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Registering an NPO, PBO or NPC - what does it mean?

Registering an NPO PBO or NPC

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.

Non–profit organisations
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, with two copies of the organisation’s founding document, i.e. a constitution for a volunteer association; memorandum of incorporation with the company’s registration letter for a non-profit company; and a deed of trust with the trustees authorisation letter for a trust.

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
A 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 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
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.

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.

At SchoemanLaw Inc. we can assist you with not only assessing which structure is most suitable for your non-profit organisation but also registering you as an NPO and PBO.

© Arinda Truter - Schoemanlaw Inc. - 2017

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