As part of the equivalency determination (ED) process, NGOsource requests an organization's formation date. Among other things, this helps us establish whether it is a new organization that requires a heightened level of analysis with respect to its anticipated public support.
This question often puzzles organizations that may have operated in several capacities before being legally constituted. For example, an organization may have conducted activities as a project of another organization, or as an unincorporated group of individuals.
For purposes of ED, an organization's formation date is when it is formally established as a legal entity. The term "legal entity" is generally understood to mean an organization that has legal rights and obligations. This is an important distinction because an ED can only be conducted on a legal entity, and the financial information we collect must begin from the year of its legal formation. The requirements to be recognized as a legal entity vary between countries. The formation date could be the date of an organization's incorporation, its registration with the local government or government agency, or the adoption of its founding documents.
What About Registration or Tax Recognition Dates?
As described, a legal entity's date of formation is often not the same as the date, for example, that it commenced activities, that it was recognized as an NGO, or that it was determined to be tax-exempt. As a legal matter, an organization's date of legal formation is the date on which it obtains corporate personhood, meaning it can sue and be sued and can open a bank account.
Subsequent to this date, it may obtain recognition as a charity, register as an NGO, or obtain tax-exempt status. These various other statuses do not reflect its legal formation date, even though they may be government recognitions. In some cases, an organization is not legally formed until it has been registered as a certain type of legal entity (such as an NGO). In this case, its registration date is the same as its date of legal formation.
Is a Department an Independent Legal Entity?
Another area of confusion with respect to legal formation is when a department or branch of a larger organization is independently recognized or operated.
Often grantmakers will request, and organizations will provide, information specific to a semi-autonomous department or a branch. For example, most universities have several faculties and schools that operate with varying levels of autonomy. So, are these divisions independent legal entities? The short answer: it depends. Depending on how the specific university is organized, it can be several legal entities or be under the umbrella of a single legal entity.
If the department or branch has a legal incorporation document, and its own finances, then it is likely an independent legal entity. If, on the other hand, it shares a bank account with the parent entity, it is likely not a separate legal entity, even if it has bylaws or other organizational documents guiding its internal structure. Grantmakers should not be alarmed if a request was submitted for a university department but the ED was conducted on the university as a whole.
This article is for general informational purposes only and does not represent legal advice as to any particular set of facts. Please seek legal counsel as you deem necessary.