Not only business companies need to worry about effective compliance structures. Compliance measures are also playing an increasingly important role for nonprofit organizations in Germany, i.e. charitable organizations and trade organizations. The goal of good compliance is to identify risks and rectify infringements early enough to prevent or reduce damage or loss for the organization. And, not least, good compliance serves to protect the responsible corporate bodies (boards, managing director, CEO) as it enables them, in case of doubt, to prove their proper conduct and, hence, avoid personal liability.
The benefits of good compliance are obvious: It enables the charitable organization / trade organization to present itself in the market as a respectable, transparent organization, to maintain the confidence of existing sponsors, donors, volunteers, (charitable) cooperation partners and other contractual partners and to win the confidence of new sponsors, donors, volunteers, cooperation and business partners.
In addition, good compliance enables the corporate bodies to implement efficient quality assurance, minimize liability risks faced by the nonprofit entity managed by them and their own liability risks, and strengthens the team spirit of all employees. In case of any crises of confidence or image, the charitable entity or trade organization remains able to act and can immediately take counter measures in a professional manner.
There are no binding compliance regulations for charitable organizations in Germany. Nor are there for trade organizations. However, the following key areas are typically of special relevance to nonprofit organizations:
- Organizational law and design specific to the organization's legal form;
- Compliance with respect to external communication, above all through the organization's web presence (including data protection and observance of the imprint obligations);
- Tax law and nonprofit tax law, especially a correct drafting of the articles of association / bylaws and a day-to-day management that observes the requirements of German nonprofit (tax) law including accurate bookkeeping, fulfilment of all tax declaration obligations, and compliance with accumulation and use of funds regulations under German law;
- Compliance with disclosure and publication requirements and avoidance of offences under criminal law;
- Transparent structures, especially with respect to the allocation of tasks, communication and reporting lines;
- Contract management (contract review, contract design, insurance coverage);
- Donation risks, especially with respect to compliance with regulations governing donations and their tax-deductibility;
- Proper allocation of entries and spending to the (non-)entrepreneurial bookkeeping spheres of a German charity and trade organization and proper treatment of grants and membership fees under value added tax law;
- Assessment and elimination of operational risks;
- Proper implementation of fundraising, advertising, marketing and political activities and maintaining a permissible level of (unrelated) trade or business activities;
- Compliance with all relevant labor law provisions, especially with respect to provisions on working times, occupational health and safety, salaries and wages, and issues concerning personnel leasing;
- Compliance with anti-trust requirements (especially in case of trade organizations).
The above list is not exhaustive. In fact, compliance is a complex issue for charitable organizations and trade organizations and involves all fields of commercial law and tax law and requires a lot of expertise and experience to be able to identify and evaluate the key issues and risks and develop an appropriate individualized model that protects the organization while avoiding excessive demands on its administrative structure.
Our experienced compliance attorneys will be pleased to assist you in taking the necessary compliance measures and adopting an appropriate compliance model for your charitable organization / trade organization in Germany.
An individually tailored compliance structure can be of vital importance for charitable and trade organizations in Germany. If, during a fiscal audit or any other verification of the tax or nonprofit status, a documentation produced fails to meet the fiscal authorities' requirements, the consequences may involve the withdrawal of the nonprofit charitable status or the withdrawal of the tax privileges granted to a trade organization, and also a subsequent taxation and liability claims against the executive bodies (e.g. the management board). In addition, unpleasant penalties may be imposed under the act on administrative offences or under criminal law. Members of the management board and executive committee should therefore ensure a legally compliant structure of the organization they manage.
You wish to reduce liability risks within your charitable or trade organization and implement a professional risk and compliance management system? You wish to give your charity or trade organization a legally compliant structure and get yourself out of the line of fire?
Our compliance experts will be pleased to assist you in assessing your existing compliance structures and developing a customized compliance concept. Please feel free to contact us by e-mail (email@example.com) or by phone (+49 69 76 75 77 80).
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