How an organization's legal structure determines its eligibility for international funding
DMS Advogados - Regulation & Technology Area
1. The problem isn't one of purpose - it's one of structure
The most common perception in the third sector is that international funders evaluate projects on the basis of social impact, thematic alignment and program implementation capacity. This perception is partially correct - but it omits a determining variable: the legal and governance structure of the proposing organization.
Over the last two decades, private foundations, multilateral agencies and social impact funds have consolidated organizational due diligence processes that precede, and in many cases overlap with, the evaluation of the project's merit. The practical result is that organizations with technically sound proposals are eliminated in the preliminary stages due to documentary and structural shortcomings which, in theory, would have a relatively simple solution - but which, in practice, reflect a lack of functional governance.
The purpose is not enough. The structure that supports it needs to be demonstrable.
2. Hypothetical scenario: the moment the proposal does not reach the merits
Consider the following situation: a non-profit organization with ten years' experience in environmental education in riverside communities in northern Brazil is invited to participate in a call for proposals from a European fund for socio-environmental development. The organization has a history of projects, a qualified technical team and well-established relationships with local communities.
In the compliance phase of the selection process, the funder requests the standard governance documentation: (i) minutes of meetings of the board of directors for the last 24 months; (ii) financial report for the last financial year, audited by an independent firm; (iii) updated bylaws, with express provision for internal control mechanisms and segregation between the deliberative and executive functions; (iv) conflict of interest management policy.
The organization has no regular minutes - meetings took place, but with no formal record. There is no external audit: accountability was carried out internally. The bylaws were drawn up twelve years ago and have not been revised. The conflict of interest policy does not exist as a stand-alone document.
The funder terminates the organization's participation before evaluating the project. The communication is technical: the organization does not meet the minimum governance compliance requirements set out in the call for proposals. The mission was not rejected. The structure was.
3. What international funders actually evaluate
The proliferation of international accountability frameworks has transformed due diligence into a structured and measurable process. Two examples illustrate the extent of these requirements.
The International Aid Transparency Initiative (IATI) sets transparency standards for organizations that access international cooperation resources, requiring publicity of activities, finances, results and organizational documents in an accessible and standardized format. Compliance or non-compliance with IATI standards is publicly verifiable and influences funders' perceptions of the organization.
The USAID Partner Vetting System, in turn, applies an institutional vetting process that goes beyond financial capacity: it examines the management structure, internal oversight mechanisms, integrity policies and compliance records. Organizations that fail to demonstrate these structural elements do not advance in the process, regardless of their programmatic merit.
In addition to these specific frameworks, private foundations such as the Open Society Foundations, Ford Foundation and the like have adopted equivalent - often stricter - requirements for partner organizations in their internal guidelines.
4. The Brazilian legal base: the norm exists, implementation is the problem
The Brazilian legal system already establishes governance requirements for third sector organizations. Law No. 9,790/1999 (OSCIP Law) stipulates, among the conditions for qualification, the existence of a supervisory board or equivalent body, with the power to issue opinions on financial and accounting performance reports. Law 13.019/2014 (Regulatory Framework for Civil Society Organizations) establishes specific requirements for organizations that enter into partnerships with public authorities, including verifiable technical and operational capacity.
Associations and private foundations, on the other hand, are subject to the provisions of the Civil Code, which requires bylaws with management and supervisory bodies, as well as a general meeting as the highest decision-making body.
The deficit is not, therefore, in the absence of a legal norm. It lies in the absence of a culture and practice of implementation. Many organizations have the bodies provided for in their statutes, but do not operate them with the regularity, registration and formality that international funders expect to find in the documentation presented.
5. Governance as a financial asset: the economic logic
The traditional approach treats governance as a cost - a bureaucratic requirement that consumes time and resources with no direct return. This perception is economically mistaken when analyzed in the light of international financing models.
Access to international development, bilateral cooperation and social impact funds represents, for many Brazilian third sector organizations, the difference between institutional stability and dependence on more volatile and competitive domestic funding sources. These funds often offer longer funding horizons, larger amounts and less interference in program execution.
The cost of legally adapting governance - revising the bylaws, implementing records and minutes, hiring an independent auditor, drawing up internal policies - is measurable and generally limited. The cost of not doing so is ineligibility for a class of financing with structurally superior characteristics.
Documented and functional governance thus becomes an asset that expands the set of resource sources accessible to the organization - and, consequently, its ability to plan and execute in the long term.
6. Minimum governance elements for international eligibility
Based on the standards established by the main international frameworks and financiers, we have identified the following elements as recurring requirements in due diligence processes:
- An active deliberative council or board of directors, with regular meetings duly recorded in formal minutes, dated, signed and filed;
- Supervisory board or equivalent body with powers to analyze financial statements and issue opinions;
- Annual financial reports prepared in accordance with the accounting standards applicable to the third sector (NBC TG 07, where applicable) and submitted to independent auditing;
- Updated bylaws, with express provision for segregation of duties between the deliberative and executive bodies, as well as internal control mechanisms;
- Policy for managing conflicts of interest, with defined procedures for identification, declaration and removal in relevant situations;
- Anti-corruption and integrity policy, aligned with the requirements of financiers operating under legislation such as the US Foreign Corrupt Practices Act or the UK Bribery Act;
- Active transparency: publicizing statutes, minutes, financial and activity reports, preferably on publicly accessible platforms.
7. The strategic question for third sector managers
The decision point for managers and board members of third sector organizations is not whether governance should be strengthened - it is when and with what priority this strengthening should take place in relation to the organization's fundraising cycle.
Organizations that proactively begin the process of legally adapting their governance, outside the context of a specific call for proposals, arrive at the selection processes with consolidated documentation, an established history of meetings and a verifiable structure. This differential is not marginal - in competitive processes with multiple eligible organizations, robust governance can be the determining factor in the funder's final decision.
The relevant question, therefore, is not whether your organization has enough purpose. The question is whether it has enough structure for the purpose to be funded.
Conclusion
The convergence between governance requirements and access to international funding is not an emerging trend - it is a consolidated reality that defines which organizations are able to access the most stable and significant sources of funding on the global philanthropy and development cooperation scene.
The legal-structural adjustment needed to meet these requirements is feasible, measurable and strategically justifiable. The right time to do this is not during a fundraising process - it's before it.
DMS Advogados advises third sector organizations on the structuring and legal adequacy of their governance, with a focus on eligibility for domestic and international funding.
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