Rules on Transferring Funds, Loans and Stipends in Israeli Not for Profit Organizations
This article addresses the rules that Israeli not for profit organizations need to know about transferring funds, loans and stipends.
This Series of Posts
Our team of lawyers has experience in a variety of fields, including Israeli law on not for profit organizations. This article is one in a long series focusing on information about not for profit or charitable organizations (an amuta in singular and amutot in plural) in Israel. This series of posts will discuss the various rules for proper and legal management of not for profit organizations in Israel in order to better help you run your organization.
For more information on the Israeli Corporations Authority which oversees Israeli non-profit organizations, see the government website. For more articles from an Israeli lawyer and legal advice for Israeli non-profit organizations related to the topic of this article, see our articles about record keeping, administrative fines and prohibitions and an in-depth audit.
There are guidelines in place regarding how an Israeli amuta or Israeli not for profit organization can transfer funds, lend money and pay stipends. The reason for this is to ensure that the Israeli not for profit organization is acting in accordance with its objectives and serving the public interest.
There are procedures in place allowing an Israeli not for profit organization to transfer some of its funds or assets to another not for profit organization. There are, however, some conditions that need to be met.
1) If an amuta wants to transfer funds or assets to another not for profit organization or corporation, it may only do so if it is line with or promotes the giving amuta’s objectives as registered with the Registrar of Amutot.
2) Any funds or assets that an amuta wishes to transfer can only be given to a not for profit organization that has similar objectives to the amuta making the transfer.
3) The amuta must ensure that the original donor or organization that transferred funds to the amuta knows that the funds donated might be given to another organization.
4) The General Assembly must be aware of any transferred assets that could influence the giving amuta’s activities. In all other cases, the amuta’s Executive Board must approve the transfer of assets.
5) The amuta that gives the funds must supervise how the funds or assets are used, ensuring they are being used for the specified intent.
6) The amuta that wishes to give the funds or assets must ensure that the not for profit organization receiving the funds has a certificate of proper management or some other comparable certificate.
Any transfers that take place must be mentioned in the annual verbal report.
The rules for loaning money build on the rules for transferring funds and assets. As with rules that corporations or companies abide by, Israeli not for profit organizations may make loans to employees (generally long-term employees) as a benefit to ensure that the employee will commit for a longer period. It is also permitted for an Israeli not for profit organization to lend money to another not for profit organization so long as all relevant stipulations under the transferring funds or assets section are met.
If all the rules above are not met, an amuta can still loan money to another organization if it meets the following conditions:
1) The borrowing organization is a not for profit organization.
2) The borrowing organization has objectives similar to the objectives of the amuta lending the money.
3) The Executive Board of the amuta seeking to lend money approves the loan.
4) The lending amuta and borrowing organization sign a loan agreement detailing conditions, interest rate, terms of repayment and the date by which repayment is due.
5) The borrowing organization must provide reasonable securities for repaying the loan.
6) The amuta lending the money must ensure that loaning money to another organization will not jeopardize its own operations or prevent the lending organization from accomplishing its specified goals.
7) The Executive Board must agree that the borrowing organization can meet the terms of the loan agreement, particularly repaying by the specified date.
8) The Executive Board must have confidence that the not for profit organization borrowing the money is being managed well.
Additionally, an Israeli not for profit organization is permitted to loan money to its employees so long as the terms are reasonable.
If the Israeli not for profit organization grants loans as part of its objectives, it may do so as long as there are detailed terms regarding the loan and that those receiving the loans are treated equally.
The Israeli not for profit organization may not loan money to amuta members who are not employees, nor may it lend money to Executive Board or Audit Committee members. The only way an amuta may lend money to these individuals is if the amuta has objectives to lend money and these members meet the criteria for the loans.
Israeli law prefers that not for profit organizations do not pay money in cash as this limits proper oversight of the organization’s finances. As such, stipends may not be paid in cash. If an Israeli not for profit organization does pay stipends in cash, the Registrar of Amutot may withhold a certificate of proper management. Instead, stipends should be paid by check to the “payee only.” Any stipends paid must fall under clearly defined criteria.
If you have questions about transferring funds, loans and donations, please contact us.
Advocate Joshua Pex specializes in Israeli not for profit law and would be happy to discuss the needs of your not for profit organization with you.