The Basics: What are founding documents?

All successful non-profit associations have one thing in common – they are guided by a founding document.

The most important thing to know about the founding document is that it is a legal document which defines the terms in which the organisation was established.

But, in addition to outlining the philosophy of the organisation, it also guides members on the objectives of the association (what the association hopes to achieve); and regulates how the association is to be administered; how it should be run, its structure, the duties of the Managing Committee/Board of Directors/Incorporates.

Particularly important, is that banks will ask for a copy of the founding document before allowing a bank account to be opened in the name of the organisation.

It is important, therefore, to ensure that the organisation’s founding document is duly signed, and that all conditions and constraints that determine how the organisation will be administered and run (such as conditions of membership and procedures that need to be followed should the organisation be dissolved) be clearly outlined in the document.

There are of three types of founding documents that you must be aware of.

  • A Constitution: A constitution should contain all the key agreements made by members on how the association will work.
  • A Trust Deed: A Trust Deed  a formal document which outlines the terms of a trust
  • A Memorandum of Incorporation: A MOI is a document that sets out the rights, duties and responsibilities of directors, other persons involved in a company.

Constitution

A constitution is a solid foundation from which to build a solid  an organisation. In the context of community associations, constitutions are mostly found within voluntary association structures.

A constitution should contain all the key agreements made by members on how the association will work.

In legal terms it is called the “founding document” and, providing your association is properly constituted, it is binding on the executive and members of the organisation. It should tell you the following:

  • Why the association exists, its purpose and objectives; 
  • Who the organisation’s key constituency and stakeholders are, who should benefit from its work; and;
  • How the association intends to work, its broad principles and the basic structures for decision making and getting the work done and dealing with the finances and assets of the organisation.

A constitution should be clear and simple so that members understand their rights and responsibilities, leaders understand their mandate and how to be accountable and members of the public understand why the association exists and how it operates.

The constitution will usually have detailed and clear sections on:

  • The purpose of your organisation.
  • The objectives of your organisation.
  • The type of association you are: for example not-for profit voluntary association.
  • The membership of your organisation: Who may become a member and the duties and rights of members. How you join and how members can resign or be expelled. 
  • The structures and main procedures of decision-making in your organisation: 
  • Annual general meetings and other meetings,
  • Elections and appointments for the different structures of the association and their roles and responsibilities.
  • How the finances and assets of the association are managed.

A constitution should not be changed throughout the life of an organisation. It is a major decision to change a constitution and the existing constitution should say when and how it may be done. Any changes should be publicised to members and if you have registered your organisation, you will have to inform the bodies with whom you registered, such as the Department of Social Development and your association’s bank.

Constitutions should not be too detailed. They should record only those agreements that will remain true throughout the life of the association

A great example is South Africa’s Constitution. It pronouncing on almost every aspect of life in South Africa but legislation crafted by parliament dives into the detail.

When you start an organisation, the process of developing a constitution helps members to develop clear agreements about the purpose of the association and how it will work.

When members have developed the constitution, they can use it to register as a non-profit organisation. Registration gives the association rights, duties and privileges in relation to accountability, fundraising and tax. It also helps make sure everyone understands the responsibilities and obligations that go with being a non-profit organisation.

When the association is up and running, the constitution is used by people inside and outside the association who want to understand its purpose, how it is governed and their responsibilities and rights.When there is tension or conflict in the organisation, the constitution guides members about how it should be dealt with, including how the entity is closed down.

What is a Memorandum of Incorporation?  

A Memorandum of Incorporation or MOI as it is commonly known, is a document that sets out the rights, duties and responsibilities of directors, and if necessary, shareholders, and other persons involved in a company. Every company registered in South Africa needs to have an MOI, whether they are a for profit or not for profit company.

A company’s MOI is the sole governing document of the company. It is binding between the shareholders themselves (if there are more than one), and between the company and each director or prescribed officer.

This is governed by the Companies Act.

An MOI can be changed, but it must be filed with the Companies and Intellectual Property Commission (CIPC) and any other organisation or entity that requires the MOI as part of their requirements, such as the Department of Social Development and your organisation’s banks. This costs time and money, so MOIs should be drafted carefully to make sure they do not have to be changed in the future.

A default memorandum (or a “short form memorandum”) for non-profit companies without members is often based on the CIPC-prescribed, standard form CoR15.1c. Sometimes the actual prescribed form is used, but this is not compulsory. 

The MOI Long Standard Form for Non-Profit Companies without members is known as CoR15.1D  and the MOI Long Standard Form for Non-Profit Companies with Members is known as CoR15.1E.


What is a Trust Deed?

A Trust Deed is the name given to a standard trust registration document in South Africa.

A trust is a legal entity which is created to hold assets for the benefit of certain persons or entities.

A Trust Deed  a formal document which outlines the terms of a trust and gives birth to the trust.

In other words, the Trust Deed, much like a constitution, must clearly state what the object of the trust is, be clear on who its beneficiaries are and it must guide the trustees in executing their duties.

The Trust Property Control Act No. 57 of 1988 (TPCA) forms the framework in which trusts operate. All decisions and actions taken by the trustees must be made with reference to the trust deed and the TPCA.

 For more on trusts click here

Source: The NPO Lawyer