar; 
(d)	a set of rules which meets the statutory requirements (explained 
below); 
(e)	a notice of the registered office of the Association; 
(f)	the filing fee of approximately $100. 
2.6	To be incorporated, the Association must provide in its rules for: 
(a)	the name with “Incorporated” as the final word in the name; 
(b)	the objects for which the Association is established, which must be 
lawful; 
(c)	provision for members to become members and cease to be members ;
(d)	provision for the rules to be amended or rescinded, including powers to 
make bylaws if that is required; 
(e)	provision for summoning, holding and voting at general meetings; 
(f)	provision for electing or appointing officers of the Association; 
(g)	provision for the control and use of the common seal of the 
Association; 
(h)	provision for the control and investment of funds of the Association, 
including powers (if required) to borrow money; 
(i)	provision for the disposition of the property of the Association if it 
goes into liquidation; and
(j)	any other matters which the Registrar requires.
2.7	It is a requirement of the Act, and commonly included in the rules, 
that no member may benefit financially in their individual capacity, by virtue 
of membership of the Association.  That does not prevent members being paid as 
servants or officers of the Association, for services rendered on normal arm’s 
length terms, but the Association must not exist for, or permit, pecuniary gain 
by virtue only of the membership. 
3.	Taxation and compliance
3.1	If the Association is incorporated in New Zealand as a non-profit 
organisation, it will most likely be subject to the Income Tax Act.  It may be 
possible to apply for an exemption as a charity or under the provision relating 
to sports and cultural clubs, but those do not seem likely to succeed. 
3.2	However, the treatment of non-profit organisations is such that there 
is unlikely to be a need for the Association to incur any income tax 
obligations in New Zealand, other than the obligation to file a tax return with 
details of the income and expenditure.  That is because membership 
subscriptions are generally not treated as part of assessable income, and there 
may be other sources of revenue available to the Association which are 
similarly not assessable.  Therefore, if the Association incurs expenditures 
which exceed any assessable income which it does receive, it is unlikely to 
have an obligation to pay income tax.  
3.3	The other compliance obligations of the Association will be to file a 
copy of its financial statements, annually, with the Registrar of Incorporated 
Societies and to file with the Registrar any amendments which are made to the 
rules from time to time and any changes to the registered office.  Although 
there will, of course, be a cost involved in preparing financial statements and 
in the drafting of any rule changes which are required, the additional 
compliance costs to meet the filing obligations are relatively minor and should 
not exceed NZ$200 or NZ$300 per year.  
3.4	There are no explicit standards laid down for the preparation and 
publication of financial statements, so that the financial statements can be 
prepared to meet the requirements of members, or the professional standards of 
the accountants or auditors involved in preparing the financial statements. 
3.5	There is no statutory requirement for the financial statements to be 
audited, but it is common to make provision in the rules for an audit to be 
conducted.  
4.	Steps to incorporation 
4.1	If the Association wishes to proceed with incorporation under the 
Incorporated Societies Act, then it will be necessary to confirm that the name 
is acceptable, pass the necessary resolution, finalise the rules and complete 
the application form as indicated above.  The legal costs involved in preparing 
the documentation and attending to incorporation should be no more than NZ$300, 
apart from any costs involved in finalising the rules.  
4.2	I understand that the Association has already done some work on 
drafting a set of rules.  Depending on whether any further work needs to be 
done for the rules to comply with the statute and any other relevant 
considerations, I anticipate that those tasks could be completed for no more 
than NZ$500, and possibly less than $200. 
4.3	Please let me know if you need any further information, or if you wish 
me to assist in arranging for the incorporation of the Association.  




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