Ask NGOlaw

Dear ngoLAW can my brother-in-law/mother/husband serve on the same non-profit board as me?  NGOs quite often begin as family affairs, in which some family members call on other (family) they know and trust, get some good stuff done, and then come to us to set up a legal structure to house, manage and fundraise for the work. Sustainable and credible NGOs cannot continue to be dominated by one family, however. Not only do they face the risks that family businesses do (when everything is going right it works well, but when things go south, family fallouts can be catastrophic for operations) but there is also a major issue with credibility with donors: donors will suspect that a family-led NGO is set up to feather the nest of the family members, and will be reluctant to donate. Then there are the legal restrictions: For tax exempt status, the Income Tax Act requires that a board has at least three people on it who are not “connected persons”.“Connected” includes relatives by marriage as well as blood (and adoption) and you are ‘connected’ if there are three or fewer people between you and another person, thus your adopted child’s wife’s brother is ‘connected’ to you. The Income Tax Act does not prohibit any family members from serving on a board together, but you have to make sure that there are at least three of you who are not related to any of the others. Therefore, if there are three of you are on a board and one resigns and the organisation wants to replace them with a family member of yours on the board, you can do this, but you would need to add another unrelated board member, to keep satisfying the SARS requirement. In case you thought that you could then have any number of family members on the board, as long as there are also at least three who are not related to any of you, we now turn to the requirements of the NPO Directorate: The NPO Directorate will not accept more than a total of two board members who are related to each other. So, in summary: SARS requires that at least three of the board are NOT related to each other; NPO requires that no more than two are related to one another; and Donors don’t like boards to be dominated by a family. Our advice is that if you have good reason to include related people on a board, make sure that you don’t go over the maximum of two, and that the majority of the board are not related to one another.