The times are uncertain, the going is tough and financial realities are biting. The non-profit sector is hard hit but undaunted and we at NGOLAW feel lucky to serve and assist so many who remain positive and who are taking action, day by day, to improve lives, increase opportunity, protect and serve, expose truth and build a better society.
This newsletter contains one of our ‘agony aunt’ responses, in which we answer a FAQ. To submit your own questions, visit our website https://ngolawsa.co.za/, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided.
We end with some quick governance definitions, and connections to articles and resources you may find useful.
A Luta Continua!
Nicole, Lize, Bandile, Janice, Lisa and Dorothy
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.
Governance concepts: some quick definitions-types of board members
We find that our clients are often confused by these terms- hopefully this brings clarity:
Those (on the board or not) who have management authority and responsibilities. The Managing Director, “Executive Director”, Chief Executive Officer, CFO, COO, etc are all executives.
Those who serve on the board or any other structure of the organisation (advisory council, committees) who do not have any managerial responsibility for day to day running of the organisation
A non-executive board member who is not remunerated by the organisation for any services provided to the organisation (other than board fees, if applicable) and who has no personal connection to or financial interest in the organisation.(For contemplation: King IV states that once a board member has served for nine years, they are no longer truly independent anymore, in that they will have got too comfortable and familiar to be able to wield the sharp edge of independent perspective required)
Those who are on the board automatically because of some other position they hold, either in the organisation or in another organisation.
Recommended reading: https://www.marcuscoetzee.co.za/constructing-a-philosophy-vision-and-mission-for-your-organization/ Marcus’ advice on why and how every organisation needs to be clear on (and go public with) its ‘why’ and ‘how’ will inspire and equip you to do this exciting and necessary work.
Joan Garry’s Leadership Lab has a min-series on “how to build a thriving nonprofit without the typical burnout” https://nonprofitleadershiplab.com/
The Averile Ryder NPO Salary Survey has a new report out, and is looking for participants in their next survey http://www.rewardspecialist.co.za/
Please share this newsletter freely (and subscribe to it, if it has been forwarded to you), let us know what you think of it and send us any other ‘ask NGOLAW’ questions you have. (To unsubscribe, click the button at the end).
Is it too late to wish you all Happy Spring? We hope it sprung happily for you!