Starting a Non-Profit Organisation
Starting a Non-Profit Organisation in South Africa: A Comprehensive Guide
Starting a Non-profit organisation in South Africa is a noble endeavor that contributes significantly to social development, poverty alleviation, and community upliftment. However, the process involves navigating a complex legal and regulatory landscape. This comprehensive guide provides detailed steps, references to relevant legal authorities, and insights from key case law to assist you in successfully establishing a Non-profit organisation (NPO) in South Africa.
Understanding the Non-Profit Sector in South Africa
The non-profit sector in South Africa is governed by a robust legal framework designed to promote transparency, accountability, and effective governance. Starting a Non-profit organisation requires compliance with several statutes, including:
Nonprofit Organisations Act, 1997 (Act No. 71 of 1997)
Companies Act, 2008 (Act No. 71 of 2008)
Income Tax Act, 1962 (Act No. 58 of 1962)
Key regulatory authorities involved are:
Department of Social Development (DSD)
Companies and Intellectual Property Commission (CIPC)
South African Revenue Service (SARS)
Understanding these laws and authorities is crucial when starting a Non-profit organisation to ensure legal compliance and sustainability.
Defining Your Non-Profit Organisation’s Objectives
Before starting a Non-profit organisation, it’s essential to clearly define its mission, vision, and objectives. The purpose of your NPO should align with activities that qualify for public benefit status, such as:
Charitable activities
Educational initiatives
Health services
Environmental conservation
A clear definition of your objectives will guide the drafting of your founding documents and ensure alignment with legal requirements, particularly for tax exemption purposes under Section 30 of the Income Tax Act, 1962.
Choosing the Appropriate Legal Structure when starting a Non-profit Organisation
When starting a Non-profit organisation in South Africa, you can choose from three primary legal structures:
Voluntary Association
Non-Profit Trust
Non-Profit Company (NPC)
Voluntary Association
A voluntary association is formed when three or more people agree to achieve a common non-profit objective. It is the simplest and most common form of NPO in South Africa.
Non-Profit Trust
A non-profit trust is established by a trust deed and registered with the Master of the High Court. It is managed by trustees who hold assets for the benefit of the public or a specific community.
Non-Profit Company (NPC)
An NPC is registered under the Companies Act, 2008 with the CIPC. It must have at least three directors and is suitable for organisations that require a formal corporate structure.
Legal Reference:
The Companies Act, 2008 governs the incorporation and operation of NPCs, ensuring that they adhere to corporate governance standards.
Drafting Founding Documents when starting a non-profit organisation.
For a Voluntary Association
Prepare a constitution that outlines:
Name of the organisation
Objectives and purpose
Membership criteria
Governance structure
Meetings and procedures
Financial management
Dissolution procedures
For a Non-Profit Trust
Draft a trust deed specifying:
Name of the trust
Objectives and beneficiaries
Appointment and powers of trustees
Trust property and financial management
Amendment and dissolution procedures
For a Non-Profit Company
Create a Memorandum of Incorporation (MOI) in line with the Companies Act, 2008, detailing:
Company name
Objectives and purpose
Directors’ details and powers
Membership and voting rights
Financial management
Dissolution clauses
Legal Reference:
Section 13 of the Companies Act, 2008 outlines the requirements for the MOI.
Registering Your Non-Profit Organisation
Registration with the Department of Social Development (DSD)
Regardless of your chosen legal structure, registering with the DSD provides formal recognition and credibility.
Steps for Registration:
Complete the NPO Registration Form: Obtain the application form (NPO Form 1) from the DSD website.
Prepare Supporting Documents:
Constitution, trust deed, or MOI
Details of office bearers
Submit the Application:
Via mail, email, or in person at a DSD office
Address: NPO Directorate, Department of Social Development, Private Bag X901, Pretoria, 0001
Email: NPOEnquiry@dsd.gov.za
Await Approval:
The DSD will review the application for compliance with the Nonprofit Organisations Act, 1997.
Registration certificate is issued upon approval.
Legal Reference:
The Nonprofit Organisations Act, 1997 sets out the requirements and procedures for NPO registration.
Registration with the Companies and Intellectual Property Commission (CIPC)
If starting a Non-profit organisation as an NPC, registration with the CIPC is mandatory.
Steps for Registration:
Reserve a Company Name:
Use the CIPC online portal to reserve a name.
Pay the prescribed fee.
Prepare the MOI:
Use the standard MOI templates provided by the CIPC.
Ensure compliance with the Companies Act, 2008.
Complete Registration Forms:
CoR14.1: Notice of Incorporation
CoR14.1A: Initial Directors and Incorporators
Submit Documents:
Upload via the CIPC portal or deliver to CIPC offices.
Pay the required registration fee.
Receive Confirmation:
The CIPC issues a registration certificate and assigns a company registration number.
Legal Reference:
Sections 11 to 13 of the Companies Act, 2008 detail the name reservation and incorporation process.
Tax Registration and Exemption with SARS
Registering for Income Tax
All entities, including NPOs, must register with SARS for income tax purposes.
Steps:
Obtain an Income Tax Reference Number:
Complete the IT77 form for entities.
Submit to SARS with supporting documents.
Applying for Tax-Exempt Status (Public Benefit Organisation)
To benefit from tax exemptions, your NPO must obtain Public Benefit Organisation (PBO) status under Section 30 of the Income Tax Act, 1962.
Qualifying Criteria:
The sole purpose must be to carry out public benefit activities as defined in Part I of the Ninth Schedule of the Act.
Activities must be conducted in a non-profit manner with an altruistic or philanthropic intent.
Application Process:
Complete the Application for Approval of PBO Status (Form EI 1).
Prepare Supporting Documents:
Founding documents with required clauses (e.g., non-profit distribution, dissolution clauses)
Financial statements (if applicable)
Submit Application:
Email to teu@sars.gov.za or deliver to a SARS branch.
Await Approval:
SARS will review the application for compliance.
A letter of approval is issued upon successful application.
Legal Reference:
Sections 10(1)(cN) and 30 of the Income Tax Act, 1962 govern tax exemptions for PBOs.
Case Law Reference:
In Commissioner for South African Revenue Service v Tradehold Ltd [2012] ZASCA 61, the importance of proper tax compliance and transparency in financial matters was emphasized.
Implementing Good Governance Practices when starting a Non-profit organisation.
Starting a Non-profit organisation requires adherence to good governance to ensure accountability and transparency.
King IV Report on Corporate Governance
Although not legally binding, the King IV Report provides principles and recommended practices for ethical leadership and effective governance.
Key Principles:
Ethical Leadership: Acting in good faith and in the best interests of the organisation.
Performance and Value Creation: Ensuring the organisation achieves its objectives sustainably.
Adequate and Effective Control: Implementing appropriate risk management and internal controls.
Trust, Good Reputation, and Legitimacy: Building and maintaining stakeholder trust.
Legal Compliance
Regular Reporting: Submit annual reports and financial statements to the DSD or CIPC.
Financial Management: Maintain accurate financial records and conduct regular audits.
Policy Development: Establish policies on conflicts of interest, remuneration, and risk management.
Case Law Reference:
In Cape Bar Council v Judicial Service Commission and Others [2012] ZAWCHC 136, the court highlighted the necessity for organisations to strictly adhere to statutory requirements and procedures.
Understanding Regulatory Compliance when starting a Non-profit organisation.
Starting a Non-profit organisation entails ongoing compliance with various regulatory bodies.
Department of Social Development (DSD)
Annual Reports: Submit narrative and financial reports annually.
Notification of Changes: Inform the DSD of any changes in the organisation’s details or constitution.
Companies and Intellectual Property Commission (CIPC)
Annual Returns: NPCs must file annual returns with the CIPC.
Director Changes: Update the CIPC on any changes to directors or company details.
South African Revenue Service (SARS)
Tax Returns: Even if exempt, PBOs must submit annual tax returns.
Compliance Audits: Be prepared for possible SARS audits to verify compliance.
Case Law Reference:
Islamic Unity Convention v Independent Broadcasting Authority and Others [2002] ZACC 3 underscores the need for organisations to comply with regulatory requirements to avoid legal challenges.
Engaging with Professional Bodies and Support Networks
Starting a Non-profit organisation is facilitated by support from established networks.
Inyathelo – The South African Institute for Advancement
Services: Offers resources on sustainability, fundraising, and governance.
Website: www.inyathelo.org.za
SANGONeT (Southern African NGO Network)
Services: Provides information dissemination, capacity building, and networking opportunities.
Website: www.ngopulse.org
ProBono.Org
Services: Offers free legal services to non-profit organisations.
Website: www.probono.org.za
Legal Considerations and Case Law Insights
Understanding legal precedents is crucial when starting a Non-profit organisation.
Constitutional Rights
Case Law Reference:
In Jehovah’s Witnesses of South Africa v Chairman, State President’s Adjudication Committee [1990] ZASCA 108, the court recognized the rights of organisations to operate according to their beliefs and objectives, affirming constitutional protections for freedom of association and expression.
Compliance with Statutory Deadlines
Case Law Reference:
African Christian Democratic Party v Electoral Commission and Others [2006] ZACC 1 highlights the importance of adhering to statutory deadlines and procedures to avoid disqualification from participating in critical activities.
Community Representation
Case Law Reference:
Kyalami Ridge Environmental Association v Minister of Public Works [2001] ZACC 19 established that organisations have legal standing to represent community interests, reinforcing the role of NPOs in advocacy and public interest litigation.
Maintaining Transparency and Accountability
Starting a Non-profit organisation comes with the responsibility to uphold transparency and accountability.
Financial Transparency
Audited Financial Statements: Regularly audit financial statements, especially if required by donors or regulatory bodies.
Public Disclosure: Make financial information available to stakeholders to build trust.
Stakeholder Engagement
Communication: Keep beneficiaries, donors, and the public informed about activities and developments.
Feedback Mechanisms: Implement systems for receiving and addressing stakeholder feedback.
Ethical Conduct
Code of Ethics: Develop and enforce a code of ethics for board members and staff.
Conflict of Interest Policy: Manage conflicts of interest to maintain integrity.
Challenges and Solutions in Starting a Non-Profit Organisation
Common Challenges
Regulatory Complexity: Navigating legal requirements can be complex.
Funding Constraints: Securing sustainable funding is often challenging.
Capacity Building: Developing organisational capacity and skills is essential.
Solutions
Professional Advice: Seek legal and financial advice when necessary.
Capacity Building Programs: Participate in training offered by organisations like Inyathelo and SANGONeT.
Networking: Build relationships with other NPOs and stakeholders.
Frequently Asked Questions
What is the difference between an NPO and an NPC when starting a Non-profit organisation?
An NPO is a broader term encompassing voluntary associations, trusts, and NPCs registered with the Department of Social Development under the Nonprofit Organisations Act, 1997. An NPC is a type of non-profit company registered under the Companies Act, 2008 with the CIPC, suitable for organisations requiring a formal corporate structure.
Why is registering with the Department of Social Development important when starting a Non-profit organisation?
Registration with the DSD provides legal recognition, enhances credibility, and may be a prerequisite for accessing funding from certain donors or government grants. It ensures compliance with the Nonprofit Organisations Act, 1997.
How does obtaining PBO status from SARS benefit my Non-profit organisation?
PBO status grants your NPO tax exemptions on certain income and allows donors to receive tax deductions for donations made to your organisation. This is governed by Section 30 of the Income Tax Act, 1962.
What are the governance requirements when starting a Non-profit organisation?
Governance requirements include having a defined governance structure (board of directors or trustees), maintaining accurate records, implementing financial controls, and adhering to ethical standards as recommended by the King IV Report on Corporate Governance.
Can starting a Non-profit organisation involve generating income through commercial activities?
Yes, NPOs can engage in commercial activities provided that:
The activities are directly related to the organisation’s public benefit objectives.
Profits are not distributed but reinvested into the organisation.
The activities comply with tax regulations to maintain PBO status.
What legal obligations do Non-profit organisations have regarding financial reporting?
NPOs must:
Maintain proper accounting records.
Prepare annual financial statements.
Submit annual reports to the DSD or CIPC.
Comply with auditing requirements if stipulated by law or donors.
How does case law impact the operation of my Non-profit organisation?
Case law provides judicial interpretations of legislation and legal principles affecting NPOs. Understanding relevant cases helps ensure compliance with legal obligations and can guide organisational policies and practices.
What steps should I take to ensure ongoing compliance after starting a Non-profit organisation?
Stay Informed: Keep abreast of changes in legislation and regulations.
Regular Training: Invest in capacity building for staff and board members.
Policy Review: Regularly review and update organisational policies.
Are there any penalties for non-compliance when operating a Non-profit organisation?
Yes, penalties can include:
Deregistration: By the DSD or CIPC for failure to comply with reporting requirements.
Loss of PBO Status: By SARS, resulting in tax liabilities.
Legal Action: For breaches of statutory duties or governance failures.
How can I access funding when starting a Non-profit organisation?
Funding can be accessed through:
Grants: From government agencies, foundations, and international donors.
Donations: From individuals and corporate sponsors.
Fundraising Activities: Events, campaigns, and online platforms.
References
Department of Social Development (DSD)
Website: www.dsd.gov.za
Companies and Intellectual Property Commission (CIPC)
Website: www.cipc.co.za
South African Revenue Service (SARS)
Website: www.sars.gov.za
Nonprofit Organisations Act, 1997 (Act No. 71 of 1997)
Companies Act, 2008 (Act No. 71 of 2008)
Income Tax Act, 1962 (Act No. 58 of 1962)
King IV Report on Corporate Governance
Inyathelo – The South African Institute for Advancement
Website: www.inyathelo.org.za
SANGONeT (Southern African NGO Network)
Website: www.ngopulse.org
ProBono.Org
Website: www.probono.org.za
South African Legal Information Institute (SAFLII)
Website: www.saflii.org.za
If you would like to know more about the potential online exposure of your NPO click here.
If you would like to know what is required for the removal of a director click here.
If you would like to know more about memorandums of incorporation click here.
If you would like to know more about potential pitfalls when starting a company click here.
Case Law:
Commissioner for South African Revenue Service v Tradehold Ltd [2012] ZASCA 61
Cape Bar Council v Judicial Service Commission and Others [2012] ZAWCHC 136
Islamic Unity Convention v Independent Broadcasting Authority and Others [2002] ZACC 3
Jehovah’s Witnesses of South Africa v Chairman, State President’s Adjudication Committee [1990] ZASCA 108
African Christian Democratic Party v Electoral Commission and Others [2006] ZACC 1
Kyalami Ridge Environmental Association v Minister of Public Works [2001] ZACC 19
Conclusion
Starting a Non-profit organisation in South Africa is a multifaceted process that requires careful planning, legal compliance, and a commitment to good governance. By understanding the legal framework, engaging with regulatory authorities, and implementing best practices, you can establish an NPO that effectively serves its intended beneficiaries and operates sustainably within the legal parameters.
Remember, starting a Non-profit organisation is not just about compliance; it’s about making a meaningful impact and contributing positively to society. With dedication and adherence to the guidelines provided in this comprehensive guide, your organisation can thrive and fulfill its mission.
This article is for general informational purposes only and should not be used or relied upon as legal or professional advice. Meyer and Partners Attorneys Incorporated accepts no liability for any errors, omissions, losses, or damages arising from reliance on the information provided. For specific and detailed advice, please don’t hesitate to contact us at Meyer and Partners Attorneys Incorporated. Errors and omissions excepted (E&OE).