What is a non-profit organization?
And what are the advantages and obligations of registering an association
Generally, a non-profit organization is a group of individuals seeking incorporation for a non-profit purpose. We will discuss in this article what a non-profit organization is, the benefits of establishing one, and the obligations attached to it.
By Igal Mor, Adv. & Notary
Accuracy in Legal Advice. Excellence in legal support.
What is a non-profit organization?
There are various types of non-profit organizations in Israel, but they all have one thing in common: they serve a public purpose and do not make profits. There must be a bylaw governing the operation of every non-profit organization. There is no proprietary ownership in the organization, and the bylaws constitute a kind of contract between the organization and its members. In addition to the three elements that are required by law for a non-profit organization, it may also have other institutions in accordance with its bylaws. In the first instance, there is the general meeting, which has the power to: appoint an auditor, approve the association’s financial and verbal reports, and make decisions regarding changes to the bylaws, goals, or name of the association. The second is the board of directors, which is responsible for implementing the resolutions of the general meeting, setting policies and procedures, appointing, supervising, and dismissing the non-profit organization’s director-general. Thirdly, there is the audit committee, whose purpose is to verify the proper operation of the organization, including its financial affairs, to make recommendations to the general meeting and the board of directors regarding any deficiencies that have been identified.
Establishment of a non-profit organization, what are the benefits?
The founders of non-profit organizations are faced with a dilemma as to whether to form a non-profit association or to establish a company for the benefits of the community. Establishing a non profit organization has many benefits, including:
- Non-profit organizations can define their objective as anything they wish (and that is legal of course), as long as it is not profit-making. Alternatively, a community interest company’s objectives must comply with specific legal categories, which is naturally restrictive.
- Supervision and obligations: A non-profit organization is registered with the Registrar of Associations only, and therefore the level of supervision over it, as well as the scope of its obligations, are less than that of a community interest company. It is necessary for a community interest company to register with both the Registrar of Charitable Trusts and the Registrar of Associations, increasing its obligations.
- Business activity: In the event that the business activity is defined in advance in the non-profit organization’s bylaws, this can be helpful and save time, but if it is not, the association will be able to obtain approval from the association’s register to carry out the business activity that exceeds the organization’s registered objectives. In contrast, a community interest company must obtain approval from the courts in a similar situation, which is an obviously longer and more complicated process.
What are the obligations of a nonprofit organization?
In the following paragraphs, we will highlight some of the most important obligations that non-profit organizations are subject to under the Non-Profit Organizations Law. The association must manage
A complete accounting record of the organization’s financial condition and transactions should be maintained. All non-profit organizations are required to prepare and submit an annual financial report, as well as a verbal report regarding income and expenses. Furthermore, the non-profit organization must submit various notices and documents to the Registrar of Associations as part of its day-to-day operations, such as notices of appointments to the board of directors or audit committee, protocol for meetings, etc. A proper management clearance is essential in this regard. It acts as a control mechanism for the activities of the non-profit organization. If it wishes to receive it, it must demonstrate that it is appropriately conducted and that all legal obligations are met. As mentioned above, obtaining approval is not an obligation, and the non-profit organization may also act without consent. In spite of this, most non-profit organizations strive to achieve this goal on a yearly basis. Why? First of all, without this approval, the organization will be unable to receive government assistance, including a wide range of benefits that are available to non-profit organizations. Secondly, a management certificate is considered a standard mark for non-profit organizations, and a non-profit without one may harm its public image.
In summary, a non-profit organization is a legal structure – a legal entity intended to serve the public interest. In our Commercial Law Department, we specialize in establishing and providing legal support to non-profit organizations, non-profit organization management, and non-profit organization reporting.
We invite you for legal advice on legal matters related to associations.
Adv. Mor & Co.’s commercial law department has experience in representing various entrepreneurs, businesses, and corporations from Israel and abroad in a wide variety of legal areas.
