Article written by Stefano de Gouveia, Candidate Attorney, checked by Ashleigh Butler, Associate, and released by Keane Robertson, Partner at Schindlers Attorneys
A non-profit company is a company incorporated for public benefit without the objective or goal of making a profit. A non-profit company is a juristic person, recognised by South African law as having rights and duties. The income and property of a non-profit company is owned by the company but is not distributable to its incorporators, members, directors, officers, or any persons relating to them and must be used to advance the purpose for which it was created, as set out in its Memorandum of Incorporation (“MOI”).
Incorporation or the registration of a non-profit company does not necessarily qualify the non-profit company for any particular treatment in terms of the Income Tax Act of 1962 or any other act, unless that specific act or legislation provides otherwise. However, a non-profit company can apply to the South African Revenue Service for a tax-exempt status, known as Public Benefit Organisation (“PBO”) status. PBO status will, amongst other things, allow the company to take advantage of tax benefits to reduce its own tax burden and confer certain tax benefits on third parties who donate to the company.
A non-profit company must have at least three incorporators and three directors and may be registered with or without members. In the context of incorporators, the word “person” includes a juristic entity which means that a legal entity or a trust may be an incorporator of a non-profit company but may not be a director because all directors must be natural persons.
The simplest form of non-profit company is one without members with a standard non-profit company MOI. Because there are no members, the non-profit company is then required to indicate alternative methods for the appointment of directors as there are no members to appoint the directors upon registering the company.
Registration / Incorporation
Non-profit companies are incorporated in a similar fashion as profit companies on the Companies and Intellectual Property Commission’s (“CIPC”) website. As mentioned, there must be three initial directors, and if its MOI provides for members, then these members must be designated. A customised or non-standard MOI allows incorporators, members, directors and officers of the company to impose certain conditions or waive certain requirements, but these conditions must be in line with Companies Act 71 of 2008 (the “Companies Act”) and cannot detract from the non-profit aim and object. Such MOI’s are required to be attached to the application for registration and may require the assistance of a legally qualified person.
Therefore, a non-profit company can be registered as one of the following:
- standard non-profit company (with members);
- standard non-profit company (without members);
- customised non-profit company (with members); or
- customised non-profit company (without members).
Typically, 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 for example. Where the MOI provides for membership, it may allow for membership to be held by juristic persons (including profit companies) as well as natural persons. Additionally, the MOI may only provide for a maximum of two classes of members, namely voting and non-voting members and it must set out:
i) the qualifications for membership;
ii) the process for applying for membership;
iii) any initial or periodic cost of membership in any class;
iv) the rights and obligations, if any, of membership in any class; and
v) the grounds on which membership may be suspended or lost.
Lastly, the name of a non-profit company must end with “NPC”. It usually takes a maximum of three days to reserve a name for a company through the CIPC website and thereafter it usually takes 25 working days from receipt of application to register a non-profit company. In terms of costs of registration, according to the CIPC website, a standard non-profit company MOI will cost R175.00 and a customised non-profit MOI (with or without members) will cost R475.00.
In conclusion, it is important to note the difference between a non-profit company and a non-profit organisation. The Non-profit Organisations Act 71 of 1997 (the “NPO Act”) states in section 1 that a non-profit organisation is ‘a trust, company or other association of persons –
(a) established for a public purpose; and
(b) the income and property of which are not distributable to its members or office-bearers except as reasonable compensation for services rendered’.
This definition is similar to a non-profit company, which has caused for much confusion. Non-profit organisations are predominantly regulated by the NPO Act, whereas non-profit companies are regulated by schedule 1 of the Companies Act.
Understanding non-profit companies in South Africa and how to register a non-profit company.