French Non-Profit Law: Associations are as cool as American churches
Edit: I made some claims about American non-profit law which were wrong or incomplete. See River’s comment for corrections.
In the latest Bayesian Conspiracy episode (How and Why to Form a Church, with Andrew Wilson), Andrew describes all the great perks churches get compared to normal 501c3. Coming from France myself, it made me realize just how many of those awesome perks are just the default non-profit perks here. More people should build cool non-profits in France! Or not, you do you.
So, here’s a short intro to French non-profit law.
The French “Association”
The default French non-profit model is the “Association loi de 1901”, defined… in a law from 1901. There are a few other ones, including the “Fondation”, but I don’t know anything about them.
Requirement: A minimum of two people. The goal must be something else than sharing benefits, although an Association can perform commercial activities.
Creation: Just filling out an online form for free (all administrative procedures throughout the life of the association are a few clicks away on the government website). You only need the two people, bylaws and an address.
Reporting and processes requirements: None! Just use the government website to tell them when the people in charge change. In practice, most Associations use standard bylaws with a board with specific roles and yearly general assemblies. If you start doing lots of commercial activity or get very large, you’ll be subject to the same reporting requirements as corporations, though.
Payment of board members: Can only be paid three quarters of minimum wage, except the Association is >4yo and has >200k€ of annual budget (details here). The standard workaround is to have the leader of the Association be the director, who’s an employee and not a member, and have the board be more of a corporate board who mainly provides oversight.
Tax benefits for the Association: Associations don’t pay corporate or commercial taxes, as long as their main activity is not commercial. If they have the special status “Association cultuelle” (religious association), they are exempt from property tax on their religious building.
Tax benefit for the donors: Any Association whose primary activity is “Works or organizations of general interest with a philanthropic, educational, scientific, social, humanitarian, sporting, family, or cultural character” (and some other ones) can receive tax-deductible donations. Just give a donation receipt, and the donor can add the donation amount to their tax report. No need to register or anything. It’s on the government to prove you’re not really for the general interest if they’re unhappy. This is unique in Europe AFAIK.
Weird historical restriction on owning land: During the French Revolution, all the previous big institutions which owned basically all the land were dissolved. The French government became very wary of organizations slowly accumulating land, especially religious organizations. It was basically illegal to form associations until 1901. The 1901 law explicitly forbids Associations from owning land and buildings, except if they are directly useful for the purpose of the Association.
Bonus: The deduction of non-profit donations is wild in France. In the US, what you donate is subtracted from your stated income, which gives you an income tax deduction equivalent to your marginal tax rate. In France, 66% of your donation is subtracted from your income tax! Which means that you can get to 0€ of income tax. The government is tripling your donations! Note that you can’t deduct more than 20% of your income, so if you get above ~50k€ of income you can’t get your income tax all the way down to 0€.
How does it compare to a 501c3?
Edit: Removed parts that talk about churches specifically, as it was hopelessly confused from lack of knowledge about churches-related American law.
Note my very limited knowledge of American corporate law, or French one for that matter. IANAL.
Apart from the obvious drawback of Associations not being allowed to build massive real estate empires, the main differences I see with 501c3 are:
| 501c3 | Association | |
|---|---|---|
| Purpose | Charitable, scientific, educational or other in a restricted list | For donation to be tax-deductible, the purpose must be for the general interest (or be in this list). |
| Paying directors | Do as you please | Need to be big and old, or need to split who does the legal representation from who does the day-to-day operations |
| Lobbying | Only insubstantial advocacy authorized, very restricted | Anything goes! Stay tax-deductible if the advocacy is related to their general interest mission |
| International activities | Can do charitable work internationally, and give funds to any international charitable organizations | Keeping tax-deductible status while doing work outside of Europe is basically impossible if you’re not literally saving African children |
Conclusion
Corporate law and tax law are interesting, you know? I’m not sure whether this is going to be useful to anyone, but at least it got me to learn new things!
I’m an American ex-lawyer and have served on nonprofit boards in the past, though it is not the area of law I practiced. I think there are some mistakes here, so I’ll go through point by point.
Governance structure—there are churches with all kinds of governance structures in America. Some have a hierarchy in which the bishops or whomever effectively own everything (Catholics and Mormons for example). Some have much more collective governance by local congregations. Not only does law not dictate a governance structure, there is a principle in American constitutional law called the Ecclesiastical Abstention Doctrine that says that the government cannot interfere in the governance of a church.
Liability—I’m not sure what is meant here. In America, the question of liability is actually kindof orthogonal to the question of churchness. To get limited liability (meaning you can’t go after one leader’s personal assets when another leader screws up) you file paperwork with your state to become a corporation or LLC or something. 501c3 status is a matter of federal law. An organization can have either or both or neither. I’m also not sure what is meant by “full liabilty” for the French case.
Purpose − 501c3 describes a pretty broad class of nonprofits. A religious purpose is one kind of purpose that qualifies an organization for 501c3 status. And churches always have a religious purpose. So basically churches are a subset of religious organization, which are in turn a subset of 501c3s. Once you are a church, there’s no additional purpose requirement. All 501c3s are tax exempt and donations to them are tax deductible. So this sounds similar to the French case.
Constitutional protection—There’s no actual need to incorporate to get constitutional protection. The US constitution protects the free exercise of religion, which can be done as part of a religious organization, incorporated or not, or can be done individually. An individual can even get constitutional protection for something their church does not endorse (see Thomas v. Review Board, 450 US 707 (1981)). That said, I can’t think of any cases or principles that deal with “snooping” in particular. There are constitutional limits on searches and seizures that derive from the Fourth Amendment, but those wouldn’t be any different for a church versus any other organization. There are also some limits that derive from the Freedom of Association, which is part of the Free Speech Clause of the First Amendment, and which again would not be any different for a church versus a secular organization. Here I’m thinking of NAACP v. Alabama, note that the NAACP is not a religious organization.
Lobbying—technically a church could give up its 501c3 status, still be a church in other respects (like constitutional protections), and lobby as much as it wants. I don’t know of any actually doing this. What would be the point? Just form a lobbying organization with a different tax status. So this isn’t really a restriction on what a group of people who might also be a church can do, it is just a requirement that they form a separate corporate entity with a different status to do the lobbying, which in turn has tax implications. Lobbying groups, 501c4 is the status I am most familiar with, are also tax exempt, but donations to them are not tax deductable. It sounds like this deductability of donations is the real difference betweeen Amercan and French lobbying.
I’m also not sure why you would frame making the leader an employee rather than a board member as a workaround. It’s true this is not required in American nonprofits, but it is definitely the best practice. The core purpose of a nonprofit board is to supervise the top level of staff, and a board cannot do that effectively if the leader of the organization is a member of the board. You shouldn’t want your leader on your board even if it were legally permissible.
Thank you, River, for being the actual lawyer here.
I guess much of my confusion stemmed from thinking a 501c3 was a specific corporate structure from the way the podcast described it, whereas you seem to say that it’s a tax status that you put on top of any existing corporate structure. In France, the tax advantages are just part of the Association structure.
Governance structure: I got the wrong impression from the podcast, where Andrew said that making a board and having board meetings was part of the steps to start a church. Probably, that was specific to the Californian corporate structure he was using, which I thought was a characteristic of 501c3.
Liability: Same for this. It makes sense that 501c3 being only a tax status has no bearing on liability.
Constitutional protection: Here I was thinking about the part of the podcast where Andrew said that one advantage of incorporating as a church was that you had to do far less reporting of your activities to the government than other 501c3.
Lobbying: Yeah, makes sense that one would just separate the two organizations. I agree that the main advantage in French law is that you keep the tax-deductible donations when lobbying, as long as the lobbying supports the general interest mission.
Board members: In France, it’s common for the president of the board and organization leader role to be the same person (the Président-directeur général). In most small Associations I’ve been part of, the president of the board was in fact the leader of the organization, so the restriction on getting paid was in fact restricting. If the default approach in the US is to separate them, then it makes sense that it’s not a “workaround”.
Interestingly, that means that Sam Altman being OpenAI’s CEO and on the OpenAI board is actually a surprising point of power concentration if American organizations are not like that by default.
Yea, I guess this is one of those things where American being composed of states maybe makes things weird. A corporation (or LLC or whatever) is a creation of state law. When you form a corporation, you file paperwork with the secretary of state of one of the states, not even necessarily one you are particularly closely connected to, and then your corporation is controlled by the corporate law of that particular state. Many businesses famously incorporate in the state of Delaware because its corporate law is very friendly to businesses. Whereas 501c3 is a tax status that the federal government confers on an organization that has the right kind of purpose.
I think what Andrew may have been referring to is a 990. A 990 is a form that non-church 501c3s have to file with the federal government every year. Churches don’t have to, but that exemption is statutory law, not constitutional law. I’ve never thought of the form 990 as “snooping”. It’s just reporting what the major programs are, what money is coming in and flowing around at a high level, who the directors and officers are, etc. The idea is that in exchange for these tax advantages, the public ought to have access to this information. But I guess if you have a stronger notion of privacy or something you might regard it as snooping.
I don’t want to give too strong an impression about CEOs being board chairs. There definitely are organizations that do that, and no real legal constraints on it. And I’m sure there are Americans who think it is just fine. There has been a bit written on the EA forum about how different people seem to have rather different conceptions of what a board is for. But on the boards where I served, we understood the board’s most important role as being the CEO’s boss, and we saw that as incompatible with having the CEO on the board, or even present for the portions of board meetings where we discussed the CEO’s performance. And yes, when I look at OpenAI and see Sam Altman on the board, that does not look great to me, though it would not be my first point of concern about OpenAI.
There is a concept in American nonprofit law that board members and staff members shouldn’t be paid too much, but there is no clearly defined threshold of what constitutes too much, and little enforcement in practice. It’s more a matter of looking at what similar nonprofits are doing, and not being too out of line with that. And in the case where the top staff person was on the board, that board status wouldn’t prevent paying them like a top staff person.
Note: there’s something in France called “reçus fiscaux”, which I’ll translate to “fiscal receipt”, that is the thing you do to collect tax-deductible donations.
While you can technically do that from just the initial (easy) paperwork, a lot of associations actually go through a longer (and harder) process to get a “rescrit fiscal”, which is basically a pre-clearance saying you can really collect tax-deductible donations if you continue doing the same kind of thing.
If you only do the easy thing and not the longer thing (which can take like 6 months to a year) then you risk audits (which are especially likely if you’re collecting a bunch of these fiscal receipts wihtout ever doing the hard thing) that can then lead to penalties.
Most associations I know never got a rescrit fiscal and never got audited. Also, you would only get penalties if you were not actually eligible for tax deductible donations, which is usually obvious whether it’s the case or not, so no need for government confirmation.
Do you know some associations who did? How’s the process?
The one I know is outside of EA (they help people in Cameroon). The info I got about this being important and the timeline was mostly from the guy who runs it, who has experience with multiple associations. Basically you send paperwork via mail.
The “risking audits” part I got from here (third paragraph counting from the end).