Legal Framework for Establishment of Not-for-Profit Organisations

Corporate entities and not-for-profit organisations in Nigeria and beyond have continued to support and engage in charitable causes, which have met the yearnings and aspirations of individuals, groups and the society at large. Many corporate entities have adopted various corporate social responsibility policies in an attempt to give back to the society in which they operate. Activities of foundations established by corporate organisations have been beneficial to the public in a variety of ways ranging from tackling abuse of various forms to developmental issues, healthcare, environmental and socio-cultural challenges.

This Op Ed seeks to provide a general overview on the legal framework for the establishment of corporate foundations in Nigeria. It also highlights governance structures for corporate foundations, dissolution and corporate social responsibility reporting.

The legal framework for non-governmental organizations in Nigeria stems from the provision of the Constitution of the Federal Republic of Nigeria 1999 which recognizes the right to peaceful assembly and association. The Companies and Allied Matters Act, Cap C20, Laws of the Federal Republic of Nigeria 2004 (“CAMA”), is the principal legislation that regulates corporate entities registered in Nigeria and the Corporate Affairs Commission (the “Commission” or “CAC”) is the supervisory regulatory body for registered corporate entities.

Under the Company and Allied Matters Act, the commonly used structures for incorporating not-for-profit organisations are companies limited by guarantee and incorporated trustees and the procedures for registration are provided for under CAMA.

The Part C of CAMA provides for registration of incorporated trustees. Section 590(1) of CAMA provides thus:

      “where one or more trustees are appointed by any community of persons bound   together by customs, religion, kinship or nationality or by anybody or association of persons established for any religious, educational, literary, scientific, social, development, cultural, sporting or charitable purpose, he or they may if so authorized by the community, body or association…apply to the Commission in the manner hereafter provided for registration…as a corporate body.”

Once the association or organisation is registered by the Commission as an incorporated trustee, the trustees jointly become a body corporate with perpetual succession and have the power to sue and be sued. It is pertinent to state that the registration of an incorporated trustee confers the corporate status on the trustees rather than on the organisation itself unlike a company limited by guarantee which confers the status of a corporate body on the company itself. The significance of this fact is that, where an organisation has incorporated trustees registered under CAMA, the trustees on behalf of the organisation are empowered to contract in the same form and manner as an individual. This includes the power to hold, acquire and transfer any property on behalf of the association.

A company limited by guarantee in its own right, has a corporate legal personality to do all lawful acts in its own name. The company may also seek to include the right to appoint trustees to the corporate foundation and to maintain this right throughout its existence under the governing documents of the foundation. In principle this is most desirable to enable the company exercise and maintain control in order to achieve the purpose for which the foundation was incorporated. The company may be well-placed to identify individuals who would make positive contributions to the foundation. However, care must be exercised to ensure that those appointed are best suited to carry out the responsibilities of trusteeship.

The members of the general public are now more informed of business practices around the globe and of their negative or positive impact. It is therefore important that companies should get more involved in the communities in which they operate. Corporate foundation could serve as a structure and focus for corporate giving, an in-road into engaging the informal sector and as well as the opportunity to disseminate and apply expertise in combating challenging social issues. Establishing a corporate foundation can also serve as a veritable tool by companies for carrying out their corporate social responsibilities which could lead to reputational benefits for a company and the society at large.