Nonprofit governance: proper management duties

Do you run a nonprofit? Are you a board member? Before you sign a financial report, approve a payment to a related party, or make a decision without minutes, stop. The Amutot Law places personal liability on board members. Not “the association’s liability”: your liability. Management mistakes can cost you public funding, sanctions from the Registrar of Amutot and, in extreme cases, criminal proceedings.

What does the Amutot Law require, and what happens if you do not comply?

The Associations (Amutot) Law, 5740-1980, is the main law regulating how nonprofit associations are set up, run and supervised in Israel. Under this Law, a nonprofit association is a not-for-profit corporation registered with the Registrar of Associations (Amutot) at the Ministry of Justice. Every association must have: articles, a managing board (management), an internal audit committee and an annual general meeting. Not meeting these duties can lead to loss of the proper management certificate and to other sanctions.

Alongside the Law there are regulations and rules of the Registrar of Amutot (forms, online reporting, remuneration for board members) and the Registrar’s proper management guidelines. The Registrar is authorized to demand clarifications of the financial report (section 38A) and any information or document about compliance with the Law (section 39B), to open an investigation and appoint an investigator (section 40), and to ask the District Court to order the dissolution of an association that acts in breach of the law or of its objects (sections 49(1) and 50). This happens after the Registrar warned it in writing to correct the wrong and it did not do so within a reasonable time (section 50(b)).

What must be reported and published, and by when?

A registered nonprofit association in Israel must file an annual financial report with the Registrar of Amutot no later than 30 June in the year after the end of the report period (section 36(d)). It must be signed by two board members, after it was brought to the general meeting for approval. The report includes: a statement of income and expenses, a balance sheet, cash flow, and notes on how the money was used. The report is published in the public registry and is accessible to all.

An association whose annual turnover is above the threshold in section 19(c) of the Law (NIS 750,000 linked to the index, NIS 1,380,630 in 2026) must appoint a CPA. Its financial report is presented to the general meeting audited (section 37(a)). The CPA’s signature is not a bureaucratic formality: it expresses the CPA’s personal professional responsibility for the accuracy of the report.

What are the members of the nonprofit entitled to, and how is a general meeting lawfully called?

The annual general meeting is the association’s highest body. Under the Amutot Law, it must meet at least once a year and include: a discussion of the financial report, election of a board (if the time for renewal has come), and discussion of the matters set in the articles. Every member of the association has the right to take part, to vote and to stand for the board.

A member of the association who believes the board is acting against the articles or the law may apply to the court to cancel a decision. Common grounds include: a general meeting convened unlawfully; not giving the right to vote to an entitled member; decisions made against the articles. The provisions of the Law on holding meetings and elections are not just procedure: they are the core of the association’s democratic governance.

How to call a special general meeting: a tenth of the association’s members, the audit committee or the auditing body may demand it from the board in writing, and the board must convene it (section 20(b)). If the board did not convene the meeting within 21 days of the demand, those who made the demand may convene it themselves, provided it is held within three months of the day the demand was filed. The association will cover their reasonable expenses and charge them to the board members responsible for the failure to convene (sections 20(b1) and (b2)). If a meeting was not convened as required, the Registrar may also convene it or appoint a person to convene it (section 20(c)).

Conflict of interest: what must be disclosed, and when must you leave the room?

The duty of board members to act for the benefit of the association (section 27 of the Amutot Law), together with the Registrar of Amutot’s proper management guidelines, requires a board member who has a personal interest in the matter under discussion to disclose it and to stay out of the discussion and the vote. A conflict of interest includes: a financial connection with a body offering a service to the association; a family connection with a party to a deal; and more. The breach is not only unethical: it can lead to the decision being canceled, and to a personal claim against the board member.

The basic rule: if a board member gains from a board decision, even indirectly, they may not vote on it. A board that approves a deal with a hidden conflict of interest is exposed to a claim by the association’s members, and this can cost the association its proper management certificate.

The proper management certificate: without it, no government money

A proper management certificate is a document issued by the Registrar of Amutot to an association that meets all its legal duties: filing reports, holding general meetings, electing a board lawfully, and more. Without a proper management certificate, an association cannot receive funding from government ministries, local authorities and most foundations. It is given for a limited period, and its renewal depends on continued compliance with the conditions. Losing it can paralyze the organization’s activity.

Getting the certificate requires: filing all financial reports on time; holding an annual general meeting lawfully; publishing reports and minutes; an active audit committee; and other conditions set in the Registrar of Amutot’s circular. An association that has gone a year without receiving the certificate should contact the Registrar and find out why it was not issued.

Minutes: what must be recorded, and why is it critical?

Section 23 of the Amutot Law requires minutes to be kept at every general meeting, signed by the chair of the meeting. Once signed, they are prima facie evidence of their content. The Registrar’s proper management guidelines also require minutes for board meetings. Minutes of a board meeting should include: the names of those present, the matters discussed and the decisions made. These minutes are legal documents that can be demanded for inspection and will serve as evidence in court.

In addition, the association must keep: contracts and agreements; receipts and expenses; correspondence with authorities; and tax documents. The Registrar of Amutot may demand to inspect any such document at any time. An association that cannot produce documents makes things very hard for itself in any regulatory or legal proceeding.

Transparency: what is every member and donor entitled to see?

The documents the association files with the Registrar, including the financial report and the verbal report, are open at the Registrar’s office to inspection by anyone (section 39(b)). They can also be viewed on the website of the Israeli Corporations Authority. Beyond this duty, transparency is essential to proper governance. An association that hides information from members and donors is exposed to claims for misleading and to regulatory restrictions by the Registrar.

Members of the association have a wider right to inspect. The register of members, the register of board members, the minutes of general meetings and the financial reports presented to the meeting are open to their inspection at any reasonable time (section 39(a)). A board that unlawfully refuses to allow inspection exposes the association to legal proceedings by the member.

Personal liability of board members: when does it fall on you?

Board members bear personal liability for managing the association. Section 27 of the Amutot Law states that board members must act for the benefit of the association within its objects and in line with its articles and the decisions of the general meeting. Assuming that a board member “did not know” about a breach is not enough if they could have known through a reasonable check. Even a board member who is not a professional is not exempt from the basic duty of care.

If a board member caused damage to the association through negligence, they can be sued personally under the Torts Ordinance. If they took part in fraud, they are exposed to criminal liability. So board members must make sure they read the financial reports, take an active part in meetings, and record in the minutes any objection to a decision that seems improper to them.