Are you interested in opening a Non-Profit Organization (or “NPO”) but is unsure which type is the best suited for your objectives?
The aim of this article is to summarize the different options for types of NPOs or legal entities and to explain the different purposes of each entity.
The purpose of Non-Profit organisations is to give a platform to a group of 3 or more persons who have the same objective and most importantly do not want to share in the profits of the organisation. Any and all profit must be put back into the organisation or be used for public benefit purposes.
There are three types of NPOs that you can register for in South Africa. All of them can be registered with the Non-Profit Organizations Directorate, which is part of the Department of Social Development. From such a registration you can obtain NPO status should the organization meet the necessary requirements.
Voluntary Associations
Voluntary Associations are the least complex of the 3 vehicles available for non-profit use. It is governed by a constitution (the founding document), and has no other legal registrations required.
Registration with the Non-Profit Organisation Directorate is optional and not a requirement but is advisable to ensure separate legal identity from the members.
The organization may be exempted from income taxes if it registers and qualifies for a Public Benefit Organization (PBO) with SARS. If it further qualifies for a Section 18 A exemption where the donors may receive a tax benefit on donations given to the organization.
Voluntary Associations are governed by the common law
Best use:
For smaller organisations that does not foresee a large amount of money, property or equipment that would need to be controlled.
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Trusts
A non-profit trust is established through a contract called a trust deed and must be registered with the Master of the High Court. Professional assistance will be necessary with the registration of this organisation.
Registration with the Non-Profit Organisation Directorate is optional and not a requirement but is advisable to ensure separate legal identity from the members.
Best use:
The trustees (the persons in control of the trust) know that the donors to the organisation will require a more formal set up and control measures to donate. A high degree of accountability is required of the trustees to the donors.
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Non-profit Company (NPC)
The most regulated and controlled of the vehicles for non profit entities is the Non-Profit Company. It must be registered with the Companies and Intellectual Commission (CIPC). The founding document for a Not for Profit company is a Memorandum of Incorporation (MOI) which sets the rules agreed by shareholders for the management of the company
The Non-Profit Company is a separate legal entity to its directors. Registration with the NPO Directorate is advisable.
Best use:
Where donors require a more regulated, transparent and accountable entity to donate to, or where the objective of the NPO is to cover a wide area or to manage a large amount of money, property or equipment.
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