Non-profit organizations are entities that operate for purposes other than making a profit and they are mainly referred to as Non-governmental organizations (NGO’s). In Nigeria, the incorporation of NGOs is primarily governed by the Companies and Allied Matters Act 2020 (CAMA).
These organizations operate independently of any government intervention save for certain extreme circumstances and are usually registered as ‘Incorporated Trustees” under Part F of the CAMA 2020. The CAMA 2020 provides thus;
“Where two or more trustees are appointed by any community of persons bound together by custom, 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, they may, if so authorized by the community, body or association (in this Act referred to as “the association”) apply to the commission in the manner provided for registration under this Act as a corporate body”[i]
From the above, it can be gleaned that non-governmental organizations are mainly formed to promote religious, educational, literary, scientific, social, development, cultural, sporting, or charitable purposes, and not to make a profit. Thus, where a person is desirous of forming an organization with any of these causes in mind, it is desirable to set up an NGO under Part F of the CAMA 2020.
LEGAL CONSIDERATIONS IN THE FORMATION OF A NON-PROFIT ORGANIZATION
- Availability Search and Reservation of Name: Before starting an NGO in Nigeria, one has to first, conduct a name availability search to know if the proposed name of the NGO is available for use or has been registered by another person under CAC. If the name is available, then the applicant can reserve it on the CAC portal.[ii] This reservation can only be made by a CAC-accredited agent.
- Drafting a constitution: The constitution of any organization sets out the rules that regulate the internal affairs of that organization. For an NGO which is usually registered as an incorporated trustee, its constitution is usually drafted in line with the specifications provided by Section 827 CAMA 2020.
- Appointment of Trustees: According to CAMA 2020, a minimum of 2 trustees must be appointed in an IT, however, these Trustees must first be qualified. On the qualification of Trustees, CAMA 2020 provides;
- A person shall not be qualified to be appointed or act as a trustee if-
- He is an infant;
- He is a person of unsound mind having been so found by a court;
- He is an undischarged bankrupt; or
- He has been convicted of an offense involving fraud or dishonesty within five years of his proposed appointment[iii]
- Registration of an Incorporated Trustee: Upon registering an NGO with CAC, it acquires legal status to operate in Nigeria, having a common seal, with power to sue and be sued in its corporate name as such trustees. The organization will also have perpetual succession and will continue to exist after the death or exit of the founder of the trustees. They also have the power to hold and acquire, transfer, assign, or dispose of any property or interests belonging to the organization.[iv]
- Filing of Annual Returns and Statement of Affairs: Section 848 CAMA 2020 mandates non-profit organizations to file annual returns with the CAC. Also, section 845 provides that registered trustees of an Incorporated Trustee (NGO) must submit a bi-annual statement of affairs of the organization to the CAC. This is done in order to ensure the transparency and accountability of the organization in its operations.
- Tax Exemption Status: Under Section 23(1) of the Companies Income Tax Act (CITA), non-profit organizations can seek tax-exempt status. This involves applying to the Federal Inland Revenue Services (FIRS) for a certificate of exemption.
CONCLUSION
The formation of a non-profit organization is a process that involves several legal procedures. A careful understanding of these procedures is necessary for the smooth formation of the organization. In deciding on the incorporation of an IT, the above legal considerations must be adhered to/considered prior to its formation.
[i] See Section 823(1) CAMA 2020
[ii] For name reservation, visit the CAC Pre-incorporation portal on precac.gov.ng
[iii] See Section 826 CAMA 2020
[iv] See Section 830 CAMA 2020
Written by Vera Enubianozor for The Trusted Advisors
Email us: info@cms.trustedadvisorslaw.com
Telephone Number: +234 810 159 9159
