The International Journal
of Not-for-Profit Law
Volume 11, Issue 2, February 2009
Benedict C. Iheme *
Since the introduction of the Government of the Republic of Namibia Civic Organizations Partnership Policy (GRN-COPP)1 in 2005, the vogue is to refer to civil society organizations in Namibia simply as “civic organizations.” The GRN-COPP uses that term to encompass all organizations “found at all levels of civil society between the individual or family and the state,” including non-governmental organizations (NGOs), community-based organizations (CBOs), clubs, and groups such as foundations, women’s groups, trade unions, chambers of commerce, and faith-based organizations.
The GRN-COPP goes on to identify the following as the common characteristics of civic organizations (COs):
– They are non-profit distributing.
– They operate in the public interest or in the interest of their members and/or sponsors.
– They adhere to democratic structures.
– Involvement is voluntary.
– They feature high levels of participation.
– They emphasize empowerment of beneficiaries.
– They operate independently (both financially and administratively) from the state and donors.2
Under the current law, the legal status of a CO may take one of the following forms:
– Voluntary Association – regulated under the common law;
– Trust – regulated under the Trust Moneys Protection Act 1934;
– Section 21 Company (or “company not for gain”) – regulated under the Companies Act 2004;
– Incorporation under special statutes, such as Cooperatives Act (for the registration and incorporation of cooperative societies) and Trade Unions Act (for the registration and incorporation of trade unions).3
Accordingly, individuals who wish to establish a CO have the option of giving it a legal status in any of the first three forms. The group may only establish a CO in the fourth form if a special statute exists for the incorporation of the particular type of CO (e.g., a cooperative society).
This article seeks to examine the legal and regulatory framework for COs in Namibia in the light of the provisions of relevant international law instruments and other principles making up the international best practices that have been developed over time. The provisions, or contents, of the Namibian laws relating to civic organizations as well as the system of administration of those laws shall be examined. This approach is taken with a view to ascertaining not only the letter of the laws but also the practical effect of the laws on the operation of civic organizations. Although attention will be placed primarily on the laws under which civic organizations may be established, other laws that affect civic organizations as such will also be examined.
The article begins with an overview of the existing legal and regulatory framework for civic organizations. The overview is followed by a restatement of the international best practices, and an analysis of the existing framework in the light of the international best practices. Existing statutory provisions for direct and indirect fiscal support for civic organizations are then noted and assessed. Finally, recommendations for the improvement of the framework are made.
2. OVERVIEW OF THE LEGAL AND REGULATORY FRAMEWORK FOR CIVIC ORGANIZATIONS
As already noted, the legal status of a CO may be in one of the following forms: voluntary association, trust, or section 21 company (“company not for gain”). Each of these three forms will now be examined. While there are COs – notably, cooperative societies and trade unions – that are required to be incorporated under special statutes, the incorporation and regulation of COs under special statutes will not be examined as it constitutes a special or exceptional category.
2.1 Voluntary Associations
Under the rules of common law, all that it takes to establish a voluntary association is for a few people to come together to agree orally or in writing to set up the association to pursue any lawful object other than making a profit. Although no one can even estimate the number of these organizations operating in the country, it is generally believed that by far the largest number of civic organizations in Namibia belong to this category. These associations are essentially membership-based. The organization does not have a legal personality of its own. Subject to a few common law rules, it is very much up to the members to make the provisions to guide the conduct of the affairs of the association. Among the common law rules are a duty on the part of the members to act in good faith towards each other, and a duty – in case of possible conflict between the interest of a member and that of the association – to ensure that the interest of the association is protected.4 Due to the absence of adequate legally prescribed minimum standards for the governance of these organizations, third parties who consider working in collaboration with any of these associations may have reason to worry about the transparency and accountability of the conduct of the affairs of the associations. Yet the existence of these associations, as structured, finds an important legal justification in the need to protect the fundamental right to freedom of association.
The established practice is that trusts are regulated by the Trust Moneys Protection Act 1934. Under the Act, every trustee appointed by a written instrument is required to lodge the instrument, or any written variations of it, with the Master of the High Court. Before the trustee begins to administer the trust, he shall furnish to the Master such security for the due and faithful administration of the trust money as the Master finds satisfactory unless the trust instrument directs the Master to dispense with such security and the Master is satisfied that such security should be dispensed with or the court directs otherwise. Section 1 of the Act defines “trustee” as “a person appointed by written instrument operating either inter vivos or by way of testamentary disposition whereby moneys are settled upon him to be administered by him for the benefit, whether in whole or in part, of any other person.” A far-reaching implication of this clear definition will be discussed later in this article.
2.2.1 Lodgment/registration procedure: The procedure is as follows. When a trust is set up, the trustees approach the office of the Master with the trust deed. The office of the Master decides whether the trustees should furnish security. To reach this decision, the Master is expected to consider such facts as the names and ages of the beneficiaries, their relationship with the trustees, the written views of the beneficiaries as to whether the trustees should be exempted from furnishing security, acceptance of trust by trustees, confirmation that all the trustees are majors, the profession or occupation of the trustees, and any previous experience that a trustee has had in the administration of trusts.
Upon deciding that the trustees should not furnish security, or upon being satisfied that the trustees have furnished any security he requests from them, the Master issues a certificate to the trustees. The certificate, which evidences the “registration” or lodgment of the trust deed with the Master and the authority of the trustees to manage the trust money, states either that the Master has not called upon the trustees to furnish security or that the trustees have furnished security to the satisfaction of the Master, in terms of section 3 (1) of the Act. The official registration fee is N$20.00 in “uncalled Namibian revenue stamps.” Professional fees would usually be paid to a lawyer/notary public. The trustees are expected to administer the trust in accordance with the terms of the trust deed, and the provisions of the Act.
It is important to emphasize that the effect of the “registration” by the Master is not to confer legal personality on the trust. Nothing in the Act changes the common law position that a trust is not a legal personality but that the trust property is held in the name of the trustees for the benefit of the beneficiaries. A trust is therefore only registered and not incorporated. (Conversely, as the registration of a section 21 company results in the creation of the company as a legal person, incorporation takes place.)
2.2.2 The Master’s Powers and Measures to Protect Trust Moneys: The express purpose of the Act is to “provide for the protection of trust moneys.” Thus, section 4 of the Act gives the Master wide powers to require a trustee at any time to provide a satisfactory account of the administration of the trust money and accrued income, and the power to require a trustee to deliver to him any books or documents relating to the trust money, to answer any inquiry relating to such money, and the power to appoint any fit and proper person to conduct an independent investigation into the administration of the trust money.
By way of an established practice, the Master requires the trustees to appoint auditors who shall be auditing the trust’s accounts annually, and submit to the Master the name and address of the auditor. The auditor is not required to submit the audited accounts of the trust to the Master annually, but only when the Master requests the accounts – and such requests are typically made when a beneficiary complains to the Master about the management of the trust funds. An auditor is required to give an undertaking to the Master to notify the Master upon the occurrence of any of the following events:
– if there is any substantial addition to the capital of the trust and the value thereof;
– if the trust is not be administered in accordance with the trust deed or the Act;
– if he finds out that the funds of the trust are not being administered in line with the terms of the trust or the provisions of the Act; and
– if he ceases to act in that capacity, he must provide the reason why, and the name of the new auditor, if he is aware.
If an auditor resigns, he is required to report to the Master on the state of affairs of the trust before he vacates office.
2.2.3 Kinds of Trusts: In practice, three kinds of trusts are lodged with the office of the Master and regulated under the Act – Family trusts (under which the beneficiaries, and often some or all the trustees, are members of a family), Business or Investment trusts (under which a person gives funds to trustees for the purpose of more specialized management/investment on behalf of specified beneficiaries), and the Charitable organizations’ trusts. The total number of trusts that have so far been registered or are currently operational is not available. In 1990, 36 trusts were registered. The figures for the following years are as follows: 2000 (442), 2001 (387), 2002 (484), 2003 (451), 2004 (423), 2005 (437), and 2006 (472).5
2.2.4 The Keeping and Analyzing of Records: The records in the office of the Master are kept manually; they are not computerized. As a result, it is often arduous to retrieve documents, especially from the older files. Again, some documents in the older files are becoming fragile and could well fall apart. In the absence of computerization, it is also difficult to disaggregate and analyze the existing data. Probably due to short staffing or inadequate staff training, the documents received in the office (especially audited accounts) are simply accepted and placed in files without being critically examined, as the duty of ensuring the protection of trust moneys would seem to require.
2.2.5 Public access to records: Interested members of the public are free to go to the office of the Master to confirm the existence of a trust or to examine the deed, as these are seen as public documents. No search fee is charged, but the person conducting a search will have to pay for photocopies, if needed.
2.3 Section 21 Companies (Companies not for gain)
This kind of company may be incorporated by a group of individuals who come together under an association with a lawful main object which must not be the making or division of profit. The company must be registered by the Companies Registration Office, pursuant to the Companies Act 2004.6 It is incorporated as a company limited by guarantee and must have at least seven members and two directors. A foreigner may be a member or director. There are no available figures on the number of section 21 companies in existence in Namibia, but it is believed that there are not many of them. Most of the formal civic organizations are registered as trusts, a far easier and cheaper window for registration.
2.3.1 Procedure: The registration procedure is that the promoters of the company begin by reserving the proposed name and stating the main object of the company. Once the name is approved,7 the remaining incorporation documents are prepared and filed. The documents are the memorandum and articles of association and the statutory forms.8 Nominal official fees are paid for filing these registration documents; promoters of a section 21 company would usually spend much more in paying professional fee to a lawyer/notary public. Hitherto, from the time an application including the complete set of documents is filed, it takes about fourteen days to register a section 21 company.
2.3.2 Effects of Registration: Upon incorporation, the company acquires legal personality. It is obliged to file annual returns (including audited accounts). A section 21 company would usually be able to enjoy tax exemption under section 16 of the Income Tax Act 1981.
2.3.3 Ongoing Changes in Administration: A system of electronic registration is currently being tested, and when it is fully operational it will take five days to complete the registration process. As part of an ongoing automation process in the Companies Registration Office, an electronic database has been put in place and electronic versions of the existing documents (i.e., the records of existing companies kept in hard copies) are being prepared and entered in the database. Unfortunately, due to inadequate manpower and funding, this process is proceeding very slowly and may take a long time to complete.
3. INTERNATIONAL BEST PRACTICES
Prominent among the relevant international law instruments are the Universal Declaration of Human Rights of 1948 (“Universal Declaration”), the International Covenant on Civil and Political Rights (ICCPR), the European Convention for the Protection of Human Rights and Fundamental Freedoms (“European Convention”), and the African Charter on Human and Peoples’ Rights (“African Charter”).9 The international best practices, largely shaped by these provisions, seek to maintain a balance between, on the one hand, ensuring for civic organizations an enabling environment in which to operate, and, on the other hand, ensuring that (for their own credibility and for the protection of various stakeholders) the organizations operate in line with the principles of accountability.10 It is useful, at this point, to restate and – where necessary – briefly explain the best practices on laws guiding civic organizations.11
3.1 Establishment of Civic Organizations and the Protection of Fundamental Freedoms
In order to protect the fundamental freedoms of expression, association, and peaceful assembly, civic organizations should be allowed to freely come into existence. This means that they should not be required to register with a state agency or obtain legal personality in order to operate lawfully. However, the state may, by law, prescribe that certain privileges (such as the access to tax preferences and state funding or contracts) may be restricted to formal (i.e., registered) civic organizations.
Explanation: This principles flow from the clear provisions of such international law instruments as the International Covenant on Civic and Political Rights (ICCPR) and the decisions of international courts. Thus, in the case of Sidiropoulos and Others v. Greece,12 where the Greek authorities refused to allow the establishment of a Macedonian cultural association, the European Court of Human Rights held that “the right to form an association is an inherent part” of the right to freedom of association. The Court went on to state as follows: that “citizens should be able to form a legal entity in order to act collectively in a field of mutual interest is one of the most important aspects of the right to freedom of association, without which the right would be deprived of any meaning.”
The instruments provide that the freedom of association can be restricted only in a few carefully defined situations: i) in the interest of national security or public safety, ii) for the prevention of disorder or crime, iii) for the protection of public health or morals, and iv) for the protection of the rights and freedoms of others. The Court in the Sidiropoulos case emphasized that exceptions must be “construed strictly,” that “clear and compelling reasons” would be needed to justify restrictions, that any restrictions must be “proportional to the legitimate aim pursued,” and that there must be “relevant and sufficient” evidence for “decisions based on an acceptable assessment of the relevant facts” before a restriction can be deemed justifiable.
Laws governing civic organizations should be written and administered so that it is relatively quick, easy, and inexpensive for all persons (including natural and legal persons) to register or incorporate a civic organization. Such laws may require that certain formal acts must occur to create a formal civic organization.
3.1.3 Registration/Incorporation Agency:
The agency of the state that is vested with the responsibility for giving legal existence to civic organizations should be adequately staffed with competent professionals. It should be even-handed in fulfilling its role, and the registration/ incorporation of a civic organization should involve relatively little bureaucratic judgment or discretion as to the permitted purposes of the organization and the means by which it intends to pursue those purposes. Its decision not to register a civic organization should be appealable to an independent court.
3.1.4 Permitted Purposes and Activities:
- A civic organization should be permitted to engage in activities for the benefit of its members (mutual benefit) or for the benefit of the public at large (public benefit).
- A civic organization should have the right to speak freely about all matters of public significance, including debate about and criticism of existing or proposed state policies and actions.
- Any civic organization engaging in an activity (e.g., health care, education, social services to persons living with HIV/AIDS, etc.) that is subject to licensing or regulation by a stage organ should be subject to the same generally applicable licensing or regulatory requirements and procedures that apply to activities of individuals, business organizations, or public organs.
3.1.5 Termination, Dissolution and Liquidation:
The highest governing body of a civic organization should be permitted to voluntarily terminate its activities, dissolve it as a legal person, and liquidate its assets pursuant to the decision of a court and upon application by the organization. The registration or supervisory organ or court should be allowed to involuntarily terminate the organization’s existence only for the most flagrant of violations, and then only after a requested correction of a legal or ethical violation has not occurred. To ensure that fundamental rights are not violated, all involuntary terminations should be subject to judicial supervision.
3.2 Integrity and Good Governance
3.2.1 Mandatory Provisions for Governing Documents:
The laws governing CSOs should require that certain minimum provisions necessary to the operation and governance of the organization be stated in the governing documents of a civic organization. The requirements may be different for membership and non-membership organizations, with the latter possibly being required to have additional governing bodies (e.g., supervisory boards, audit commissions, etc.) because they do not have members.
3.2.2 Optional Provisions for Governing Documents:
Laws governing civic organizations should give an organization (through its highest governing body) broad discretion to set and change the governance structure and operations of the organization within the limits provided by the law.
3.2.3 Internal Reporting and Supervision: Duties and Liabilities of Governing Bodies and Their Members:
The highest governing body of a civic organization (or its delegate) should be required by law to receive and approve reports on the finances and operations of the organization. The law should provide that the organization’s officers and board members have a duty to exercise loyalty to the organization, to execute their responsibilities to the organization with care and diligence, and to avoid any actual or potential conflict between their personal or business interests and the interests of the organization.
3.2.4 Prohibition on the Distribution of Profits and Other Private Benefits:
- Laws governing civic organizations should provide that no earnings or profits of an organization may be distributed as such to founders, members, officers, board members, or employees.
- Laws governing civic organizations should provide that no organization should be permitted to distribute assets to its founders, members, officers, board members, or employees upon the dissolution of the organization.
- Laws governing civic organizations should provide that the assets, earnings, and profits of an organization may not be used to provide special personal benefits, directly or indirectly, (e.g., scholarships for relatives) to any founders, members, officers, board members, employees, or donors connected with the organization.
3.2.5 Methods and Subjects of Voluntary Self-Regulation:
Although basic standards of conduct and requirements for governance of all civic organizations should be enacted as published laws, organizations should be permitted and encouraged to set higher standards of conduct and performance through self-regulation and codes of ethics.
3.2.6 Umbrella Organizations:
The laws should permit and the society should encourage the formation of umbrella organizations to adopt and enforce principles of voluntary self-regulation.
3.3 Financial Sustainability
3.3.1 Fundraising Activities – General Rule:
Civic organizations should be permitted to engage in all legally acceptable and culturally appropriate fundraising activities, including door-to-door, telephone, direct mail, television, etc., campaigns, lotteries, raffles, and other fundraising events. Lotteries, charity balls, auctions, and other occasional activities conducted primarily to raise funds for an organization are a form of fundraising and should not be regarded as economic or commercial activities.
3.3.2 Fundraising Activities – Limitations, Standards, and Remedies:
Fundraising through a public solicitation method should require registration with a state organ or an independent supervisory organ, which will issue permits, badges, and other identification materials to the fund raisers, set standards for public solicitation activities, provide information to the public, and sanction inappropriate conduct.
3.3.3 Economic Activities:
A civic organization should be permitted to engage in lawful economic, business, or commercial activities, provided that (i) the organization is established and operated principally for the purpose of conducting appropriate not-for-profit activities (e.g., culture, education, health, etc.), and (ii) that no profits or earnings are distributed as such to founders, members, officers, board members, or employees. The organization may engage in such activities provided that the appropriate requirements for licensing and permits are met.
3.3.4 Income or Profits Tax Exemption for CSOs:
Every civic organization, whether established for mutual benefit or for public benefit, and whether a membership or non-membership organization, should be exempt from income taxation on moneys or other items of value received from donors or governmental organs (by grant or contract) and regular membership dues, if any. A variety of approaches may be taken with respect to exemption for interest, dividends, or capital gains earned on assets or the sale of assets, with greater preferences on such items generally being made available to public benefit organizations.
3.3.5 Income Tax Benefits for Donations:
To encourage philanthropy and good citizenship, donations of individuals and business entities to public benefit organizations should be entitled to reasonably generous income tax benefits (such as deductions or credits).
3.3.6 Taxation of Economic Activities:
Civic organizations should be allowed to engage in economic activities as long as those activities do not constitute the principal purpose or activity of the organization. Any net profit earned by the organization from the active conduct of a trade or business could be –
- exempted from income taxation,
- subjected to income taxation,
- subjected to income taxation only if the trade or business is not related to and in furtherance of the not-for-profit purposes of the organization, or
- subjected to income taxation under a mechanical test that allows a modest amount of profits from economic activities to escape taxation but imposes tax on amounts in excess of the limit.
3.3.7 VAT, other taxes, and customs duties:
Public benefit CSOs and their activities should be given preferential treatment under a value added tax (VAT), other taxes (e.g., property taxes), and customs duties provided that appropriate limitations are in place to guard against fraud and abuse.
3.3.8 Support for Endowments:
The laws should contain provisions that support the formation and maintenance of endowments. These include special tax incentives for donations to form endowments, prudent investment policies, etc.
3.3.9 Foreign Funding:
A civic organization that is properly registered or incorporated should generally be allowed to receive cash or in-kind donations or transfers from aid agencies of another country, a multilateral agency, or an institutional or individual donor located in another country, as long as all generally applicable foreign exchange and customs laws are satisfied.
3.3.10 Government-Civic Organizations partnerships:
The laws, including the procurement legislation where appropriate, should contain provisions that encourage partnership between government and civic organizations, providing for government financing of projects carried out by civic organizations, through grants and contracts.
3.4 Accountability and Transparency
3.4.1 Reporting Generally:
To the maximum feasible extent, all reports required of CSOs should be as simple to complete and as uniform among state organs as is possible.
3.4.2 Reporting to Supervisory Organ:
- Any civic organization with significant public benefit activities or with substantial public support should be required to file appropriate reports at least annually on its finances and operations with the appropriate organ or agency of government that is responsible for general supervision of civic organizations. Other civic organizations (i.e., those without significant public benefit activities or without substantial public support or those with gross income below a certain threshold) should be allowed to file simplified reports or none at all.
- All reporting requirements should contain appropriate provisions to protect the legitimate privacy interests of donors and recipients of benefits as well as the protection of confidential or proprietary information.
3.4.3 Audit by Supervisory Organ:
- Consistent with the normal state powers of inspection for all legal entities, the supervisory organ should have the right to examine the books, records, and activities of a civic organization during ordinary business hours, with adequate advance notice. This audit power should not be used to inhibit the freedom of association of the individuals connected with the organization or to harass the organization.
- To ensure compliance with the laws, all reporting civic organizations should be subject to random and selective audit by the supervisory organ, but such audits should not be used to harass organizations or individuals connected with them.
3.4.4 Reporting to and Audit by Tax Authorities:
It is appropriate for separate reports to be filed with the tax authorities. Different kinds of reports may be required for different kinds of taxes (e.g., income taxes, VAT).
3.4.5 Reporting to and Audit by Licensing Organs:
Any CSO engaged in an activity subject to licensing by a state organ should be required to file the same reports with that organ as individuals or business organizations are required to file.
3.4.6 Disclosure or Availability of Information to the Public:
Any civic organization with significant activities or assets or with substantial public support should be required to publish or make available to the public a report of its general finances and operations. This report may be less detailed than the reports filed with the general supervisory organ, the tax authorities, or any licensing organ, and should permit anonymity for donors and recipients of benefits in addition to protecting confidential or proprietary information.
3.4.7 Special Sanctions:
In addition to the general sanctions to which an organization is subject equally with other legal persons (e.g., contract or tort law), it is appropriate to have special sanctions (e.g., fines or penalty taxes, or the possibility of involuntary termination) for violations peculiar to civic organization (e.g., self-dealing, improper public fundraising practices, special rules contained in tax legislation).
General explanation: In the better-developed national legal systems, these principles have been accepted and specific statutory provisions made to give effect to them. Thus, the objects of South Africa’s Nonprofit Organizations Act 1997, as defined in section 2 of the Act, closely reflects these principles. The objects, which the various provisions of the Act are aimed at achieving, are as follows:
The objects of this Act are to encourage and support nonprofit organizations in their contribution to meeting the diverse needs of the population of the Republic by –
- creating an environment in which nonprofit organizations can flourish;
- establishing an administrative and regulatory framework within which nonprofit organizations can conduct their affairs;
- encouraging nonprofit organizations to maintain adequate standards of governance, transparency, and accountability and to improve those standards;
- creating an environment within which the public may have access to information concerning registered nonprofit organizations; and
- promoting a spirit of cooperation and shared responsibility within government, donors, and among other persons in their dealings with nonprofit organizations.
4. ANALYSIS OF THE LEGAL AND REGULATORY FRAMEWORK FOR CIVIC ORGANIZATIONS IN THE LIGHT OF INTERNATIONAL BEST PRACTICES
4.1 Fundamental freedoms are protected by a liberal regime: Namibia has domesticated the provisions of the relevant international law instruments. Thus, these freedoms are recognized in the Constitution of Namibia and only subject to similar restrictions as contained in the international instruments.13
By permitting civic organizations to operate legally – mainly as voluntary associations under the common law – without being formally registered or incorporated, Namibian law accords with the country’s Constitution and its obligations under international law by providing significant and commendable protection for the fundamental freedoms of expression, association, and peaceful assembly. In this regard, Namibian law closely resembles the law of South Africa, a country with which it has close historic ties. This is unlike the position in other countries such as Tanzania, Zambia, Kenya, and Uganda, where a civic organization generally cannot exist lawfully if it is not registered.
It is true that a voluntary association is a loose arrangement, and there are not enough generally applicable rules to ensure accountability and transparency in such organizations.14 Yet it is important to remember that citizens cease to be free if they cannot come together to pursue a common lawful interest without being formally authorized by a state agency. (As a necessary exception to this, any civic organization in Namibia that wishes to engage in an activity – such as running an orphanage or medical clinic – that requires licensing by a state agency cannot lawfully engage in that activity without obtaining the prescribed license.15) Again, it is typical that when an association begins to rise above the very small scale of operation by embarking on more substantial activities, it inevitably takes the formal steps (such as adopting a written constitution and keeping written records) that help streamline its operations and prepare it for registration or incorporation.
There are good reasons why individuals who have formed or plan to form a civic organization will desire to formally register or incorporate it. Some of these reasons are as follows:
- To become eligible to receive grants from donor agencies, most of which make grants only to organizations that are formally registered or incorporated;
- To become eligible for tax or other state benefits that are available only to legally established organizations;
- To establish clear and easily enforceable rules for the internal governance of the organization, including rules for the election of officers;
- To give the organization the capacity to act in its own name (e.g., open its own bank account, rent its own office space, hire its own employees);
- To provide for the perpetual existence of the organization;
- To limit the liability of individuals involved with the organization.16
Aside from the interest of the organization and its members, it is also in the interest of the public that civic organizations register with a government agency, where information about them may be accessed by any interested person, so that the government and citizens will be able to reach them to and interact with them in any of several capacities – as donors, volunteers, collaborating partners, or beneficiaries. Accordingly, it is a good practice to have a single national registry of all formal civic organizations that is accessible to the public. A good example of this national registry is that kept by the South Africa’s Directorate for Nonprofit Organizations pursuant to a mandate given under the Nonprofit Organizations Act 1997.
4.2 To what extent can a trust establishing a civic organization be validly “registered” under the Trust Moneys Protection Act 1934? As already noted, it is the established practice that a trust deed that sets up a civic organization and gives money to trustees to administer for the promotion of the objects of the organization may be lodged with and “registered” by the Master of the High Court pursuant to the Act of 1934. The extent to which this practice is actually authorized by the Act (and, therefore, lawful) will depend on the interpretation of the provisions of the Act.
To recapitulate, the Act provides that every trustee appointed by a written instrument is required to lodge the instrument, or any written variations of it, with the Master of the High Court. Before the trustee begins to administer the trust, he shall furnish to the Master such security for the due and faithful administration of the trust money as the Master finds satisfactory unless the trust instrument directs the Master to dispense with such security and the Master is satisfied that such security should be dispensed with or the court directs otherwise. Section 1 of the Act defines “trustee” as “a person appointed by written instrument operating either inter vivos or by way of testamentary disposition whereby moneys are settled upon him to be administered by him for the benefit, whether in whole or in part, of any other person.”
The implication is that only a person who falls within the meaning of “trustee,” as defined in the Act, can lodge with the Master the instrument under which he is appointed. The definition of “trustee” deserves to be carefully examined. For anyone appointed trustee to come within the scope of the Act, the beneficiary “in whole or in part,” must be a “person.” A “person,” in law, is either a natural person (i.e., a human being) or a legal person (i.e., a corporate body treated in law as having rights and obligations, such as a company incorporated under the Companies Act). The question is: Can a trustee appointed under a deed giving him a sum of money to administer, not in whole or in part for the benefit of any natural or legal person, but wholly for the promotion of a cause (such as gender equality or rural development) lodge the instrument of appointment with the Master? That would be valid only if the cause could be interpreted to be a “person”; and this does not seem possible by any stretch of the imagination.
Where, however, there is more than one beneficiary under a trust deed, and the beneficiaries include at least one person and one or more causes, the situation falls within the scope of the 1934 Act. The Act is thus intended to protect moneys given to trustees under the old and familiar practice whereby a person of means creates a trust for the benefit of particular family members and friends and also for the advancement of a charitable cause dear to his heart, whether or not he thereby creates an institution for the advancement of that cause. It is submitted that it is only to this limited extent that the 1934 Act could provide a valid basis for the registration of a trust setting up a civic organization.
By contrast, in South Africa, any trust deed that sets up a civic organization may validly be registered by the Master under the Trust Property Control Act 1988, the statute that replaced the 1934 Act. The 1988 Act requires a trustee to lodge with the Master “the trust instrument in terms of which the trust property is to be administered or disposed of by the trustee.” It seeks to protect “trust property” – not only money but all movable and immovable property held in trust. It defines “trust” as follows:
“trust” means the arrangement through which the ownership in property of one person is by virtue of a trust instrument made over or bequeathed –
- to another person, the trustee, in whole or in part, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument; or
- to the beneficiaries designated in the trust instrument, which property is placed under the control of another person, the trustee, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument.
These provisions are wide enough to cover any trust establishing a civic organization, whether or not a “person” is one of the other beneficiaries. All that is required is for the trust deed to make clear provisions as to what it seeks to achieve.
4.3 Does the Trust Moneys Protection Act 1934 contain enough provisions for adequately regulating a civic organization set up as a trust? Assuming that the 1934 Act actually gives the Master the authority to “register” these organizations, it is important to note that the Act only seeks to achieve the narrow purpose of protecting trust money. Thus, for the civic organizations registered as trusts, there should be statutory provisions covering the essential issues that ought to be provided for in order to achieve the overall aim of providing an enabling environment for the organizations to operate freely while also ensuring that they operate in line with the requirements of accountability and good governance. (These essential issues are spelled out above as part of the international best practices, especially in the section on Integrity and Good Governance.)
In the absence of statutory provisions indicating mandatory provisions to be included in the organization’s governing documents (as required by international best practices), the current practice is that those who set up civic organizations as trusts feel free to prescribe in the trust deed the rules for governing the organization. The rules so prescribed may not meet required minimum standards. On the whole, the current statute does not contain provisions for adequately regulating a civic organization.
In South Africa, even the Trust Property Control Act 1988, the provisions of which cover a wider scope, does not contain enough provisions. However, the gap is filled by the provisions of the Nonprofit Organizations Act 1997, especially the mandatory as well as the recommended (but not mandatory) list of matters to be provided for in an organization’s constitution, the minimum standards for accounting records and reports, the requirement for the filing of annual reports, and sanctions for noncompliance with these requirements.
4.4 Does the Companies Act 2004 contain enough provisions for adequately regulating a civic organization set up as a section 21 company? Yes, to a great extent. The provisions of the Companies Act (notably, section 21(2)) and the matters required to be provided for in the company’s memorandum and articles of association go far in satisfying the requirements. Under section 21 (2) of the Companies Act, the memorandum of association of the association – i.e., a company not for gain – must comply with the requirements of the Act and must, in addition, contain the following provisions:
- the income and property of the association however derived must be applied solely towards the promotion of its object, and no portion must be paid or transferred, directly or indirectly, by way of dividend, bonus, or otherwise, to the members of the association or to its holding company or subsidiary, but nothing contained in the memorandum prevents the payment in good faith of reasonable remuneration to any officer or employee of the association or to any member in return for any services actually rendered to the association;
- on its winding-up, deregistration or dissolution the assets of the association remaining after the satisfaction of all its liabilities must be given or transferred to some other association or institution having objects similar to its object, to be determined by the members of the association at or before the time of its dissolution or, failing that determination, by the Court.
Nonetheless, one way of further ensuring that the required standards are met by section 21 companies could be to develop for them a model memorandum and articles of association which would contain provisions aimed at bringing their internal governance arrangements in line with the requirements of best practices.
4.5 How can the administration of Namibia’s existing civic organizations’ registration/incorporation laws be improved? The Companies Registration Office has been administering the Companies Act, under which section 21 companies are registered, in a reasonably efficient manner. Although the registration requirements (especially the memorandum and articles of association) are technical in nature, the process is reasonably quick and not very expensive. Thanks to ongoing improvements, the Office seems poised to perform even more efficiently. With more funds to complete the ongoing computerization process, and more and better-trained staff to run the new system efficiently, the work of the Office would be improved. Yet it should be borne in mind that most civic organizations prefer to register not as section 21 companies but as trusts.
Under the Trust Moneys Protection Act, the office of the Master of the High Court handles the registration of most of the formal civic organizations and other kinds of trusts. To improve the administration of the Act, the office needs more and better-trained staff to reduce delays in the registration process (although it is reported that this is often the fault of trustees who do not meet the registration requirements in time) and to ensure that records submitted to the office (especially accounting records) are properly examined and needful action taken to protect trust moneys. The records should also be kept in electronic format to make it easier to preserve, retrieve, and analyze them as needed.
5. OTHER RELEVANT LAWS: STATUTORY PROVISIONS FOR INDIRECT FISCAL SUPPORT FOR CIVIC ORGANIZATIONS
By the very mechanism of making and implementing certain provisions in revenue laws, the state indirectly gives some financial assistance to civic organizations. While these provisions do not regulate civic organizations, they affect the fortunes of the organizations. If an organization is exempt from paying a tax, this means that it can retain (and presumably apply towards the attainment of its objects) the amount it would have paid as tax. If a person is entitled to a tax deduction in respect of money he donates to an organization, this could encourage him to donate more.
5.1 Tax Exemptions: Section 16 of the Income Tax Act No. 24 of 1981, Namibia’s basic income tax statute which has been amended fifteen times since independence in 1990, provides for exemptions from income tax. Of particular relevance to civic organizations are section 16 (1) (e), (f), (g), and (i). Each of these paragraphs mentions, and exempts from tax, the income of a specific type of civic organization. For instance, paragraph (j) exempts “the receipts or accruals of all ecclesiastical, charitable and educational institutions of a public character, whether or not supported wholly or partly from the public revenue.” Most civic organizations, whether or not they are registered under any law, will probably come within the provisions of section 16 and can claim tax exemption.
5.2 Tax Benefit for Donations: The Income Tax Amendment Act No. 22 of 1995 provides for tax deductions in respect of “any amount donated by the taxpayer during the year of assessment” to either “(i) a welfare organization registered or deemed to be registered under the National Welfare Act 1965 (Act 79 of 1965), and which is approved by the Minister [of Finance] after consultation with the Minister of Health and Social Service; or (ii) an educational institution approved by the Minister [of Finance] after consultation with the Minister of Higher Education, Vocational Training, Science and Technology or with the Minister of Basic Education and Culture, as the case may be.” This means that the benefit is available, not to all civic organizations, but to the ones that are welfare organizations registered or deemed to be registered under the Welfare Act.17 Also, a donation is deductible if made to an educational institution belonging to a civic organization if the approval of the Minister of Finance is obtained after consultation with the appropriate Minister of Education.
5.3 Value Added Tax: The Value Added Tax Act No. 10 of 2000 is the basic statute in this respect, and to date it has been amended thrice. The relevant provisions here are section 9 (and Schedule III paragraph 2 (t)) as well as section 10 (and Schedule IV) of the original Act. Under section 9 and Schedule III, the “supply of goods or services by any charitable organization, children’s home, old age home or orphanage” shall be charged with VAT at the rate of zero percent (i.e., zero-rated). Similarly, under section 10 and Schedule IV, educational services in schools and medical or paramedical services by medical professionals or in hospitals and other medical facilities are among the supplies that are exempt from payment of VAT.
Again, this means that a civic organization that can persuade the tax authorities that it comes within the category of “charitable organization” will, in effect, not pay VAT. “Charitable organization” is not defined in the Act but is arguably wide enough to cover most civic organizations. Although the supply of goods or services by a “children’s home, old age home or orphanage” is also zero-rated, this will, in practice, hardly benefit another set or type of civic organizations, as any organization that owns or operates such welfare institution will almost certainly come within the category of “charitable organization.” Yet, an organization that is somehow held not to be a “charitable organization” will nonetheless not be obliged to pay VAT in respect of any supply of educational services in schools or medical services in a hospital or other medical facility.
5.4 Custom Duties: Under section 84 and Schedule No.4 Part 1 of the Customs and Excise Act No. 20 of 1998, provisions are made for specific rebates of custom duties on particular types of goods imported into Namibia by particular organizations or institutions and under particular conditions. In respect of “Goods for Cultural, Educational, Charitable, Welfare or Youth Organizations or Purposes” imported by “approved institutions or bodies,” the Schedule grants full rebate for some itemized types of goods imported under specified conditions.
The listed types of goods includes “Goods (excluding clothing) forwarded unsolicited and free to any organization registered in terms of the National Welfare Act, 1965 …, entered in terms of a specific permit issued by the Permanent Secretary, [Ministry of ] Trade and Industry, for the official use by such organization.” Another type is “Goods (excluding motor vehicles) specially designed for use by persons with mental defects, subject to the production of a certificate from the Permanent Secretary, [Ministry of] Health and Social Services, that such goods are for use exclusively by such handicapped persons, such certificate being endorsed by the Permanent Secretary, [Ministry of] Trade and Industry that such or similar goods are not ordinarily or satisfactorily made in Namibia.”
While, in principle, most civic organizations will probably qualify to benefit from the rebates, an organization must be approved by the Ministry of Finance before it can claim the rebate. Also, in each case, several other conditions must be satisfied, as spelled out in the examples given above. Probably one of the most onerous combinations is that some of the goods must be forwarded “unsolicited” and also require a special permit from the Permanent Secretary. It is no surprise that civic organizations, in fact, rarely obtain these rebates.
Looking at indirect support as a whole, it is commendable that probably all civic organizations can qualify for income tax exemption and exemption from VAT. The law provides for generous custom duty rebates, but some of the conditions for obtaining them are quite stringent, and need to be made more liberal. While it is commendable that there is no limit to the amount of donation to a civic organization that is tax deductible, the category of civic organizations that could receive a tax deductible donation needs to be widened.
Yet, as things stand, funds retained by Namibian civic organizations through these indirect types of support are not large enough to significantly contribute to sustaining the organizations. Namibia’s private sector and the resources at its disposal are small relative to the funding needs of the civic organizations, and much of the population is poor; therefore, not much accrues from donations. The anecdotal evidence shows that most people who make charitable donations give to their local community-based organizations or church-affiliated groups, and hardly ever to other nongovernmental organizations. The fact that they do not generate high incomes (outside of funding from donors) means that income tax and VAT exemptions do not enable the civic organizations to retain significant amounts of money.
6. OTHER RELEVANT LAWS: STATUTORY PROVISIONS FOR DIRECT FISCAL SUPPORT FOR CIVIC ORGANIZATIONS
Through statutory provisions and official practices, civic organizations may receive direct fiscal support from the government. This support may come in form of payment for the execution of a government contract or a grant or subsidy.
6.1 Government procurement in Namibia is regulated by the Tender Board of Namibia Act No. 16 of 1996, under which two important pieces of subsidiary legislation have been made: the Tender Board Regulations (1996) and the Tender Board of Namibia Code of Procedure (1997). Nothing in the statute or statutory instruments precludes a civic organization from tendering for the supply of goods or services to the Government. In practice, however, these organizations have generally not been active in supplying goods and services to the Government. A notable exception to this is the supply of consultancy services to Government ministries and other departments.
There is nothing wrong in restricting the participation of civic organizations in government procurement to certain types of services for which they may be deemed to be suited, and keeping for-profit companies away from those areas. It is submitted that where civic organizations become active in government procurement and begin to effectively compete with for-profit organizations, it becomes imperative to protect for-profit organizations from unfair competition by drastically reducing or eliminating the indirect fiscal benefits extended to the civic organizations.
6.2 In some sectors, particularly social welfare and education, the Government also provides subsidies to civic organizations. A welfare organization registered by the Ministry of Health and Social Welfare under the National Welfare Act, as amended, may request a subsidy from the Ministry in any financial year. Along with its application for subsidy, the organization is required to submit a business plan which must clearly address a welfare need. The Ministry will study the plan and, if satisfied, will identify one or more specific items it will support with a subsidy. It will inform the organization accordingly. At the end of the year, the organization will be obliged to submit to the Ministry an audited report which must show that the subsidy was applied for the approved purpose. The Ministry has the discretion to determine whether to give a subsidy to an organization or institution and the amount of subsidy – the official explanation for this is that what the Ministry can do depends on the budgetary allocation it receives in any given year.
Under the Education Act 2001, a “person” (and this may be “a natural person, a body corporate, a trust, a church, or a registered welfare organization”) may at his own expense establish a private school but is required to register it with the Ministry of Education before education is provided to any person in the school. The Act empowers the Minister for Education to grant aid to private schools “out of money appropriated for this purpose by Parliament…on the prescribed conditions and such other conditions as the Minister may impose.” The Act empowers the Minister to determine the form that the aid may take, and this may include subsidy, the provision of materials, and the provision of teachers who are staff members of the Ministry of Education. Currently, the practice is that the Ministry provides subsidy to private schools that apply and are considered needy. Depending on the observed needs of the school, the subsidy could be provided to support the salaries of enough teachers to enable the school meet the prescribed teacher-student ratio,18 to support teachers’ salaries and assist the school to procure “learning materials,” or even to cover those two items and further pay for the cost of boarding facilities for the students.
6.3 The Lotteries Act 2002 authorizes the organizing of National Lotteries in Namibia. Under the Act, fifty per cent of the net proceeds of the lotteries shall be paid into a special fund styled the “Social Upliftment Fund” and a committee is set up to make allocations from the Fund to “any authority, institution, body or association of persons as the committee may determine for any purpose which the committee determines will support and enhance the social upliftment of the Namibian people.” While it is really up to the committee to determine who qualifies to receive an allocation from this Fund, civic organizations that deliver social welfare services would probably be considered. Support from this is expected to become available when the organizing of the lotteries commence.
Among Namibian civic organizations, there is a general lack of significant internally generated income as well as a lack of donor funding for institutional support (as distinct from program support). The lack of adequate core funding that enables a civic organization to pay salaries and other operational expenses is one of the twin threats to the viability of Namibian civic organizations.19 It is important to work out ways by which the Government could do more to provide direct core funding for the sustenance of civic organizations, particularly the well-regulated and transparently run organizations that are delivering services to the populace.
It is hereby recommended that a process leading to the reform of the existing laws, especially the laws on the registration or incorporation of civic organizations, should be embarked upon to deal with existing shortcomings and to align the laws more closely with international best practices.20 This article has pointed to specific shortcomings in the existing laws. A reform of the laws should be accompanied by improvements in the administration of the laws. Towards these overall goals, the following specific recommendations are made: Firstly, the reform process should be carefully designed. Civic organizations should participate fully in it. In the light of experience elsewhere, the process should begin with expert-facilitated dialogue between Government and representatives of civic organizations on best practices in the regulation of civic organizations, and should include short-term training and long-term mentoring for lawyers drawn from both Government and civic organizations who are engaged in the process. Secondly, the new laws should contain provisions either validating the earlier registrations of trusts that may be discovered to have been made by the Master of the High Court in error or enabling the regularizing of such registrations; if this is not done, there could be a crisis of legitimacy in the system. Thirdly, pending the making of new laws (a process that could take some years to complete), steps could be taken to improve the administration of the existing laws along the lines indicated in this article.
* Benedict C. Iheme, a lawyer and development consultant from Nigeria, is a member of the Advisory Council of the International Center for Not-for-Profit Law.
1 The policy was introduced through a Cabinet decision in December 2005. The primary purpose of the policy is to encourage development partnerships between the Government and civic organizations.
2 Para 3.1.3, GRN-COPP.
3 Para 2.2, GRN-COPP. In this paragraph, the GRN-COPP goes on to speak of “Registration and/or incorporation within the framework of Acts of Parliament, official Government policy or Cabinet decision.” This is probably not entirely correct. While a CO, such as a trade union or cooperative society, may be incorporated under a special statute (Act of Parliament), it does not seem that under Namibian law an official Government policy or Cabinet decision can – by itself alone – confer corporate status on a CO. In any case, none of several respondents could give a single instance of a Namibian CO with a corporate status conferred on it by a Government policy or Cabinet decision.
4 See “Laws and Regulations Governing Non-Profit Organizations in South Africa,” a presentation made at the International Charity Law Comparative Seminar, Beijing, China, October 12-14, 2004, available at www.icnl.org
5 For 2007, 305 trusts had been registered as of September 4.
6 This is the provision in the Companies Act 2004, which replaced the Companies Act 1973. The Companies and Patents Registration Office, a Directorate within the Ministry of Trade and Industry, had responsibility for registering and regulating companies under the 1973 Act. This arrangement continues, as the system transits into the full implementation of the Act of 2004, the intention of which seems to be to give greater autonomy to the companies’ registry. There has been no change in respect of Section 21 companies, and the same statutory forms continue to be used in the registration process.
7 The Registrar has the wide power to refuse a proposed name if he considers it “undesirable.” While this is not supportable, as the discretion granted is too wide and may be exercised quite subjectively, respondents reported that the practice is to withhold approval for a name only where it is likely to confuse people – for instance, by being so close to another registered name or by falsely suggesting a link to the Government.
8 Para 2.2, GRN-COPP states as follows: “In the case of Section 21 Companies, hardly any of them follow the prescribed Memorandum of Association. Instead they attach their own individual constitutions in place of such Memoranda often in contradiction with the Act.” A Registrar in the Companies Registration Office insists that this is incorrect, adding that such a company would not be registered if its promoters submit an invalid or improperly prepared Memorandum of Association.
9 Although the Universal Declaration did not have binding effect when it was adopted by the United Nations General Assembly, its provisions have since been accorded normative effect in international law. The other instruments mentioned here create obligations binding on the countries that are parties to them. Indeed, in the case of ICCPR, for instance, under the First Optional Protocol which came into force in 1966, a Human Rights Committee has been established to which individual citizens of a state party who allege that their rights have been violated, and who have exhausted local remedies, may lodge their complaints against the state.
10 These principles have been collated and discussed in a useful publication, Guidelines for Laws Affecting Civic Organizations (New York: Open Society Institute, 2004). The publication is hereinafter referred to as the Guidelines.
11 For detailed discussions, see the Guidelines.
13 Article 21 (1) recognizes the fundamental freedoms, including “freedom of association, which shall include the freedom to form and join associations or unions, including trade unions and political parties.” The restrictions are contained in Article 21 (2) as follows:
The fundamental freedoms referred to in Sub-Article (1) hereof shall be exercised subject to the law of Namibia, in so far as such law imposes reasonable restrictions on the exercise of the rights and freedoms conferred by the said Sub-Article, which are necessary in a democratic society and are required in the interests of the sovereignty and integrity of Namibia, national security, public order, decency or morality, or in relation to contempt of court, defamation or incitement to an offence.
Apparently in an effort to ensure that the fundamental freedoms are not whittled away by laws that may restrict them, Article 22 goes on to provide as follows:
Whenever or wherever in terms of this Constitution the limitation of any fundamental rights or freedoms contemplated by this Chapter is authorized, any law providing for such limitation shall:
- be of general application, shall not negate the essential content thereof, and shall not be aimed at a particular individual;
- specify the ascertainable extent of such limitation and identify the Article or Articles hereof on which authority to enact such limitation is claimed to rest.”
14 Para 2.2.
15 This is the clear intendment of the National Welfare Act No 79 of 1965 as amended by the National Welfare Amendment Act No 12 of 1979 and the National Welfare Amendment Act No. 9 of 1993, as the Act defines a “welfare organization” as meaning “any association of persons, corporate or unincorporated, or institution, the objects of which include one or more of” a number of specified activities. It is submitted that a voluntary association – one not registered as a trust or incorporated as a section 21 company – which nonetheless establishes or plans to establish an “institution” whose object is one of those specified in the definition, qualifies to apply for registration as a welfare organization. The established practice, however, is that the Ministry of Health and Social Welfare requires that an applicant for registration as a welfare organization must be registered as a trust or section 21 company.
16 See the Guidelines.
17 Registration under the Welfare Act is not for the purpose of obtaining a legal status but only for the purpose of being allowed to establish and operate a social welfare institution, such as a children’s home. The practice (which does not seem to be consistent with the law) is that to be registered under the Act, a civic organization must be first registered as a trust or a section 21 company. In addition, it must fulfill other conditions.
18 The ratio is 1 teacher to 35 students in the primary schools and 1 teacher to 30 students in the secondary schools.
19 The other threat is the lack of formal structures and clear, written internal procedures for governance. These often result from, and reinforce, leaderships that are built around a charismatic person or persons (often the founder or founders). It puts other stakeholders in an inferior and insecure position and limits the ability of the organization to go beyond the shadow of the founder(s) and actually transform into an institution.
20 In Paragraph 2.2, the GRN-COPP states as follows:
The need to improve upon the current legislative and institutional framework within which Civic Organizations operate is recognized in NDP2. Consequently, this policy calls for the formulation of a New Bill, to establish a transparent, voluntary, parallel registration process in order to complement existing provisions and to nurture the principles of partnership.
It is hereby submitted that this stipulation in the GRN-COPP confuses the proposed new law on Government-civic organizations’ partnerships with other laws that will need to be enacted to reform the existing laws that lay down the legal and institutional framework for civic organizations in Namibia. This is erroneous. The law on partnerships may be parallel to or complement the existing laws but it will not address the deficiencies in the existing laws that regulate the civic organizations, whether or not they choose to partner with the Government.