Out with the old, in with the new: The Public Benefit Organizations Act, 2013

Posted on: November 23, 2016


Out with the old, in with the new: The Public Benefit Organizations Act, 2013

9th September, 2016 marked the long-awaited commencement of the Public Benefit Organizations Act, 2013 (the PBO Act), which was assented to on 14th January, 2013. The PBO Act repeals the Non- Governmental Organizations Co-ordination Act, 1990, (the NGO Act), and is implemented in its current form, despite spirited attempts to amend some of its provisions, prior to its commencement. Indeed, at the time of writing this Article a case has been filed in the High Court challenging the coming into force of the PBO Act.

Public Benefit Organizations

The term Non-Governmental Organization (NGO) used to refer to entities governed by the NGO Act and registered by the NGO Coordination Board. It was defined in Section 2 of the NGO Act, as a private voluntary grouping of individuals, not operated for profit or for other commercial purposes, but which have organized themselves nationally or internationally for the benefit of the public at large and for the promotion of social welfare, development charity or research in the areas inclusive of, but not restricted to, health, relief, agriculture, education, industry and the supply of amenities and services.

The PBO Act defines “public benefit organization” (PBO) in Section 5(1) as a voluntary membership or non-membership grouping of individuals or organizations, which is autonomous, non-partisan making, non-profit making and which is (i) organised and operated locally, nationally or internationally, (ii) engages in public benefit activities in any of the areas set out in the Sixth Schedule, and (iii) registered as such by the Authority. Membership PBOs are those that recruit members while non-membership PBOs only have a Board and a Secretariat.

“Public benefit activity” is defined in Section 2, as an activity that supports or promotes public benefit by enhancing or promoting economic, environmental, social or cultural development or protecting the environment or lobbying or advocating on issues of general public interest or the interest or well-being of the general public or a category of individuals or organizations.Pursuant to Section 7 of the PBO Act, the Public Benefit Organizations Regulatory Authority (the Authority) has the authority to bestow PBO status on organizations that are registered under the Act. So inclusive is the new Act that it also confers on the regulator the authority to bestow PBO status on organizations that are not registered under any other written law in Kenya, including arguably, international organizations already working in Kenya before the commencement date of the new law.

While trade unions, public bodies, religious organizations, societies, cooperative societies, saccos, micro-finance institutions and community based organizations whose objectives include the direct benefit of its members are not considered PBOs, it is important to note that where such entities apply for registration under the PBO Act and are granted a certificate of registration, their previous registration under any other written law is immediately deemed invalid.

The objectives that can be pursued by a PBO are listed under the Sixth Schedule of the PBO Act and include legal aid, agriculture, children, culture, disability, energy, education, environment and conservation, gender, governance, poverty eradication, health, housing and settlement, human rights, HIV/AIDS, information, informal sector, old age, peace building, population and reproductive health, refugees, disaster prevention, relief, pastoralism and marginalized communities, sports, water and sanitation, animal welfare and the youth.

Registration

The NGO Act contained vague grounds for denial of registration and the Government had discretion in setting terms and conditions on NGO registration. In addition, there was no fixed time period for the review of applications and the NGO Board was not legally required to provide reasons for its refusal to register an organization.

Sections 6 to 13 of the PBO Act now provide clear and unambiguous guidelines for registration of PBOs. In particular, Section 8 outlines the documents and information that must accompany an application for registration, including a copy of the PBO’s constitution, names and addresses of its founders, the public benefit purpose for which the PBO is organized, the postal and physical address of the PBO’s principal place of business and the prescribed fee.

The PBO Act provides that the Authority may refuse to register an organization as a PBO if the application does not comply with the requirements of the Act, the objectives of the proposed PBO contravene any written law, the applicant committed a serious violation of the Act or has given false or misleading information, or if the name of the proposed PBO resembles that of another entity.

Section 8(4) of the PBO Act deals exclusively with the constitution of a PBO and sets out what it must provide, including a statement to the effect that the organization’s membership shall be voluntary and that its income and property shall not be distributable to any person except as reimbursement for reasonable expenses or payment of reasonable compensation for services rendered.

The Constitution must also make provision for the organization to be a body corporate with an identity and existence distinct from its members or governing body and must provide for a governing body consisting of not less than five (5) persons, three (3) of whom shall not be related to each other. The advantage of being a corporate body is that no member of the PBO’s governing body can be held personally liable for any act done in good faith, on behalf of the organization or by virtue of the office held in the governing body. However, where the liability is incurred outside the duties of the individual as a member of the governing body, the member would be held personally liable to the extent of such liability.
The PBO Act also provides specific timelines for processing of applications for registration. Section 9 states that the Authority shall

consider applications and register an organization as a PBO within sixty (60) days after receiving the application. Where the Authority is not satisfied that the application complies with the requirements for registration, the Authority shall immediately notify the applicant, giving reasons, and provide the applicant up to thirty (30) days to comply.

If the applicant complies within the notice period, the Authority shall register the organization within fourteen (14) days from receipt of the requested requirements. However, the Act goes on to provide that if the applicant fails to satisfy the requirements after being given an opportunity to comply, the Authority shall refuse to register the organization concerned and shall notify the applicant of its refusal within the number of days remaining in the original period of sixty (60) days.

In the event that the Authority fails to make a decision or to communicate such decision to the applicant within sixty (60) days, the applicant may apply to the Public Benefit Organization Disputes Tribunal (the Tribunal) established under Section 50 of the PBO Act, for an order requiring the Authority to issue a certificate of registration or to advise the applicant of its refusal with reasons. An applicant aggrieved by the decision of the Authority can also appeal to the Authority for review of its decision within thirty (30) days from the date the impugned decision is received.

Upon being registered by the Authority, the PBO is issued with a certificate of registration, which is conclusive proof that the organization has authority to operate throughout Kenya as specified in its constitution or in its certificate of registration.

With the repeal of the NGO Act and pursuant to Section 5 of the Fifth Schedule of the PBO Act, every NGO registered under the repealed Act on the commencement date is deemed to be registered as a PBO under the PBO Act and shall have up to one (1) year from the commencement date to confirm its status as such through formal registration under the new Act. In the event that an NGO fails to apply for registration within the grace period, it shall cease to have PBO status thirty (30) days after the expiry of the regulatory notice requiring it to do so. This provision is likely to have a far-reaching effect in the near future and may prompt some organizations to adopt other organizational forms to pursue their objectives.

Regulatory Oversight

The Authority is established under Section 34 of the PBO Act and takes over the roles and powers of the NGO Coordination Board. It is a body corporate with perpetual succession and its functions include registering and deregistering PBOs, maintaining a register of registered PBOs and advising the government on the activities of PBOs and their role in development within Kenya. Section 43 of the PBO Act expressly provides that the Authority shall be independent in the performance of its functions and shall not act under the direction or control of any person. Section 42 (1) (h) provides that the Authority may institute inquiries to establish whether the activities of PBOs comply with the Act. The Authority can also require any officials of the organization to provide the Authority with an inventory and the whereabouts of assets of the PBO.

The Authority has the power to cancel or suspend a certificate of registration, but this is limited to specific instances, for example, where the PBO has committed a violation of the Act or is carrying out its activities in a manner that is contrary to its constitution. The PBO Act also requires the Authority to notify the organization within twentyone (21) days if its certificate of registration is suspended or cancelled. While cancellation terminates all of the PBO’s benefits, it does not terminate its obligations.

Self-Regulation

The Act stresses organizational integrity and internal self-regulation, and encourages PBOs to maintain high standards of governance and management. In particular, PBOs are required to apply the principles of transparency and accountability to all their affairs and activities, whether with the Government, their beneficiaries, donors, other PBOs or other stakeholders. In furtherance of these objectives, the Act requires PBOs to submit annual reports to the Authority within six (6) months after the end of each financial year and that their activities be open and accessible to scrutiny by their stakeholders.

The Act provides further that the governing body of the PBO must be distinct and separate from the administrative and day-to-day management body of the organization and that every person who serves on the governing body of a PBO must serve on a voluntary basis.

The governing body is tasked with establishing clear and unambiguous guidelines relating to the operations of the organization. In our view, this governance structure greatly enhances transparency in the operations of the PBO.

In addition, the PBO Act establishes the National Federation of Public Benefit Organizations (the National Federation). This is the umbrella organization for all PBOs registered under the Act and the self-regulation forums recognized by the Authority. The National Federation replaces the Non-Governmental Organizations Council and its main objectives are to provide leadership on matters of interest to the sector for the promotion of the sector generally and enhancement of self-regulation. Every registered PBO is eligible for membership in the National Federation.

Dispute Resolution

The Tribunal is established under Section 50 of the PBO Act and has jurisdiction to hear disputes between members of the National Federation, between Members and between the National Federation and the Authority. The Tribunal is also empowered to hear and determine complaints arising out of a breach of the provisions of the Act and appeals made to it, pursuant to the Act.

The Tribunal’s jurisdiction does not, however, extend to criminal matters except contempt of court, disobedience of summons to appear before the Tribunal and refusal or failure to answer or produce records of accounts.

It should also be noted that the Tribunal’s decisions are final and binding on the parties except where judicial review is commenced within fourteen (14) days of the Tribunal’s decision. Appeals from the Tribunal may be preferred to the High Court and the High Court’s decision on the matter is final.

International Non-Governmental Organizations

An international NGO can register as a PBO under the PBO Act by submitting an application form with proof that it is a legal entity in another country and by providing its address in Kenya and a written statement from a representative of its headquarters, stating the purposes of the NGO, a general description of the activities it is planning to carry out in Kenya and the name and contact details of its authorized agent in Kenya. However, the international organization must have at least one third of its directors as Kenyan citizens resident in Kenya and having an office in Kenya.

The Authority may also exempt an organization registered outside the country from registration, particularly where the international organization does not intend to engage in direct implementation of any activity, program or fundraising activities in Kenya.

Conclusion

For many decades, local and international NGOs have played a prominent role in shaping the country and it can generally be said that the legal environment in Kenya has been reasonably supportive.
However, there were many concerns that efforts needed to be made to encourage accountability and transparency within the sector, for NGOs to effectively partner with the Government and other stakeholders.

These concerns led to the enactment of the PBO Act, an interesting piece of legislation that is aligned to the Constitution of Kenya, 2010 and also goes a long way in striking a balance between enablement and regulation in the civil society sector. More importantly, the Act imposes an obligation on the Government to respect freedom of association and assembly and to provide an enabling environment in which PBOs can be established and perform their functions. The Government is also enjoined to involve PBOs in policy decision making on issues affecting them, particularly at the local level.

The rules and regulations that will guide the implementation of the Act are still under review and once finalized, will make further provision for the registration, management and operation of PBOs.

It is noteworthy that NGOs in Kenya do not have to be registered under the PBO Act. There are in fact a number of other organizational forms to choose from which are not restricted to public benefit purposes, including companies limited by guarantee under the Companies Act, 2015, trusts under the Trustees (Perpetual Succession) Act, (Cap. 164) Laws of Kenya, societies under the Societies Act, (Cap. 108) Laws of Kenya, co-operative societies under the Co-operative Societies Act, (Cap. 490) Laws of Kenya and grassroots organizations such as harambee (self-help groups) and community-based organizations.

Nevertheless, PBO status may be the preferred option, in view of the associated benefits, including indirect government support in the form of various tax exemptions and preferential treatment.

Practice Areas

  • Corporate and Commercial
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    Key Contacts

    Pamella Ager

    pamella@oraro.co.ke

    020 – 271 3 636/271 1 480