Law 21,440, published in the Official Gazette on April 12, 2022, introduced important innovations in terms of tax incentives for donations to corporations and foundations, among other non-profit entities. This law contains a set of requirements and prohibitions to safeguard the proper use of donated resources, which operate in practice as a general regulatory framework for organizations registered in the public registry of donor entities, created by this regulation.

Regarding the above, we want to highlight the regulation contained in article 46J, incorporated by Law 21,440 to DL 3,063 on Municipal Revenues, referring to operations with related parties, a matter directly linked to the fiduciary duty of loyalty. This duty, in general terms, consists of the duty of directors, and those who hold other senior management positions, to put the interest of the organization in which they perform their duties above any other particular interest, whether their own or that of a person. or related entity. Despite its vital importance, this duty is not largely developed in the organic regulation of corporations and foundations in the Civil Code.

The aforementioned article establishes the following requirements and prohibitions for entities registered in the registry: i) prohibition of remunerating services of its members, associates, directors, executives or persons related to them “at values higher than normal market values or those that are normally charged in agreements of a similar nature, considering the circumstances in which the operation is carried out”; ii) obligation of the member, associate, director or executive who contracts with the donee entity, or its related parties, to refrain from celebrating or authorizing the respective act or contract; and iii) obligation to comply with the same requirements and conditions on the occasion of any other economic benefit obtained by the aforementioned persons. Failure to comply with said prohibitions and obligations entails the elimination of the organization from the registry, and the impossibility of requesting registration again, for a period of two years.

The absence of a rule of this nature in the Civil Code leaves a very important gap in terms of a fundamental standard for the good governance of corporations and foundations. This is given that operations with related parties can lead to the improper extraction of resources from an organization, through charges for goods and services in excess of their market value or what an unrelated party would charge in similar circumstances. In this way, these types of operations can be used as mechanisms for formally non-profit entities to operate in practice as for-profit entities.

Although article 551-1 of the Civil Code addresses some aspects of the matter, this regulation is much less comprehensive and more lax than that of Law 21,440. It is less comprehensive because it only restricts the remuneration of board members, without setting limits on what their related people or other people in influential positions (for example, a CEO) can receive. At the same time, it is more lax because it does not establish a procedure or objective criteria for making this type of decision.

Based on the above, we estimate that Law 21,440 fills a very relevant gap in terms of the configuration of the duty of loyalty in corporations and foundations, establishing an objective criterion to limit the remuneration and economic benefits for their directors, executives, members, associates and people related to them, along with expressly establishing an obligation of abstention for those who have an interest in the decision, act or contract. However, it is insufficient to completely fill this gap, since not all of these entities are financed through donations with tax benefits and there are also other alternatives to do so, other than Law 21,440.

This should call us to a discussion about the relevance of extending this regulation to all corporations and foundations, incorporating a norm of this nature in the Civil Code, and, beyond that, establishing it as a minimum standard for all corporations and foundations that intend to receive donations with tax benefits. All this to put the duty of loyalty in the central place it should have in the governance of this type of organization.

This article was published originaly in https://estadodiario.com/columnas/ley-21-440-y-deber-de-lealtad-en-corp…