By Daniela Ellerbeck, Legal Advisor for FOR SA

This is the second article in Freedom of Religion South Africa’s (FOR SA’s) series regarding the legal, corporate governance and financial management obligations of churches and religious organisations.[1]

As discussed in our first article, corporate governance is the system of rules, practices, policies and procedures by which a company (or in this case, a church or religious organisation) is directed and controlled. The aim of corporate governance is to increase the accountability of an organisation in an attempt to avoid big (ethical, legal, financial, etc.) problems or risks, and ensure the long-term success of the organisation.

We previously gave a brief overview of the different types of legal entities that a church can choose from, namely a voluntary association (VA), a living trust, or a non-profit company (NPC). In this article we look, in greater detail, at starting up a VA.

Starting up a Voluntary Association (VA)

VAs, which are particularly suitable to churches that are member-driven because of it being inherently democratic, are the easiest to establish.

In SA law, a VA is established when three (3) or more people (“members”) agree to do something primarily other than to make a profit.[2] This agreement is usually documented in the form of a signed Constitution, which determines the powers of those who govern the organisation.[3]

Although it is possible to establish a VA without writing down the agreement in a constitution, it is never advisable to create any entity by verbal agreement only. This will not only make it impossible to register for NPO and tax-exempt status, but also make the daily running of the VA confusing and uncertain.  Possibly the most important reason though to have a written constitution, is because there are certain clauses that one can include that establishes the VA as its own entity, separate from the individuals creating it.  This means that these members are protected from being held personally liable for paying debts, and fulfilling other obligations the VA may have.

What Should a VA’s Constitution Contain?

The following are the essential clauses that should appear in the VA’s constitution:

  1. Establishment of the VA as its own legal entity, separate from its members.
  2. A clear statement of the VA’s primary objectives (remember this cannot be to run a business to make money, otherwise it will not be a VA, but a partnership).
  3. Describe what the powers of the VA are.
  4. Membership – clarify how members are admitted to the VA, and how they leave the VA.
  5. Meetings – describe how and when members meet.
  6. Governance – explain how a committee (e.g. a chairperson, secretary, treasurer etc.) governing the VA, is elected by the members and how this committee is to function and govern the VA (i.e. what the committee’s powers are).
  7. Finances – explain financial protocols and guidelines (these can be very basic).
  8. Changing the constitution – explain what the procedure is for the constitution to be changed/amended, e.g. what percentage of members should agree to the amendment.
  9. Dissolution – explain how the VA is to be dissolved and/or closed down.

Establishing the VA

The VA can be established at the initial meeting of its three (3) or more members where they sign the written constitution.  After the VA has been established, it can do everything that any other legal entity can do, such as opening a bank account, entering into contracts, applying for funding, employing staff etc.

Governing the VA

The following are the crucial practices and components of good administration and governance for a VA:

  1. Keeping a register of the VA’s members – this register must continually be updated to accurately reflect the VA’s membership.
  2. Deciding who can vote at members’ meetings.
  3. Opening and maintaining a separate bank account in the name of the VA (as opposed to using its members’ private bank accounts).
  4. Keeping and maintaining proper financial records, including the drawing up of annual financial statements etc.
  5. Holding annual general meetings (AGMs), at which the VA’s financial statements are reviewed and the members elect the next year’s committee to run the VA.
  6. Having regular committee meetings as needed.
  7. Keeping accurate minutes of all these committee meetings.

It is crucial that we understand that good corporate governance is required not only by law, but that it is essentially a Biblical principle and expected from us by God: The Bible commands us to conduct ourselves in a manner that is worthy of the Gospel (Phil. 1:27), including having respect for the authorities, obeying the laws of the land, being ethical, transparent and accountable, and also being good stewards of the resources (both people and financial/material) which have been entrusted to us.

References

Nicole Copley, NGO Matters: A practical legal guide to starting up, Juta (1st edition, 2017)

[1] DISCLAIMER: The tips and/or pointers in this article are general in nature and are not intended to be considered as legal advice.  It remains necessary to obtain the specific legal advice to meet the needs and objectives of your particular church and/or religious organisation.

[2] This is the difference between a VA and a partnership.  This does not mean that if your church is a VA it may not receive or make money, but the profit-making business component (i.e. coffee shop, bookstore etc.) may not be the main reason for its existence.  If it is, then the entity is no longer a VA, but a partnership.

[3] Note that this is in addition to the already established principles of common law. If a party exceeds his/her agreed powers, an interested party can apply for relief to the High Court.

Daniela is a duly qualified Attorney of the High Court of South Africa. She obtained a BCom LLB degree from Rhodes University. Daniela first worked for Médecins sans Frontières before completing her articles of clerkship at G van Zyl Attorneys, where she stayed on after being admitted as an attorney and practised, specialising in litigation. Daniela has loved Jesus since she was young and is a member of a local church in Cape Town where she is actively involved.

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