A law also plays a role in either enabling or hindering the existence of CSOs by governing the acquisition of legal personality of CSOs. Legal personality refers to the legal capability of having rights and obligations. It may be very useful for individuals to know that once they organize themselves and draw specific internal rules, they may qualify as CSOs in the eyes of the law, with all the legal consequences it entails. The rights and obligations that legal personality confers to CSOs may vary in different legal systems. In general however, obtaining juridical personality offers CSOs the ability to enter into a legally binding transactions or contracts. It thus gives them the capability to open bank accounts, to hire staff, to own property, and to mobilize resource. The acquisition of legal personality therefore facilitates the smooth operation of CSOs as it offers them the capability to undertake legal transactions necessary in pursuing their objectives. It also enables them to interact and to network with other organisations. The denial of legal personality could thus in essence amount to a violation of CSOs existence and operations.60
With rights, certainly come corresponding obligations. Thus, legal personality also enforces the corresponding obligations of CSOs that ensure their legitimacy, transparency and accountability.61 The transactions of CSOs should not detrimentally affect the rights and interests of third parties and their own members. The law therefore may impose specific obligations on CSOs for the protection of third parties with whom CSOs interact such as the beneficiaries, the donors and other creditors of CSOs. Without legal personality that protects third parties, private and public organisations may be reluctant to work with CSOs for lack of clear lines of accountability. Lack of legal personality may thus possibly have a negative impact on the resource
60 The idea that the denial of legal personality could amount to a violation of freedom of association has also been recognized by the European Court of Human Rights (ECtHR) in Sidiropoulos and Others V. Greece where the refusal to register which results the denial of legal personality was held as an interference with freedom of association. See Sidiropoulos, above n 20 at 31.
61 Richard Fries, ‘The legal Environment of Civil Societies’ in Helmut Anheier and others (eds) Global
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mobilization, constituency building and networking of CSOs. Therefore, it is necessary that the law guarantees CSOs the right to attain legal or juridical personality.
In general, the legal obligations of CSOs offer protection for third parties by making CSOs and their founders or managers legally liable for the debts or wrongdoings of the organisation. The liabilities however vary in different legal systems. In some instances, even though legal personality is bestowed to CSOs in order to enable them undertake legal transactions, the founders or persons designated to manage will assume joint and several liability for the obligations and debts arising out of the activities of the organisation. In other jurisdictions, legal personality further offers CSOs with what is commonly referred as a separate legal personality that confers juridical personality to the organisation distinct from the founders. In such jurisdictions where CSOs have distinct legal personality from the founders, the legal personality of the organisation offers a corporeal veil to the founders and members and limits their liabilities for the debts and obligations of the organisation.
The distinct legal personality of CSOs that offers limited liability for the founders may encourage individuals to form and to join CSOs, thereby helping the growth of the sector. However, it is important that the law also ensures that the distinct entity principle is not abused by founders, members or officers of CSOs and flagrantly opposes justice or the rights, interests and securities of third parties (individuals or the public at large). The law therefore needs to ensure that the distinct personality of CSOs be regulated in a stricter manner. It is thus reasonable that CSOs that seek distinct legal personality be registered with authorities assigned for this purpose and the registry is made accessible to the public. While access to the public registry of such CSOs would enable third parties to make an informed decision, it also helps authorities to ensure that the purpose of the organisation is lawful. Hence, although registration should not be considered as a precondition for the legal existence of CSOs, the enjoyment of distinct legal personality that limits the liability of founders may serve as a motivation for CSOs to be formally incorporated.
Another common motivation for CSOs to seek distinct legal personality and to incorporate formally is to become eligible for tax concessions. Since tax benefits should be systematically regulated, if given for CSOs, organisations seeking tax
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concessions need to be formally registered. Nonetheless tax concession varies depending on tax and welfare policies as well as the financial capability of States. Thus the choices needs to be given to individual CSOs to thoroughly examine the distinct advantages and disadvantages of being formally incorporated and to make the decision of either being registered or remaining informal and minimize the transaction cost of formation.
On the other hand however, the mandatory requirement of registration would increase the transaction cost of forming associations and dissuade many from forming and participating in CSOs, particularly if registration requirements are cumbersome and open to wide discretion of the government. Where registration requirement is not clearly set out and authorities have absolute power with no room for further judicial challenge, CSOs existence will be put at the mercy of the discretion of the government. This in turn would negatively affect the growth of the social capital and CSOs activism which is essential for democratization. This will also compromise the potential of CSOs to play their role of regulation and watchdog.
Moreover the freedom of association being one of the fundamental rights that can be limited only for compelling reasons that amount to threats to public safety and democratic society, CSOs informality alone cannot satisfy such prerequisites for the denial of such fundamental freedom. Hence CSOs which are civil in character and legal in action should be given the freedom to associate informally. The freedom to informal association does not, however, preclude the possibility that certain institutional forms may be required if particular benefits such as tax concessions are to be enjoyed. On the other hand, should the association wish to incorporate formally and possibly get distinct benefits from its registration, it has to fulfil certain legally prescribed rules and procedures of registration and incorporated with a body assigned for such purpose.
A law is thus enabling when it allows individuals to make a choice of forming either informal CSOs, i.e. without a formal filing with any government agency for official registration, or formal CSOs established through formal incorporation. For instance some small organisations with few properties and transactions might prefer to stay informal for fear of burdensome reporting or other requirements which are associated
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with the registration process. Reasonably, registration may be sought by CSOs only when it brings specific advantages to them. Nonetheless, the law should not impose the registration process on CSOs as a necessary precondition to exercise the freedom of association.
Thus, a law is enabling for the existence of CSOs when it provides the freedom of CSOs to exist as an informal legal entity. Mere ‘notification for authorities’ or ‘declaration of the formation of a distinct legal entity in the statutes of the organisation’ is thus the simplest options that a law may offer for the acquisition of legal personality.62 Hence if the association wishes to incorporate informally, its mere
formation after the fulfilment of the minimum requirements of formation should suffice for the acquisition of a legal personality to enter into legally binding transactions. Some legal systems such as Switzerland for instance have adopted the use of a mere private action or ‘declaration’ of status as CSOs in the statutes of the organisation or ‘notification’ of formation for concerned authorities.63