Year: 2024
Type: dissertation
Abstract: Organizational law encompasses the rules for private legal entities. These legal entities can be divided into two groups based on their purpose: companies on the one hand, and non-profit organizations ("NPOs") and foundations on the other. While companies have a positive purpose ("to provide or deliver a direct or indirect financial benefit to their partners"), NPOs (article 1:2 Belgian Code of Companies and Associations) and foundations (article 1:3 Belgian Code of Companies and Associations) are primarily defined negatively. Organizational law primarily defines what they are not allowed to do, namely to make distributions ("neither directly nor indirectly distribute or provide any financial benefit") to their insiders, except in relation to the disinterested purpose specified in their statutes. Insiders of the NPO or foundation include members, founders, initiators, directors, and any other person with control over the organization. This is called the non-distribution constraint. The non-distribution constraint serves an important signaling function to the outside world. Stakeholders (donors, subsidizing authorities, etc.) know that the organization cannot distribute its resources or revenue. On the flip side, the scope and application of the non-distribution constraint are crucial aspects of the regulations for NPOs and foundations. Mapping this scope is a primary objective of this research. Every NPO or foundation pursues a disinterested or social purpose. The disinterested purpose is the raison d'ëtre of the NPO or foundation and essentially determines the destination of the accumulated assets. In other words, while the non-distribution constraint states what an NPO or foundation cannot do with its assets ("not distribute"), the disinterested purpose determines what an NPO or foundation must do with its assets ("spend on this purpose"). The destination-bound nature of the purpose has consequences for the management of the assets of the NPO or foundation. Directors are required to manage the assets of the NPO or foundation with a view to achieving the purpose. To date, little attention has been paid to the rules and standards surrounding the enforceability of achieving the disinterested purpose of NPOs and foundations. Often, the rules of corporate law are transplanted mutatis mutandis to the provisions concerning NPOs and foundations, but the research shows that this does not always lead to the most optimal situation. Organizational law places the authority to supervise management with the general meeting of NPOs, by analogy with the powers of the general meeting in companies. In companies, this delegation of authority is explained by the idea that shareholders have a financial incentive to intervene in cases of inefficient or incorrect management, as they are also entitled to the profits (dividends, liquidation balance). Due to the non-distribution constraint, members of an NPO do not (or at least not always) experience the same financial incentive as shareholders. In the case of foundations, there is not even a statutory provision for a supervisory body. As a result, the governance framework for NPOs and foundations is underdeveloped, leading to little control over the management of these legal forms, both in terms of compliance with the non-distribution constraint and the spending of the purpose-bound assets. For foundations, this is partially mitigated as stakeholders can turn to the courts in cases that would otherwise result in a deadlock (e.g., judicial dismissal of a director) or when judicial approval must be obtained (e.g., amendment of statutes or dissolution of the foundation). In contrast, NPOs have no similar provisions because lawmakers assume the primacy of the general meeting. As a result, any stakeholders are dependent on the intervention of the general meeting, but in cases of its inaction, there are few ways to rectify mismanagement. In addition to the scope of the non-distribution constraint, this research focuses on the disinterested purpose of NPOs and foundations. This includes both the concrete interpretation of the concept of a disinterested purpose ("What exactly does a disinterested purpose entail?") and the impact of the disinterested purpose on the guidelines for the management body and the general meeting (in the case of NPOs) or the supervisory body (in the case of foundations) ("What does the disinterested purpose mean for directors and members/supervisors?").
Source: Lirias
Author: Van Baelen, Bram
Institution: KU Leuven
Language: English
Subfield: Sociology and Political Science
Field: Social Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7068034346
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