30 August 2021

Setting Up A Non-Profit Company? It’s A “Non-Brainer”!

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Some serious distinctions…

The terms “non-profit company”, “non-profit organisation”, and “section 21 company” are often bandied about sometimes synonymously and interchangeably. A non-profit company is mistaken for a non-profit organisation, and vice versa. A non-profit company (“NPC”) is essentially the successor to the “association not for gain” which had to be incorporated in terms of Section 21 of the previous Companies Act 61 of 1973.

A non-profit organisation and a non-profit company are part of the same family

A non-profit organisation refers to a family of entities capable of obtaining tax exemption status. The entities that fall under the non-profit organisation category are a trust, non-profit company, and a voluntary association. A non-profit company is a specific entity governed by Schedule 1 of the Companies Act 71 of 2008, read together with the private company provisions of the Act.

We need commitment!

To reap the benefits, an NPC needs to be registered. While a non-profit company is part of the same family, registration under the Non-Profit Organisations Act 71 of 1997 is voluntary. However, in order to access government funding and some corporate donors, it may be necessary to register as a non-profit organisation (“NPO”). This is largely due to the tax benefits given to NPOs which are not automatically given to NPCs.

The Companies Act’s answer to regulating goodwill in society

An NPC has a certain purpose.  It is meant to either serve the public’s benefit or perform cultural and social activities. It can also be registered for the community or a specific group. For example, one may have an NPC for the upliftment of women and children within a certain community, to raise money and help those in need.  The non-profit company can be incorporated for a public benefit objective, or an objective relating to one or more cultural or social activities or communal or group interests (Schedule 1 of the Income Tax Act 58 of 1962).

Getting realistic about the typical and the practical

The practicable distinction is between a non-profit private company with members and without members. An NPC can be registered as a 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). However, in terms of the MOI, the distinction between standard and customized is not made in practice.

It does not take much to set up!

A non-profit company must have at least three directors. It is very important that the directors not be tied together by family relationships. Incorporators are the non-profit company’s first directors and members (if it has members). This provides the NPC with its nuclear unit, like a nuclear family.

MOI? Me? No! Memorandum Of Association!

All companies must have a Memorandum of Incorporation (MOI) which sets out the rules agreed to for the management and maintenance of the business.  The standard MOI is provided by law and is integrated into the company registration process.

What did you name it?

When a baby born, he or she receives an identity number until the name is given and registered. Registering an NPC is similar.  When a company is registered without a reserved name, its registration number automatically becomes the company name with “South Africa” as the suffix. This is the quickest way to register a company. However, in terms of the Companies Act, 2008, a non-profit company must have a name, but this can be decided at a later stage.

Show us the money!

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. Upon winding-up, an NPC must distribute the entire net value of the company to one or more non-profit companies, non-profit trusts, or voluntary associations carrying on activities in South Africa and having objectives similar to its main objective.

The “hardest” part of this easy process

Non-profit companies are registered with the Companies and Intellectual Commission (“CIPC”). This can be done via the CIPC online portal. The first step is to register online as a customer or through an existing customer (for example, the accountant). The second step is to reserve a company name by completing the Application to Reserve a Name (Form CoR 9.1). A name reservation is valid for six months. The third step is to pay a filing fee.

Didn’t read the whole article? (This is the conclusion, but you can go back!)

The CIPC makes it very easy to register and establish a non-profit company. While there are fees attached to some parts of the registration, it is a relatively inexpensive process. Once the minimum number of three members or directors is secured, the process can begin.

There is also no need to register as a new customer with the CIPC if permission is granted to use an existing customer’s account. The name does not have to be decided at the same time the company is incorporated. It can be decided on or changed at a later time.

There are a few of us who don’t want to do good for society. When we gather a tribe of likeminded people who want to invest in or help gather funds for the cause, it’s a good start. The non-profit company was established to regulate these noble endeavours. It’s fairly easy and inexpensive to establish. The CIPC online portal provides the information and necessary forms. Bolster your chosen cause by choosing the accountability that an NPC offers to you and those who desire to join you.

Lisa Valene Thomas – 30 August 2021

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