Endowments are instruments essential for the strengthening of non-profit groups and institutions, given that they ensure their long-term operational viability.

Today, Brazil, lacks any specific legal provision on this matter and Endowments can be freely created by Brazilian Foundations and Associations.

It is advisable that those organizations' Bylaws provide for rules on the creation and maintenance of their Endowments. These general rules may be supplemented by Internal Regulations, Codes of Conduct (Ethics) or other Policies that may be adopted by the institution.

Endowments' rules should be clear in order to facilitate the long-term mechanisms for the entities' economic sustainability and to prevent their financial management from being interpreted by the tax authorities as a deviation from the intended purpose.

In this regard, it is advisable that the Bylaws of those organizations include a specific Chapter on the matter, providing for the following definitions and recommendations, among others:

  • the definition of the Endowment as one of the essential basis of its governance, given that it provides for the financial means for the long-term sustainability and greater autonomy of the institution;
  • the definition of the body in charge of its management (a body created under the Bylaws to this specific end or, in our view, more appropriately, the highest management level of the entity, usually, an Oversight, Management, Executive or Decision-Making Board);
  • the definition of the decision-making quorum for operation of the body responsible for the Endowment's management for matters related to it;
  • the definition of the amount or percentage that will be allocated for the expenses necessary for fulfillment of the corporate purpose in a certain period (entity's operating accounts) and the periodicity thereof (usually, annual); as well as the prior approval from the body responsible for the Endowment's management for extraordinary expenses;
  • the recommendation for the regular review of investment strategies and practices and the possibility of constitution of an Investment Committee (advisory board) and of hiring outside managers, where required.

It is expected that the Bylaws rules are in line with the organization's missions and the globally-accepted concepts of Corporate Governance and Transparency.

Given the Endowment's importance for the development of private social investments in the country, Bills of Law pending in the Congress and under study encourage the formation and maintenance of Endowments. The improvement of the Brazilian laws is a requirement for, among others, the establishment of rules encouraging, through tax immunity and/or exemptions, the constitution of Endowments and donations intended for their maintenance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.