Ten Things to Prevent Constitutional Drift Within NPOs

governance npos constitution
Tuesday, 23 September, 2014 - 10:35

This article encourages and shares tools with NPOs on how to understand, compile and utilise a constitution 

  1. Defining the constitution 

South African nonprofit organisations (NPOs) can essentially be established through one of three structures, being; voluntary associations, nonprofit trusts and nonprofit companies. Each of these NPOs have different founding documents, namely: constitution for the voluntary association, trust deed for the nonprofit trust and memorandum of incorporation for the nonprofit company. The definition of ‘constitution’ in the Nonprofit Organisations Act includes a trust deed and memorandum of incorporation.   

  1. Binding nature of constitution   

The constitution of a voluntary association, according to the courts, is founded on a contractual basis. It has the same binding power as, for example, a lease agreement. The constitution of a voluntary association, together with all its rules or regulations, is a legal contract entered into between its members. This legal contract: 

  • Determines the nature and scope of the NPO's activities, and
  • Regulates the rights of members. 

Non-compliance with the constitution is breach of contract. Board members may be held liable in their personal capacity if they act beyond the scope and powers laid down in the constitution. 

  1. Governing in-line with constitution    

The constitution should reflect how the NPO is governed. NPOs are basically governed with or without membership. Membership-based NPOs have a board together with general members. The general members normally issue resolutions that must be implemented by the board and will also appoint and remove board members. Some NPOs only have a board with no general members.
 
Whatever the structure, the board takes full responsibility for the governance of the NPO and will themselves often appoint further board members but this can lead to the formation of cliques if it is not constitutionally applied. It is wise to ensure that solid reasons are clearly stated in the constitution for revoking membership or removal of office bearers. A right to appeal process should be available and respected.
 
The governance structure of a NPO is a critical aspect and should be accurately dealt with in the constitution. 

  1. Using the Constitution   

The constitution stipulates the meeting procedures and should be available at meetings of the board and members. The meeting procedures must be in-line with the requirements listed in the constitution. If not, such decisions can be void. During 2009 the Supreme Court of Appeal found that a voluntary association expelled a member unlawfully because the internal committee that expelled the member was not authorised or empowered to do so.
 
For instance, the procedure and format for hosting an Annual General Meeting should be clearly outlined in the constitution and this must be applied each year. 

  1. Reviewing the Constitution   

The NPO should review its constitution on a regular basis. This will help to ensure that:

  • It is consistent with relevant developments;
  • It mirrors the accuracy of why the NPO exists, its purpose, aims and objectives. This can change over time and come under scrutiny as new people join and want to broaden the scope.  Such situations occur after strategic planning sessions when new directions are agreed upon but may not align with the constitution;
  • The name of the NPO may have to change to reflect current activities. Names and acronyms can become offensive or misleading to other people, be sensitive;
  • Outdated legal requirements do not remain in the constitution. For example, some constitutions still have outdated tax conditions that are no longer required in terms of the Income Tax Act. These conditions can limit the activities of the NPO;
  • Organisational practices line up with the constitution. 
  1. Leading and sustaining the NPO   

Election of office bearers can become slack over a period of time – friends co-opt each other, and the NPO may become cliquey. Follow the formal process; do not spin a bottle and say ‘you are it’! Terms of office should create stability for say three to four years.
 
The composition of a board will depend on the nature of the NPO but as a minimum requirement there should be a Chairperson, Treasurer and Secretary, often referred to as the executive and most likely responsible persons for fiduciary duties. Keep in mind that any person who is in a fiduciary capacity responsible for the management or control of the income and assets of any approved public benefit organisation and who intentionally fails to comply with any provision of section 30 of the Income Tax Act or its Constitution, to the extent that it relates to that section, shall be guilty of an offence. 

  1. Simplifying the constitution 

In some instances, a constitution runs into 50 pages or more, which is cumbersome.  Simplify things by writing statements and then refer to other documents. The same can apply to rules of procedures such as standing rules or bylaws. Also refer to Professional Codes of Ethics or Risk management procedures in the unlikelihood of financial distress or insolvency. 

  1. Meetings, quorums, decision-taking 

The minimum number of people to attend a meeting, a quorum, should be set at a reasonable level and based on the largest number of members or board representatives that can be depended upon to attend the average meeting. Decision-taking will be delayed if an unrealistic quorum is required. If your NPO is experiencing similar challenges amend the constitution in the interest of advancement.   

  1. Growing with the constitution 

A constitution is a central part of operations - it will outline mandates, membership rights, transparency, accountability and democratic principles. NPOs are dynamic and enter many phases from the birth of a great idea by the founders, onto youth-hood, through to adult-hood, then reaching maturity (sustainability) or possibly decline.  The different phases of growth may require reflection of the founding documents. 

  1. Spicing it up  

Although the constitution is a legal document, there is no rule preventing the constitution from looking interesting and reflecting the character of the NPOs. Just insert a note that the cover page can be changed without having to change the constitution. Design a nice cover page for the constitution – make it psychedelic!
 
- Ann Bown is a fundraising and sustainability consultant to nonprofit organisations,  Tel: 011 795 3271 or 083 271 0572, website: www.charisma.za.org; Ricardo Wyngaard, Ricardo Wyngaard Attorneys, Tel: 021 975 8808, website: www.nonprofitlawyer.co.za

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