Choppy Waters or Plain Sailing?
For those embarking on their maiden voyage in the non-profit sector, and for seasoned sailors, the regulatory framework for nonprofit organisations can be intimidating and confusing.
Our message, as consultants to the sector, is that there is no need to batten the hatches and put on life-vests. Yes, it can seem confusing, but none of what you have to navigate is horribly difficult to understand. The most important thing is that you take the time to consider your options, and chart a proper course, one which will steer your organisation safely through the storms it will face.
This brief article cannot deal with every aspect that you need to consider, but aims to keep you off some of the rocks, giving you some helpful ‘beacons’ to steer by;
NPO registration- what is it for?
Acronyms abound in the non-profit sector. “NPO” (not to be confused with “NPC”) stands for NonProfit Organisation and refers to the voluntary and additional registration which organisations can apply for. This application is made to the Department of Social Development, under the NonProfit Organisations Act, 1994.
While registration under the Act is voluntary, organisations seeking funding from the Department of Social Development or other government departments will find that registration as an NPO is a pre-requisite. Other donors, too, may require NPO registration, as they feel it provides a level of comfort and assurance about the governance and compliance of the organisation.
It is important to note that non-profit organisations can and do exist as legal entities and can function as such, even if they are not registered with the Department of Social Development in terms of the NPO Act.
Who can apply to be registered as an NPO?
An organisation that is already legitimately set up as a separate legal entity in one of three ways:
- 1. In terms of the Companies Act 71 of 2008, a Non Profit Company (NPC) is registered at CIPC with a Memorandum of Incorporation (MOI) as its founding document (previously called Section 21 Companies).
- In terms of the Trust Property Control Act 57 of 1988, a charitable Trust is registered with the Master of the High Court with a Trust Deed.
- 3. Under common law, members can form a Voluntary Association (VA) with a Constitution. A voluntary association requires no formal registration to exist as a legal entity provided its Constitution includes the necessary clauses for existence apart from its members.
Registration as an NPO under the NPO Act is open to all three types of legal entity.
So, an “NPO” is not something that your organisation is, but it is an additional status that your organisation has. (Many believe that an organisation is either a NPO or a NPC. As you can see, it is possible and perfectly acceptable for a single entity to be a registered NPC (company) which then also applies for and is given NPO status)
So, what do we need to comply with?
All organisations of whatever form are required to register as a taxpayer with SARS (this is even if they apply for and are granted exemption from tax or PBO status- all organisations need to be given a taxpayer reference number before SARS will consider their exemption applications). All organisations, whether they are tax-exempt or not, need to file annual tax returns with SARS.
- Voluntary associations have no ‘external’ or ongoing registration requirements. They need to follow the rules in their constitution each year- meetings, voting for committee members, etc.
- For charitable Trusts there are no annual reporting requirements to the Master, but any changes in trustees, trustee details or accountant/auditor details must be reported to the Master.
- For an NPC, there is the annual obligation to file a ‘return’ with CIPC, which amounts to a small ‘registration’ fee, based on turnover (excluding donations, so R100 if you have only donor funding). If you do not pay this fee, your NPC will be deregistered by CIPC. As with a trust, all changes to directors, addresses and accountants/auditors must be reported to the CIPC. CIPC reporting processes are now online/via email, so are not nearly as onerous or delayed as they used to be. Director changes may be processed in under a week, if all documents are correct.
All registered NPOs (whether an NPC, Trust or Voluntary Association) must submit a narrative report (in the prescribed format) and annual financial statements (signed by an accounting officer or auditor) annually within 9 months of the financial year end to the NPO Directorate. They must also report any changes of address, office bearers and founding document.
We hope that this very brief introduction is useful to you, and provides some light to steer by.
There are other regulatory requirements which will need to be met, depending on the nature and scope of your work, particularly if you employ staff and/or work with children, the elderly, abused women, or with drug addicts etc.
Our advice is- firstly: consider your options, and secondly: don’t steer your ship alone, there is help available from experienced sailors.
Cathy Masters B Com (Hons) CA (SA) and Nicole Copley (BA LLB LLM-tax) (Non practicing attorney)