A non-profit company is a company incorporated for public benefit or other object relating to one or more cultural or social activities, or communal or group interest.
The income and property of a non-profit company is not distributable to its incorporators, members, directors, officers or persons relating to any of them and must be used to advance the purpose for which it was created, as set out in its MOI. A non-profit company must have at least three incorporators and three directors and may be registered with or without members. A non-profit company is not required to have members. The members of a non-profit company are persons who participate in the activities of the non-profit company, such as members of a church or a pension fund. Non-profit companies registered without members, may be registered with a standard or a customized Memorandum of Incorporation (MOI).
If you wish to receive grants or donor-funding, you are required to register with the Department of Social Development. Non-profit companies registered with the Department of Social Development can apply for funding at the National Lottery Board.
What does it mean to register as a NPO, NPC, PBO?
The Non-Profit Organisations Act 71 of 1997 (hereinafter “NPO Act”), came into operation on 1 September 1998 as a result of a lengthy process of policy and legislative reform negotiated between the state and civil society organisations.
Primarily, the NPO Act’s objectives are to create an enabling environment for nonprofit organisations (NPOs) and setting and maintaining adequate standards of governance, accountability and transparency by creating a voluntary registration facility for NPOs.
An NPO is defined in Section 1 of the NPO Act as a trust, company or other association of persons established for a public purpose and of which its income and property are not distributable to its members or office bearers except as reasonable compensation for services rendered.
The Non-profit Organisations Directorate was established in terms of the NPO Act to administer the Register of NPOs in South Africa. The NPO Directorate is a public office and holds information about registered NPOs that is accessible to the public.
The Difference Between an NPC and NPO
The difference between an NPC and NPO is not immediately apparent, even in my post where I compare NPO types. Let’s make an attempt to delve a little deeper into the meaning of each, and then compare the differences.
Non–profit organisations (NPO)
The Nonprofit Organisations Act, 1997 (Act No. 71 of 1997) replaced the previous Fundraising Act (Act No. 107 of 1978) and came into operation on 1 September 1998 and was amended by the Nonprofit Organisations Amendment Act, 2000 (Act No. 17 of 2000). Since 2012, there has been a draft NPO Policy Framework in the making, aimed in part at increasing regulation of the nonprofit sector. NPOs are administered by the Nonprofit Directorate of the Department of Social Development (DSD).
Most NPOs are Voluntary Associations (VAs), but an NPC or Trust may register as an NPO in addition to their registration with CIPC (NPCs) or the Master of the High Court (Trusts) if they choose to.
While some choices of NPOs are limited by law, they are generally free to choose how they structure themselves and function.
To register as a NPO, organisations are required to complete a prescribed application form and submit same to the Directorate for NPOs, which forms part of the Department of Social Development:
1. With two copies of the organisation’s founding document, i.e. a constitution for a volunteer association;
2. Memorandum of incorporation with the company’s registration letter for a non-profit company;
3. A deed of trust with the trustees authorisation letter for a trust etc.
(A more detailed list of requirements can be viewed at www.dsd.gov.za)
This founding document of the organisation must meet the requirements of Section 12 of the NPO Act, which shortly, includes the following:
– The organisation’s main and ancillary objectives;
– That the organisation’s income and property are not distributable to its members or office-bearers, except as reasonable compensation for services rendered;
– Make provision for the organisation’s continued existence notwithstanding changes in the composition of its membership or office-bearers;
– Ensure that the members or office-bearers have no rights in the property or other assets of the organisation
– specify the organisational structures and mechanisms for its governance;
– Set out the rules for convening and conducting meetings
– Set out a procedure by which the organisation maybe wound up or dissolved;
– And provide that when the organisation is being wound up or dissolved, any asset remaining after all its liabilities have been met, must be transferred to another non-profit organisation with similar objectives.
The status of registering the organisation as an NPO is furthermore a funding requirement for most donor and funding agencies.
Non-profit company (NPC)
non-profit company (hereinafter “NPC”) is a company incorporated for public benefit or other object relating to one or more cultural or social activities, or communal or group interest. The name of the company must end with the abbreviation “NPC”.
The Companies Act, 2008 (Act No. 71 of 2008) replaced the previous Companies Act (Act No. 61 of 1973) and came into operation on 1 May 2011. With the act, previous “Associations Incorporated Under Section 21” were automatically deemed to have amended their Memorandum of Incorporation (MOI) to reflect that they were now Section 10 NPCs, compliant with the new law and required to append NPC to their names. NPCs are regulated by the Companies and Intellectual Properties Commission (CIPC).
NPCs are subject to the Companies Regulations, 2011, which can compel them to subject to auditing of financial statements if they meet certain criteria, instead of an independent review. Most NPCs conduct annual audits, despite the provision to only submit an independent review of financial statements.
An NPC has limited choices in how it structures itself and functions, since much of it is regulated by law.
The income and property of an NPC is not distributable to its incorporators, members, directors, officers or persons relating to any of them and must only be used to advance the purpose for which it was created. This should be set out in the company’s Memorandum of Incorporation (MOI).
An NPC must have at least three incorporators and three directors and may be registered with or without members. The members of an NPC are usually persons who participate in the activities of the NPC. Non-profit companies registered without members, may be registered with a standard or a customized MOI.
It is important to remember that an NPC is still a company at the end of the day and is still required to comply with ongoing administrative requirements set out in the Companies Act 71 of 2008, including the filing of annual returns.
Incorporation as an NPC does not necessarily qualify the company for any particular treatment in terms of the Income Tax Act 58 of 1962, or any other legislation. The NPC has to apply to the South African Revenue Service (SARS) for a tax-exempt status, known as Public Benefit Organisation (PBO) status.
This will allow the company to receive tax benefits to reduce their tax burden and when registered as a PBO, donations made to the non-profit company are deductible from the donor’s tax liability in terms of Section 18 of the Income Tax Act.
If the company wishes to receive or apply for government funding, a fund raising number, grants or donor-funding, it will be required to register with the Department of Social Development as an NPO.
Public Benefit Organisations (PBO)
NPOs play a significant role in society by taking a shared responsibility with government for the social and development needs of the country. Therefore, preferential tax treatment is provided to assist these NPOs by augmenting their financial resources.
This preferential tax treatment is however not automatic, and organisations that meet the requirements set out in the Income Tax Act, must apply for this exemption. If the exemption application has been approved by SARS, the organisation is registered as a Public Benefit Organisation (PBO) and allocated a unique PBO reference number.
The conditions and requirements for an organisation to be approved as a PBO are contained in Section 30 of the Income Tax Act. The rules governing the preferential tax treatment of PBOs are contained in Section 10(1)(cN) which provides for the exemption from normal tax of certain receipts and accruals of approved PBOs.
Approved PBOs have the privilege and responsibility of spending public funds, which they derive from donations or grants, in the public interest on a tax-free basis.
The main differences between an NPC and an NPO are the laws they are guided by, the organisations they report to, how long records are kept, whether audits are mandatory and the personal liability of board members.
It is thus clear that these different registrations for a non-profit organisation go hand in hand and it is necessary to register your NPC or non-profit trust as both an NPO with the Department of Social Development and an PBO in terms of the Income Tax Act to derive all the possible benefits you can.
About registering a non-profit company
For your civil society organisation to be recognised as a legal entity, you must register it as a non-profit company (NPC) with the Companies and Intellectual Property Commission (CIPC).
NPCs are entities that are set up to help people, protect the environment or to lobby for some good cause. They could include churches, charity organisations and cultural organisations. The primary objective of an NPC is to benefit the public, not to make profit.
The income and property may not be distributed to the incorporators, members, directors or officers of a non-profit company, except as reasonable compensation for services rendered by them. All of a non-profit company’s assets and income must be used to advance its stated objectives, as set out in its Memorandum of Incorporation (MOI).
A minimum of three incorporators must complete and sign the MOI. A minimum of three directors must be appointed.
Non-profit companies must at all times have at least three directors (unless MoI indicated a higher minimum number of directors). The appointment of an auditor and company secretary is not mandatory but optional.
The name of a non-profit company will end with “NPC”.
What you should do:
1. Reserve a company name by completing the Application to Reserve a Name, Form CoR 9.1. A name reservation is valid for six months.
2. Pay the filing fee.
3. Submit the following supporting documents with your application:
– Certified passport copies (if foreign national) or certified identify document (ID) copies (if South African) of all indicated initial directors and incorporators
– A certified ID copy of the applicant if the application is not made by one of the indicated initial directors or incorporators
– If an incorporator is a juristic person, then a power of attorney for the representative authorised by that juristic person to incorporate the company and sign all related documents
– If another person incorporates the company and signs all related documents to the incorporation on behalf of the incorporators and initial directors, a power of attorney and certified ID copy of such a person is required
– If a name was reserved before the filing of incorporation documents, then a valid name reservation document is necessary.