Legal and accounting for student-run organizations. (Second part)

In this second part of how can you build a student-run organization, we will see in detail a boring, yet necessary subject, legal and accounting stuff.

For those two important topics, you don’t need any creativity or imagination: You just follow the laws and rules with discipline.

What I am going to talk about is based on September 2017 Greek laws. I strongly suggest finding a lawyer and an accountant to give you more information on those topics no matter where or when you read this blog post.

Legal

The very first important decision you have to make when you start a student-run organization is if you are going to have a legal entity and if yes what this entity will be.

In Greece, there are only two options for nonprofit organizations, somateio and astiki etairia.

Astiki etairia

Pros:

• It’s very easy to start as it requires very few documents.
• You can make changes in the articles of association easily and without cost in the future.
• It doesn’t require a minimum number of members to start it.
• It has very few requirements for the documents the organization needs to have as it operates during the years.
• You don’t need an Audit Committee (3 people outside the board of directors that will control the finance of the organization every year and sign that everything is fine — these people are elected in the elections along with the Chairman, Secretary, Clerk and if any members of the Board of directors)
• You don’t need to have elections.

Cons:

• Because it’s so easy to start one and so flexible along the way, it’s the legal entity that most scandals with NPOs around Greece occurred. Some people warned us at the beginning that we may face some difficulties to raise money if we used this entity.

At Mindspace our legal entity was somateio but even if we had astiki etairia it wouldn’t be a serious problem raising money. Your actions speak louder than everything else.

Somateio

Pros:

• It has a lot of procedures to avoid any potential frauds and generally, it’s much more transparent than astiki etaireia.
• Astiki etairia has fixed founders. You decide in the beginning the percentage of its founder. The founders own the organization, even if they leave. That’s very demotivating for all other members. Changing the owners of the organization requires changing the articles of the association each time.
• All members of the organization participate in decision-making through elections for a board of directors.

Cons:

• As an organization, you have to keep a lot of documents, making it more bureaucratic and complicated.
• If you want to make even a small change in the articles of association you need to follow all the procedures as you did for the first time. In other words, you have to pay 300€ and wait for 2–3 months for the court (eirinodikeio) to accept it.
• It requires at least 20 founding members to sign the first articles of association in order to have a legal entity.

I tend to believe that astiki etairia’s pros outperform its cons which can be easily overcome.

No matter which legal entity you choose the person who will be responsible for the legal stuff has to be disciplined keeping the required documents updated constantly.

Tip: Ideally you can find an audit consulting company to make an internal audit for your organization every one or two years, to ensure that everything runs smoothly on your organization finances.

Articles of association

The articles of association is a legal document that you need on both occasions. It contains the legal entity of your organization, its goal, its activities, if the members are going to pay a fee, the procedure to add or delete members etc.

Note: When you write article 3 about the organization activities keep in mind to check it also with your accountant and a tax officer besides the lawyer because it will determine which KADs — more on that below — you are going to select.

If you google articles of association for nonprofits you can find a lot of examples, that you can use.

Logo

After some years it’s a good practice to legal register your logo at your country. In Greece, it will cost you a few hundred euros and some time to fill legal documents.

Accounting

Legal headquarters

At this point, things become a little bit more complicated. Again I am going to speak about Greece if you live elsewhere you should check the laws and rules with your university, your lawyer and your accountant.

As your legal HQ, you can have a room inside a Greek University. You need a professor to sign a legal document (very simple no more than a small paragraph) that you can use it as your legal HQ in your articles of association but not as a place you can use as a tax HQ.

Note: The legal HQ and Tax HQ of your organization can be different.

The Chairman, who is the legal representative of the organization needs to have his house as the tax HQ of the organization. That means that he or she should have all the legal documents at his house in case of an investigation.

For your articles of association to be submitted to the court for approval you only need the legal HQ. After it has been approved you need to go — in a period of two months else the organization will face a financial penalty — to the Tax office and there you will need the tax HQ.

Tip: Before you go to Tax office speak with your accountant about which KADs you are going to select. KADs are some numbers that identify the organization activities, a small mistake there can cost you huge amounts of money on unnecessary taxes.

Tip: You will certainly going to need an accountant and a lawyer. You can easily find some people to work pro bono but in my opinion, will pay off in the long run if you pay them even a small amount of money. If you don’t do it, your organization will be one of their last priorities.

Why use a university room as your legal HQ and not your house or a place outside the university?

Actually, there isn’t any legal difference. You can also have your base outside the university but the symbolism of being inside a Greek university is totally different. (You can read more about symbolism in my first blog post here)

Bank account

After your articles of association and the documents on the Tax office has been set, you are ready to open a bank account. Go to a bank of your preference and ask to open an account.

The whole procedure can last from few weeks to some months because the local branch that you open the account has to send all the documents to their legal department for a check.

All these legal procedures to start a legal entity might sound a lot when you start but in the long run it worth all the money and the effort.

Some student-run organizations in Greece don’t have a legal entity. They just found a professor who is willing to help them and open a research account on ELKE.

ELKE is the department at each Greek university that is responsible for managing all the funds for the universities research funds. For example, if a professor at the National Technical University of Athens is eligible for a European fund to support his research, all the money will go to an account that ELKE is responsible. ELKE also keeps a small percentage something around 10–20% of every € that is deposited on an account that they manage.

Note: Electrical engineering school at NTUA is the only school in Greece to my best knowledge that has his own department for the research funds called EPISEY.

Although this may sound much easier, if you choose this path you will face tremendous bureaucracy and not enough flexibility.

For every movement of the account, you will need a signature from the professor. You will lose some money because ELKE is getting a 10–20% percentage, which is huge if you think it in a long run. Also, you will want to avoid ELKE at any cost. ELKE is notorious for his bureaucratic procedures and his employee’s totally unacceptable attitude even towards professors.

Where can I find the money to start a legal entity?

The best solution for covering early on the organization’s costs is having a monthly subscription for all the members. If you have the legal entity of somateio this easy because you will have at least 20 members that can split the cost.

Summary

Legal and accounting is a necessary evil when you start an organization but unfortunately if you want to build a successful organization and have activities that will have a huge impact you need to have a basic knowledge of them.

Keep in mind that these decisions are not irreversible, you can always correct them on the way. On the other hand, as the years pass it would be much more difficult to change how things are rolling.

If you find it useful share this article with someone who is thinking to start an organization.

Special thanks: Dimitris Messinis — Founding Chairman of Mindspace, Konstantina Koulouki COO of Mindspace and Ioannis Anastasiou CFO of Mindspace for reading drafts of this.

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