Perfectly compliant statutes, together with the accompanying bylaws and other rules and regulations of the association, foundation or charitable LLC provide the essential basis for the success of a nonprofit organization's activities in Germany. When founding a new nonprofit organization, it is therefore all the more important to ensure, from the outset, that all organizational documents are drafted in a professional manner. But, even the statutes of already registered organizations may require adaptations in order to correct weaknesses or errors detected over time.
Any new establishment of a nonprofit organization must be preceded by an examination of the intended purposes of the organization, taking into account the specific way in which the organization intends to further them. Only then does it become clear whether the organization can expect to be recognized as a charitable tax-exempt organization by the German tax authorities. Once the audit has been completed, it is advisable to include the purposes and the way in which they are to be achieved as precisely as possible in the organization's bylaws - in a form that the tax authorities will accept.
Organizations already incorporated and recognized as charitable organizations must also ensure that their purposes laid down in their organizational documents continue to comply with the requirements of German nonprofit (tax) law. They must also ensure that they comply with the requirements in their statutes in their day-to-day business. It is common for nonprofit organizations that they have moved far away from the requirements in their bylaws over the years. It is therefore advisable to review the statutes regularly and to adapt them if necessary. The same is true with respect to ongoing developments in court rulings and the pertinent legislation which require that NPOs update their bylaws from time to time to avoid disadvantages or liability risks for the organization or its board or even the withdrawal of their tax-exempt status.
The organizational documents should be the basis that ensure successful and satisfactory performance of an organization's activities. This fact should not only be borne in mind in case of a newly set-up organization but also concerns already incorporated ones. In many cases, older statutes are no longer adequate for an increased number of members, considerably grown assets, or new missions of an organization. Experience from practice shows that optimizing procedures and decision-making processes oftentimes help enhance the efficiency of an organization's activities.
In the context of voting processes, for instance, clear and unequivocal regulations are required to avoid disputes concerning the effectiveness of resolutions within the organization or with the German register authorities. For example, with a view to an increasing number of members, the majorities required to amend the statutes or the purpose of an association should be reduced in deviation from the legal requirements. Otherwise, there is a risk that amendments to the statutes or the purpose become unenforceable in fact, which could paralyze the association in this regard.
For large associations, the statutes are also the basis of the organizational structure of functional subdivisions and their relationship with the entire organization. In the absence of statutory provisions concerning subdivisions, it is important to pay particular attention to drafting of the association's statutes accurately.
What does that mean in specific terms?
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Drafting legally compliant statutes also helps minimizing the organization's liability risks. It is possible, for example, to include arrangements, which not only provide for a division of duties and a clear assignment of responsibilities within the board but also ensure that certain tasks are assigned to special representatives. Although liability risks cannot be completely excluded, it is possible to reduce them to a level that is manageable for the board.
As one of Germany’s leading law and tax firms for nonprofit organizations, drafting statutes for any kind of nonprofit organization is one of the focus areas of our work. Thanks to many years of experience, we know the crucial issues and which provisions are necessary to ensure that a nonprofit organization can work successfully.
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