The legal
framework for not-for-profit, non-governmental organizations ("NGOs")
in South Africa consists of four primary tiers.
The first tier
(establishment) allows for the establishment under statutory
and common law of the following three forms of not-for-profit
organizations:
Voluntary associations, established under common law;
Non-profit Trusts, established under statutory law; and
Non-profit Companies incorporated for a public benefit objective or
an objective relating to one or more cultural or social activities,
or communal or group interests, established under statutory law. [1]
The second tier
of legislation (voluntary registration) allows any of these
organizational forms to apply for the status of a "Registered
Non-Profit Organization." Among other requirements, a
Registered Non-profit Organization cannot distribute profits, and it
must meet certain governance criteria.
The third
legislative tier (partial tax exemption) enables a Non-profit
Organization to apply for the status of "Public Benefit
Organization." Among other requirements, the organization's
sole purpose must be to undertake one or more public benefit
activities, carried out in a not-for-profit manner and with an
altruistic or philanthropic intent. Public Benefit Organizations are
restricted from using their resources to directly or indirectly
support, advance, or oppose any political party, but they are not
restricted from lobbying. They are entitled to a broad range of
fiscal benefits, including a partial income tax exemption, an
exemption on donations tax, and for some an exemption on transfer
duty on immovable property.
Finally, the
fourth legislative tier (donor deductibility status) allows
Public Benefit Organizations to apply for the right to receive
tax-deductible donations.
Other
not-for-profit legal forms, which are outside the scope of this Note
due to their limited interaction with U.S. grantmakers, include trade
unions, employers' organizations, political parties, and Friendly
Societies established for the benefit of their members.
B. Tax Laws
The Income Tax
Act provides two major benefits to the not-for-profit sector, namely:
partial tax exemption for organizations that qualify as Public
Benefit Organizations and donor deductibility for contributions to
those Public Benefit Organizations that carry out certain specified
Public Benefit Activities ("Public Benefit Organizations with
Donor-Deductible Status"). Public Benefit Organizations may
also access benefits with regard to donations tax, estate duty,
transfer duty, and the skills development levy. Finally, certain
organizations are eligible for Value Added Tax preferences.
South Africa and
the United States have entered into a double taxation treaty.
II. Applicable Laws
Constitution of the Republic of South Africa, Act 108 of 1996 (as
amended)
Companies Act of 2008 (as amended by the Companies Amendment Act of
2011)
The voluntary
association is the most common legal form for not-for-profit
organizations in South Africa. No office of registry exists for
voluntary associations. Forming a voluntary association requires only
that three or more people agree to achieve a common objective that is
primarily not for profit. The agreement may be oral or written,
although it is customary for the agreement to take the form of a
written constitution. Voluntary associations are a product of the
common law and are not regulated by statute. This can be confusing
because the common law is not easily accessible and sometimes is
conflicting. Voluntary associations may be classified as follows:
Corporate bodies under the common law, known as "universitas";
and
Bodies that remain unincorporated at common law, known as
"non-corporate associations."
When deciding
how to classify a voluntary association, a court will consider the
organization's constitution as well as its nature, objectives, and
activities. An organization generally must meet three requirements in
order to be a universitas:
It must be structured to continue as an entity notwithstanding a
change in membership;
It must be able to hold property distinct from its members; and
No member can have any rights, based on membership, to the property
of the association.
If
all of these requirements are met, the organization will be deemed a
universitas with legal personality.
Non-profit
Trusts
Trusts in South
Africa are governed under the Trust Properties Control Act and common
law. A trust can be established for private benefit or for a
charitable purpose. In order to determine whether a trust qualifies
as a charitable trust under South African law, a grantmaker must look
to the trust deed.
A trust is
created when property is transferred by a trust deed. The trust then
manages the property for the benefit of others or for the achievement
of a particular goal. The property can be transferred by written
agreement, testamentary writing, or court order. The person who
administers the trust property is called a trustee. [TPCA
§1] A court official, called a Master of the High Court, has
jurisdiction over a trust if the majority of the trust property is
situated in his or her jurisdiction. [TPCA
§ 3] The Master holds the trust instruments, oversees the
appointment of trustees, and polices the trustees' performance with
respect to the trust property. [TPCA § 4; §§ 6-7; §§
16-20]
A trust does not
have separate legal personality, but trustees still enjoy limited
liability. All rights and responsibilities vest collectively in the
Trustees in their capacity as Trustees.
Non-profit
Companies
The
South African Companies Act of 2008, which came into operation on May
1, 2011, provides for the incorporation of a non-profit company,
which is recognized as a separate category of company. The non-profit
company can be established with or without members, but it must have
at least three directors. [Companies Act §3(1)] 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. [Companies Act,
Schedule 1, para 1] The non-profit company is subject to the
non-distribution constraint requirement. The non-profit company is
incorporated with the Companies Commission. Non-profit companies have
legal personality and therefore offer limited liability to their
members and directors. They can enter into contracts and sue and be
sued in their own name.
The Companies
Act of 2008, unlike its predecessor, does not include provisions for
the registration of branches of foreign not-for-profits (previously
known as section 21A companies) in South Africa. Such branches were,
in terms of the old Companies Act, incorporated as new legal entities
in South Africa. Foreign companies carrying on
certain activities in South Africa are
required under section 23 of the new Companies Act
to register as an "external non-profit company" and
maintain at least one office in South Africa. Entering into contracts
of employment or engaging in not-for-profit activities in South
Africa for at least six months would, amongst other activities,
require registration by a foreign company as an external company with
the Companies Commission. A separate legal entity is not incorporated
when a foreign company is registered as an external company.
\
IV. Public Benefit
Status
Registered
Non-profit Organization
In 1997, South
Africa adopted the Non-Profit Organisations Act (the NPO Act). [2]
Registration under the NPO Act is voluntary. Registration under
the NPO Act is, however, a common requirement to access funding from
government departments and some corporate donors.
To be eligible,
an organization must meet all of the following criteria:
It is a trust, company, or other association of persons established
for a "public purpose," a term that is not further
defined [NPO
Act §1(1)(x)(a)];
It does not distribute income or property to members or officers
except for "reasonable compensation for services rendered"
[NPO
Act §1(1)(x)(b)];
It includes certain internal governance provisions in its founding
document [NPO
Act §12(2)].
An organization seeking
registered NPO status under the NPO Act must apply to the Directorate
for Nonprofit Organizations. If the organization qualifies, the
Directorate issues a certificate and registration number. To retain
this status, the organization must submit narrative and financial
reports to the Directorate annually.
At the end of March
2012, the total number of registered organizations was 85,248. This
increase translated into an average annual growth rate of almost 14%.
[3] However, as of January 2013, the website of the NPO
Directorate reflected about 29,000 organizations registered. It
is clear that numerous organizations have been de-registered by the
NPO Directorate, presumably for reasons of non-compliance.
Approved Public
Benefit Organization
To qualify as a
Public Benefit Organization (PBO), an organization must comply with
all of the following requirements of Section 30 of the Income Tax
Act:
It must be a non-profit company formed and incorporated under the
Companies Act, a trust established in the Republic and registered
with the Master of the High Court whose founding document is a trust
deed, a voluntary association, or "any agency or branch within
the Republic of any company, association, or trust incorporated,
formed, or established in terms of the laws of any country other
than the Republic that is exempt from tax on income in that other
country." [definition of PBO under ITA § 30(1)]
Its objectives must be to carry on one or more public benefit
activities as listed in the Ninth Schedule of the Act; it cannot
pursue any other objectives.
The activities must be carried on in a non-profit manner and with
altruistic or philanthropic intent. No activity can promote the
economic self-interest of any fiduciary or employee, other than
reasonable remuneration to employees or officers.
Each of the organization's activities is for the benefit of, or
widely accessible to, the general public at large, including any
sector thereof (other than small and exclusive groups).
Public benefit
organizations are allowed to carry out public benefit activities
beyond the borders of South Africa without restriction. Public
Benefit Organizations with Donor-Deductible Status must, however,
carry on at least one of their public benefit activities in South
Africa. The qualifying public benefit activities appear in Part I of
the Ninth Schedule to the Income Tax Act. The Minister of Finance
may, however, determine additional activities from time to time. At
present, more than 60 activities qualify. [ITA,
Schedule Nine, §1-11] They fall under the following
headings:
Welfare and Humanitarian;
Health Care;
Land and Housing;
Education and Development;
Religion, Belief or Philosophy;
Cultural;
Conservation, Environment and Animal Welfare;
Research and Consumer Rights;
Sport;
Providing of Funds, Assets or Other Resources; and
General.
Additional PBO
requirements are discussed below.
Organizations
seeking PBO status must apply to the Tax Exemption Unit of the South
African Revenue Services, which also has been delegated on-going
supervisory powers over PBOs.
V. Specific Questions
Regarding Local Law
A. Inurement
Voluntary
Associations
Specific
prohibitions against private inurement would be included in a
voluntary association’s founding documents. In general,
governing board members of voluntary associations are bound by the
common law fiduciary duty to act in good faith and avoid conflicts of
interest in their dealings with the organization.
Trusts
A trustee’s
remuneration may be regulated by the instrument establishing the
trust. If the instrument is silent on the issue, the Trust Property
Control Act allows for trustees to receive reasonable remuneration
when executing their official duties. [TPCA
§22] The Master will set the amount in the event of a
dispute. An auditor of a trust's accounts must report any apparent
material irregularities in the accounts to the trustee. [TCPA
§15] The Trust Property Control Act requires trustees to
"act with the care, diligence and skill which can reasonably be
expected of a person who manages the affairs of another." [TPCA
§9(1)] A trustee's improper accounting in administering the
trust violates this fiduciary duty and constitutes grounds for
removal. [TPCA
§20(2)(e)]
Non-profit
Companies
Paragraph 3 of Schedule
1 to the Companies Act prohibits a non-profit company from, directly
or indirectly, paying any portion of its income or transferring any
of its assets, regardless of how the income or asset was derived, to
any incorporator, director or member of the company, except as:
reasonable remuneration for goods delivered or services rendered; or
as reimbursement for expenses incurred to advance the company’s
objectives; or as payment payable in terms of a bona fide agreement;
or payment in respect of any rights of that person to advance a
stated objective of the company; and in respect of any legal
obligation binding the company. Sections 66 (8) and (9) of the
Companies Act, dealing with the payment of remuneration to directors
for their service as directors, do not apply to non-profit companies.
[Companies Act §10(2)(c)]
Registered
Non-profit Organizations
In order to
register under the NPO Act, a non-profit organization must state in
its founding document (or the legislation under which it has been
established must specify) that its income and property are not
distributable to its members, officers, or trustees, except as
reasonable compensation for services rendered. [NPO
Act/1997 §12(2)(c)]
Approved Public
Benefit Organizations
In order to
obtain approval from the Commissioner under Section 30 of the ITA, an
organization cannot conduct any activity intended directly or
indirectly to promote the economic self-interest of any fiduciary or
employee of the organization, other than through reasonable
remuneration. In addition, the organization must not distribute any
of its funds to any person, other than in the course of undertaking a
public benefit activity; and it must use its funds solely for the
objective for which it has been established. [ITA
§(30)(3)(b)(ii)]
B. Proprietary
Interest
Voluntary
Associations
If a voluntary
association prohibits its members, directors, or employees from
having a proprietary interest in the organization's assets, the
prohibition will appear in the organization’s founding
documents.
Trusts
The Trust
Property Control Act provides that trust property may not form part
of the personal estate of a trustee, unless the trustee is also a
beneficiary entitled to the property under the trust instrument.
[TPCA
§12] The trust documents identify the beneficiaries of the
trust.
Non-profit
Companies A non-profit company
must apply all of its assets and income to advance its stated
objectives as set out in its Memorandum of Incorporation. [Companies
Act, Schedule 1, para 2] A non-profit company must, upon winding-up
or dissolution, distribute the entire net value of the company to one
or more non-profit companies, "registered external non-profit
companies" carrying on activities in South Africa, non-profit
trusts or voluntary associations having objectives similar to its
main objective. No past or present member or director is entitled to
any part of the net value of the company after its obligations and
liabilities have been satisfied. [Companies Act, Schedule 1, para 4]
Registered
Non-profit Organizations
The founding
document of an organization registered under the NPO Act must provide
that the members, officers, and trustees have no rights to the assets
of the organization solely by virtue of being members, trustees, or
officers. [NPO
Act/1997 §12(2)(f)]
Approved Public
Benefit Organizations
In order to
become approved as a Public Benefit Organization under Section 30 of
the Income Tax Act, an organization cannot accept any donation that
is revocable at the donor’s request. Moreover, the donor may
not impose conditions that could enable the donor or any person
related to the donor to benefit, directly or indirectly, from the
application of such donation. [ITA
§(30)(3)(b)(v)] In addition, the organization must apply its
funds solely to the objectives for which it was formed. [ITA
§(30)(3)(b)(ii)]
C. Dissolution
Voluntary
Associations
The founding
documents would contain any provisions governing the transfer of
assets of a voluntarily dissolving voluntary association, whether a
universitas or an informal voluntary association.
Trusts
In limited
situations, the trustee, or a person the court finds to have a
sufficient interest in the trust property, can petition the court to
vary trust provisions or to terminate the trust altogether. These
situations include: where the terms of the trust hamper the
achievement of the founder’s objective, prejudice the interests
of trust beneficiaries, or are against the public interest. [TPCA
§13] No provision in the Trust Property Control Act deals
explicitly with the treatment of assets upon termination of a trust.
The trust deed, however, must address the issue if the trust is a
registered Nonprofit Organization or an approved PBO.
Non-profit
Companies
As stated
earlier, a non-profit company must, upon winding-up or dissolution,
distribute the entire net value of the company to one or more
non-profit companies, "external non-profit companies"
carrying on activities in South Africa, non-profit trusts or
voluntary associations having objectives similar to its main
objective. The transferee(s) can be identified in its Memorandum of
Incorporation, by its members, if any, or directors, or by a court of
law if the members or directors fail to make such a determination. No
past or present member or director is entitled to any part of the net
value of the company after its obligations and liabilities have been
satisfied. [Companies Act, Schedule 1, para 4]
Registered
Non-profit Organizations
To register
under the NPO Act, the organization must stipulate in its founding
document that any assets remaining upon dissolution or winding up
will be transferred to another non-profit organization with similar
objectives. [NPO
Act/1997 12(2)(o)] Failure to transfer the assets to such an
organization may result in a fine, imprisonment, or both for the
person responsible. [NPO
Act/1997 §30]
Approved Public
Benefit Organizations
In order to
obtain approval from the Commissioner under the Income Tax Act,
Section 30, an organization must provide in its founding document
that any assets remaining upon dissolution or winding up must be
transferred to: (1) a similar public benefit organization approved
under this section; (2) an institution, board, or body which is
exempt from tax under the provisions of section 10(1)(cA)(i) of the
ITA, which has as its principal objective any public benefit
activity; or (3) a department of the state. [ITA
§(30)(3)(b)(iii)] If these and other conditions are not
contained in the organization’s founding document, three
fiduciaries of the organization must sign a written undertaking
confirming that the organization will comply with the relevant
provisions of Section 30 of the Income Tax Act. [ITA
§(30)(4)]
D. Activities
1. General
Voluntary
Associations
A voluntary
association can engage in any lawful activities in pursuit of a
legitimate objective, as long as those activities are not for gain
and are in line with its founding document.
Trusts
Trustees can
engage in any lawful activities as long as they remain within the
bounds of their fiduciary duty to the trust beneficiaries and within
the confines of the trust deed.
Non-profit
Companies
Non-profit
companies can carry on activities aimed at promoting the public
benefit or relating to one or more cultural or social activities, or
communal or group interests. [Companies Act, Schedule 1, para 1]
Registered
Non-profit Organizations
The NPO
Act does not address permissible activities. Because a registered
non-profit organization will ordinarily be a trust or a non-profit
company, the laws governing those legal forms and the tax laws
provide guidance on permissible activities. A voluntary association's
founding documents will specify its activities.
Approved Public
Benefit Organizations
The Tax Act
defines public benefit activity by listing over 60 permissible
activities (see Section IV, above, for further discussion).
2. Economic Activities
Voluntary
Associations
An association
can conduct subsidiary activities to make some profits, as long as
its main objective is not the acquisition of gain.
Trusts
Trusts are
generally flexible structures that can be used for a variety of
purposes. The Trust Property Control Act allows for the trust
instrument to designate the objective or beneficiaries but it does
not specify limitations to such objectives or beneficiaries.
[TPCA
§1] The purpose of a discretionary trust must be lawful and
sufficiently certain (Deedat and Others v The Master and Others 1995
(2) SA 377 (A)). If a trust has a primarily charitable purpose, the
fact that it has a non-charitable subsidiary purpose will not
invalidate it.
Non-profit
Companies
Non-profit
companies may carry on any business, trade or undertaking consistent
with or ancillary to its stated objectives, i.e., the
promotion of the public benefit or one or more cultural or social
activities, or communal or group interests.
[Companies Act, Schedule 1, para 2(a)]
Approved Public
Benefit Organizations
The law
explicitly limits the extent to which the economic activities of
organizations approved under Section
30 of the Income Tax Act will be tax exempt. The receipts and
accruals from such undertakings or activities shall be exempt from
normal tax only if one of the following criteria applies:
A) The undertaking or activity meets all of the following
requirements:
It is integral and directly related to the sole objective of the
public benefit organization;
Substantially the whole of its revenues are directed toward the
recovery of its costs; and
It does not result in unfair competition in relation to taxable
entities.
B) The undertaking or activity is of an occasional nature and
substantially performed by uncompensated volunteers.
C) The undertaking or activity is approved by the Minister of Finance
by notice in the Gazette, taking into account the following factors:
The scope and benevolent nature of the undertaking or activity;
The direct connection between the undertaking or activity and the
sole purpose of the public benefit organization;
The profitability of the undertaking or activity; and
The economic distortion that may result from allowing a tax-exempt
organization to carry out the undertaking or activity.
D) The undertaking or activity does not qualify under any of the
above criteria, and the revenues it generates do not exceed the
greater of the following:
5 percent of the public benefit organization's total receipts and
accruals during the relevant year of assessment; or
PBOs are allowed
to invest their funds only subject to restrictions that may exist in
the common law.
E. Political
Activities
The Income Tax
Act restricts PBOs from using their resources to directly or
indirectly support, advance, or oppose any political party. [ITA
§ 30(3)(h)] South African law does not restrict the
political activities of organizations that are not approved as PBOs.
Moreover, the law does not clearly restrict lobbying by any
organizations.
F. Racial Discrimination
The Constitution
of the Republic of South Africa (1997) stipulates that neither
the State nor any person may unfairly discriminate against anyone on
the basis of race (among other grounds). [Constitution
§§ 9(3) and (4)] Section 29 of the Constitution
establishes an individual’s right to receive a basic education
and to further his/her education. [Constitution
§29(1)] The right to receive a public education in the
language of one’s choice, where reasonably practicable, is also
guaranteed. [Constitution
§29(2)] The Constitution further provides that everyone has
the right to establish and maintain independent educational
institutions, so long as those institutions do not discriminate on
the basis of race. [Constitution
§29(3)(a)]
G. Control of
Organization
South African
law does not restrict individuals or legal entities from serving as
members, promoters, or trustees of not-for-profit organizations.
Foreign individuals can also serve as directors of local companies,
but legal persons in general cannot serve as directors of a
non-profit company. It is, subject to this limitation, possible for a
South African NGO to be controlled by an American grantor charity. It
has, however, become increasingly difficult for new non-profit
organizations with foreign trustees, directors or governing board
members to open a bank account in South Africa due to the
requirements implemented pursuant to the Financial Intelligence
Centre Act.
VI. Tax Laws
A. Tax Exemptions
In order to be eligible
for exemption from income tax and certain other taxes, an
organization first must qualify as a Public Benefit Organization
under Section 30 of South Africa’s Income Tax Act, as
summarized in Section IV, above. Eligibility for tax exemption
further requires the PBO to satisfy additional conditions on its
governance and operations. For example, the organization’s
founding document must provide that at least three unrelated persons
have fiduciary responsibility for the organization, and that no
single person can directly or indirectly control the decisions
relating to the organization. [ITA
§ 30(3)(b)(i)] In addition, the law limits the extent to
which the business activities of the organization are tax exempt (see
section V(D)(2), above). [ITA
§10(1)(cN)] Upon the organization’s termination, its
assets must be transferred to similar approved PBOs, an entity exempt
from tax under Section 10(1)(cA)(i), which has as its sole or
principal objective the carrying on of any public benefit activity,
or to the state. [ITA
§ 30(3)(b)(iii))]
A PBO approved
for exemption from income tax may also be exempted from capital gains
tax, donations tax, estate duty, and transfer duty if the property
will be devoted to public benefit activities, and, in certain cases,
the skills development levy. [Tax
Exemption Guide for Public Benefit Organisations in South Africa at
11]
A
new Dividend Tax was introduced by the Revenue
Laws Amendment Act, No. 60 of 2008 that entered into force on
April 1, 2012. Approved PBOs are now exempt from paying dividends tax
when dividends (that do not consist of a dividend in
specie) from for-profit
companies are paid to PBOs.
Other
not-for-profit organizations (that are not approved Public Benefit
Organisations or are not exempted from paying tax elsewhere under
Section 10 of the Income Tax Act) are liable for income and other
taxes and duties on the same basis as ordinary taxpayers.
B. Deductibility
of Donations
An individual or company is entitled to deduct from taxable income a
donation (in cash or in kind) to a Public Benefit Organization
carrying out specified public benefit activities. These organizations
are sometimes referred to as "Public Benefit Organizations with
Donor-Deductible Status." The donation must be supported by a
receipt issued by the Public Benefit Organization and the donation
cannot exceed 10 percent of the taxable income of the taxpayer to
qualify for this deduction.
The Public
Benefit Activities approved by the Minister of Finance for purposes
of Section 18A are set out in Part II of the 9th Schedule to the
Income
Tax Act. A variety of activities are approved, and they fall
under the following headings:
The Value Added
Tax Act imposes a 14 percent tax on the value of goods or services
supplied by a vendor, imported goods, or services provided by a
resident supplier or one carrying out business outside of South
Africa to a resident of South Africa who uses the services in South
Africa. [VATA
§7(1)]
The VAT Act
confers certain benefits on organizations that qualify as
"associations not for gain," "welfare organizations,"
or both. [VATA
§ 1] Qualifying organizations can claim the VAT they incur
as input tax and, generally speaking, must pay output tax only when
they charge for goods or services.
An "association
not for gain" is defined as a religious institution or other
society, association, or organization (including an educational
institution of a public character), which is not carried on for
profit and which is required to use any property or income solely to
further its aims and objectives. An association not for gain is
treated much like any other business if it makes taxable supplies,
but the following special provisions apply:
No output tax is payable on any "unconditional gifts"
received, such as a club member's donation of money to cover the
costs of new equipment for the club’s soccer team.
A VAT exemption applies to the sale of any donated goods or
services, and to the sale of manufactured goods where donated goods
and services constitute at least 80 percent of the value thereof.
Certain subsidies and grants received from National or Provincial
Governments (public authority) are zero-rated.
Some
associations not for gain also qualify as "welfare
organizations," which entitles them to the benefits listed above
plus additional ones. In order to qualify as a "welfare
organization," an organization must:
Be an association not for gain;
Be exempt from tax in terms of section 10 (1) (cN) of the Income Tax
Act; and
Carry on activities in the following categories:
Welfare and humanitarian;
Health care;
Land and housing;
Education and development; or
Conservation, environment, and animal welfare.
Along with the
benefits listed above for associations not for gain, a welfare
organization is eligible for the following additional benefits:
Even where no charge is made for supplies, the organization can
register for VAT and obtain input tax relief on its purchases.
A subsidy or grant received from the Government (or local
authorities) related to welfare activities will be zero-rated.
As of 2006, tax
exemption is granted to branches of foreign legal entities operating
in South Africa, on the condition that they qualify for tax exemption
in the country in which they are established. [RLAA§24] Upon
termination of these activities, however, they must transfer the
assets of such branch to a local PBO, organ of state, or designated
institution if more than 15 percent of the branch's receipts and
accruals (earned during the three years preceding the termination)
were derived from a source within the Republic. [ITA
§ 30(3)(b)(iiiA)]
Providing
funding to foreign not-for-profit entities that are exempt in their
countries of origin constitutes a public benefit activity.
The Revenue Laws
Amendment Act, No. 60 of 2008 amended section 18A of the Income Tax
Act to allow donations made to certain specialized agencies operating
in South Africa to be deductible. The amendment covers agencies such
as: the International Labour Organization, the World Health
Organization, the Food and Agriculture Organization of the United
Nations, and the International Monetary Fund.
[1]
The new Companies Act (No. 71 of 2008) was signed into law in April
2009 and entered into force on May 1, 2011. It changed the way in
which non-profit companies are incorporated and regulated. The new
Companies Act establishes two categories of companies: 1) non-profit
companies, and 2) profit companies. The Act contains a special set of
fundamental principles that are applicable to non-profit companies
and clearly sets out which parts of the Act are applicable to
non-profit companies. Effective May 1, 2011, pre-existing non-profit
companies incorporated under the old Companies Act of 1973 (known as
section 21 companies), are governed by the new Companies Act. These
pre-existing companies have
until April 30, 2013 to file a Memorandum of Incorporation and change
their name, without charge, to bring them in accordance with the new
Act.
[2] The Department of
Social Development in August 2012 published a document entitled
"Policy Framework on Nonprofit Organisations Law (the Policy)."
The Policy captures the foundational principles of the state’s
intended review of the legislative framework affecting the non-profit
sector. The Policy states that, "The objective of the review is
to ensure that the new regulatory framework is appropriate to the
legal and socio-economy contexts of South Africa as a constitutional
democracy and an open society." The aim of the review is "to
enhance the existing enabling environment for the nonprofit
organisations to flourish and protect the sector from abuse as well
as minimise undue disruptions to many of the positive contributions."
The Policy proposes the
establishment of a new entity to be called The South African
Nonprofit Organisations Regulatory Authority (SANPORA). It is
envisaged that SANPORA will fulfill a different role to that which
the NPO Directorate is currently fulfilling.
[3] The State of South
African Registered Nonprofit Organisations issued the terms of the
Nonprofit Organisations Act 71of 1997 – June 2012 - A Report
from the National NPO Database – Page 6.
