What is an Industrial and Provident Society in New Zealand?
Published: July 18, 2023
Read Time: 8 minutes
An Industrial and Provident Society (IPS) consists of a group of small business owners who come together to become part of a larger entity for mutual benefit while continuing to operate independently.
Group members of an IPS can carry on activities in any industry, business or trade except banking. They must operate according to the purpose and written rules and apply to the Registrar of Industrial and Provident Societies to receive their status.
After registration, the society becomes a body corporate with indefinite existence (perpetual succession) and can hold property, enter into legal agreements, and sue or be sued as an organisation, whether membership changes or not. The main purpose of this not-for-profit legal structure isn’t to generate profits for members but to support owners working in the industry (industrial) and provide them with benefits (provident) from the society that will improve their well-being.
Advantages and Limitations
The biggest advantage to forming an Industrial and Provident Society is that small business owners can mutually support each other and work co-operatively to make a profit that allows them to continue operating. Choosing this legal structure also has the benefit of giving the group legal status of a corporate body, meaning that they can enter into legal contracts without putting members at risk of legal or financial liability. Members cannot be sued if the organisation is unable to pay its debts or defaults on a loan. They can also continue to operate independently, while benefiting from being part of a larger entity and having access to its resources.
There are a few limitations to choosing this legal structure. For example, as a co-operative business model, the group owners of an industrial and provident society cannot be primarily focused on generating revenue and profit may take a back seat to activities that focus on supporting members who are struggling or on helping the community. Committee members must distribute shares between members fairly, and family and other estate beneficiaries may not benefit from the shares if a member dies.
Today, there are few Industrial and Provident Societies in Aotearoa New Zealand. Some co-operative sectors such as dairy have found it challenging to grow under this model and the ‘fair value’ system commonly used by IPSs can create a redemption risk for owners, meaning that if a benefit is redeemed early, the investor doesn’t get the expected long-term return. Fair value refers to an agreed price between buyers and sellers determined by the estimated worth of assets and liabilities.
IPS Industry Examples
Examples of an industrial and provident society or IPS can include housing, consumer, and agricultural co-operatives, men’s or women’s clubs, friendly societies, and housing associations. These organisations usually go through the incorporation process and are run as co-ops. The co-operative model typically promotes sustainable development and production, mitigates the effects of climate change on farming and food production, provides resources in times of disaster relief such as drought or forest fires, and offers affordable services or goods to a community experiencing economic difficulties.
Co-ops and IPSs are set up to help small business owners participate in a specific area of the market, to benefit group members and protect their interests, and to support individual ventures. For example, the Auckland Co-operative Taxi Society Limited is an essential service for the city of Auckland. It operates the country’s largest fleet of taxis (700), 80% of which are environmentally friendly. Their services are available 24 hours a day, 7 days a week, are accessible to people with mobility issues. Drivers work during public emergencies are considered an essential service.
Aotearoa New Zealand has a strong agricultural co-operative sector and a tradition of using company legislation to regulate co-ops and IPSs. There are nearly 1.4 million New Zealanders (29%) who are members of cooperatives. Fonterra Cooperative Group Ltd. is the world’s 8th biggest food and agriculture cooperative, generating $13.67 billion dollars in revenue. The group promotes responsible food production and clearly benefits the agricultural community.
Non-profits can choose to operate as co-operative companies or co-operative societies and incorporate. This allows them to maintain a distinct legal identity rather than use the broader for-profit company model, which places more liability on members.
Industrial and Provident Societies Act
The legal structure a non-profit chooses for its operations will determine which Aotearoa New Zealand laws they need to follow. In New Zealand, an Industrial and Provident Society is established under the Industrial and Provident Societies Act 1908. The Act regulates societies that carry on industry, business, and trade activities such as retail or land dealings for the benefit of their members. The organisations must also act and make decisions according to their written rules.
According to the Act, an Industrial and Provident Society can only register under two conditions: 1) it is a ‘bona fide’ co-operative society, meaning that its main purpose is not to make a profit for its members, 2) its primary purpose is to improve the conditions of living or promote the social well-being of members of the working classes or benefit the community. It the entity doesn’t meet one of these conditions, it should instead register as a company under the Companies Act 1993.
Industrial and Provident Society Registry
The first step to registering your industrial and provident society (IPS) is to incorporate and name your organisation. You must provide proof that your non-profit is operating as a co-operative model and check that its name is not already trademarked in New Zealand. The next step is to complete an IPS1 form and submit it to the Registrar for review.
Decision making is typically done by a committee of group members and is guided by a set of written rules. You’ll need at least seven members and a designated person to take on the role of secretary. IPS committees are required to develop and submit written rules that outline how the society will be run. They should include:
The object and name of the society
The location of its registered office
The terms of admission of members
How to hold meetings, vote, and change the registered rules
How to appoint or remove members of the management committee
Details on the committee members’ powers and remuneration
Information about transferring, investing, surrendering, or withdrawing share holdings
Rules for auditing financial statements
A provision for the common seal and registered name use
An Industrial and provident society must file an annual return, and, if considered ‘large’ under the legislation, it must provide financial statements. The statements should be audited and shared with members. You can learn more about the incorporation process in New Zealand by reading the Better Boards factsheet on Incorporated Societies in New Zealand.
What is the difference between a Co-operative Society vs Industrial and Provident Society?
Cooperative societies and industrial and provident societies use similar business models and are both corporate entities. However, each is defined differently. A cooperative society is an “autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly- owned and democratically controlled enterprise”. An IPS is usually made up of small and mid-size enterprise owners who continue to operate independently but received benefit as part of a larger entity.
What is the co-operative business model based on? How does an IPS work?
Non-profits operating as co-operative organisations such as industrial and provident societies are based on the values of self-help, self-responsibility, democracy, equality, equity, and solidarity. They are guided by what is known as the Rochdale Principles: voluntary and open membership, democratic member control, economic participation, autonomy and independence, education, training, and information, cooperation, and concern for the community.
Are Industrial and Provident Societies Co-ops?
Yes. To operate as an industrial and provident society, a non-profit must be considered a genuine co-operative organisation. A cooperative’s purpose is to serve its members and society. IPSs meet this definition. They exist for the benefit of their group members and offer benefits in the form of a service or goods to the community where they operate. Collectively, New Zealand cooperative societies vs industrial and provident societies are both referred to as co-operatives.
How to cancel registration as an Industrial and Provident Society?
The New Zealand Companies Office is responsible for maintaining the Industrial and Provident Societies Registrar. The Registrar may cancel the registration of a society at the request of the organisation, with the approval of the Governor-General. The New Zealand government may also initiate cancellation of a society’s registry if they receive proof that the registration was fraudulent, the entity engaged in illegal activities or purpose, or wilfully violated the Act. In addition, if the society has ceased to exist and is no longer active, the Registrar can cancel the registration. It also has the power to suspend the organisation’s status for up to three months if it has not been meeting its legal obligations.
Does the Financial Markets Conduct Act affect Industrial and Provident Societies?
Yes. Under the old rules of the Securities Act, IPS members who offered shares needed to prepare a registered prospectus and investment statement and sometimes qualified for exemptions. Since December 2016, exemptions no longer apply to co-operative organisations such as industrial and provident societies and those who issue shares must comply with the Financial Markets Conduct Act 2013. Learn more about these rules on the Financial Markets Authority website.
This fact sheet is intended as a simple overview. Non-profit law is incredibly complex and there are many components, allowances, restrictions, exceptions and important qualifications that are not described above. Dedicated legal advice should be sought from a legal practitioner before taking action.
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