Part D: Nonprofit Organisations

The Nonprofit Organisations Act, 1997

• The Nonprofit Organisations Act, 1997 came into operation on 1 September 1998.

• Clause 2 of the Nonprofit Organisations Act (“NOA”) records that the objects of the NOA include the following :

  • Creating an environment in which nonprofit organisations can flourish.

  • Establishing an administrative and regulatory framework within which nonprofit organisations can conduct their affairs.

  • Encouraging nonprofit organisations to maintain adequate standards of governance, transparency and accountability, and to improve those standards.

  • Creating an environment within which the public may have access to information concerning registered nonprofit organisations.

• Chapter 2 of the NOA provides for the establishment of a Directorate for Nonprofit Organisations, and the appointment of a Director.  Among the duties of the Directorate are the preparation and issue of model constitutions for nonprofit organisations, and the preparation and issue of codes of good practice for nonprofit organisations.

• Chapter 3 of the NOA provides for the registration of nonprofit organisations.  Registration is voluntary (Section 12(1) of the NOA) .

Should NGOs register as Nonprofit Organisations?

• The NOA defines a nonprofit organisation as meaning :

“A trust, company or other association of persons established for a public purpose, and the income and property of which are not distributable to its members or office bearers except as reasonable compensation for services rendered.”

• The effect of this definition is that the three entities previously discussed in this Memorandum, namely a discretionary trust, a Section 21 company and a voluntary association, qualify as nonprofit organisations.

• The benefits or advantages of registration with the Directorate include the following :

  • Section 11 of the NOA provides that the Minister for Welfare and Population Development “may prescribe benefits or allowances applicable to registered nonprofit organisations …”.  Although no such “benefits or allowances” have yet been prescribed, it is possible that future benefits may include tax exemption, government grants, etc.

  • Section 15(1) of the NOA provides that when the Directorate registers a nonprofit organisation, that organisation must be issued with a certificate and a registration number.  That registration number may well give comfort to both local and foreign donors, in that it signifies that the organisation in question is recognised by a public authority (namely the Directorate) as being a nonprofit body, and is subject to the oversight of that public authority.

  • Section 16(1) of the NOA provides that the issue of a certificate of registration to a nonprofit organisation “is sufficient proof that the organisation is a body corporate”.   Therefore, to the extent that, say, a voluntary association is in doubt as to whether it is in fact a body corporate or juristic person, its registration as a nonprofit organisation will confirm that that organisation is a body separate in law from its members, namely that the principle of limited liability applies.  [It is worth noting in passing that a Section 21 Company and a properly established voluntary association are in any event bodies corporate, whereas a trust, strictly speaking, is not a body corporate.  Although the drafters of the NOA may not have appreciated this, the purported effect of Section 16(1) is to override the considerable body of common law relating to the status of a trust.]

  • It is important to note that registration as a nonprofit organisation does not as yet confer any special tax privileges, such as exemption from income tax, transfer duty, VAT, etc.  A nonprofit organisation seeking such tax privileges will still have to approach the Commissioner for the South African Revenue Services.

  • Section 33 of the NOA repeals Chapters 1 and 3 of the Fundraising Act, 1978.  The effect of that repeal is that it is no longer necessary for any organisation, whether registered as a nonprofit organisation or not, to obtain fundraising authority and a fundraising number from the Director of Fundraising (who is now the Director of Nonprofit Organisations).

Requirements for registration

• In terms of Section 12(2) of the NOA, the constitution or founding document of a nonprofit organisation which wishes to register must :

  • State the organisation’s name.

  • State the organisation’s main and ancillary objectives.

  • State that the organisation’s income and property are not distributable to its members or office-bearers, except as reasonable compensation for services rendered.

  • Make provision for the organisation to be a body corporate and have an identity and existence distinct from its members or office-bearers.

  • Make provision for the organisation’s continued existence notwithstanding changes in the composition of its membership or office bearers.

  • Ensure that the members or office bearers have no rights in the property or other assets of the organisation solely by virtue of their being members or office bearers.

  • Specify the powers of the organisation.

  • Specify the organisational structures and mechanisms for its governance.

  • Set out the rules for convening and conducting meetings, including quorums required for and the minutes to be kept of those meetings.

  • Determine the manner in which decisions are to be made.

  • Provide that the organisation’s financial transactions must be conducted by means of a banking account.

  • Determine a date for the end of the organisation’s financial year.

  • Set out a procedure for changing the constitution or founding document (in the case of a Section 21 company that procedure would have to be consistent with the Companies Act).

  • Set out a procedure by which the organisation may be wound-up or dissolved (again, in the case of a Section 21 Company, the Companies Act would also apply).

  • Provide that, when the organisation is being wound up or dissolved, any asset remaining after all its liabilities have been met, must be transferred to another nonprofit organisation having similar objectives.

• Section 13(1) of the NOA provides that a nonprofit organisation applies for registration by submitting to the Director :

  • The prescribed form, properly completed.

  • Two copies of its constitution or founding document.

  • “Such other information as may be required by the Director so as to assist the Director to determine whether or not the nonprofit organisation meets the requirements for registration.”  In other words, the applicant organisation will have to furnish evidence that the organisation is a trust, company or other association, that it is established for a public purpose (namely a purpose aimed at serving the public good, or the needs and interests of a section of the public), and that the organisation’s income and property are not distributable to its members or office bearers except as reasonable compensation for services actually rendered.

• The Director of Nonprofit Organisations must make a decision concerning registration within Two (2) months of receiving the application (Section 13(2) of the NOA).  If the Director refuses to register an applicant organisation, such organisation has a right of appeal.

The effect of registration as Nonprofit Organisation

• Every registered nonprofit organisation must maintain accounting records in the manner provided for in Section 17 of the NOA.

• Every registered nonprofit organisation must, in writing, provide the Director with an annual narrative report and annual financial statements, within Nine (9) months after the end of every financial year.  In addition, such organisation must provide the Director with the following :

  • The names and physical, business and residential addresses of its office bearers within One (1) month after any appointment or election of its office bearers even if their appointment or election does not result in any changes.

  • A physical address in the Republic for the service of documents.

  • Notice of any change of address at least One (1) month before a new address for service of documents will take effect.

• Every registered nonprofit organisation must appoint an accounting officer, namely a person contemplated in Section 60 of the Close Corporations Act, 1984, and that accounting officer is under a duty (in terms of Section 18(4) of the NOA) to notify the Director if the organisation fails to comply with the financial provisions of the NOA or the organisation’s own constitution or founding documents.

• If a registered nonprofit organisation fails to comply with its own constitution or founding documents, or with the requirements of the NOA, the Director must send a compliance notice in the prescribed form to that organisation, and the Director must also refer the organisation to the South African Police Service for criminal investigation if the Director is satisfied that any non-compliance may constitute an offence.

• If a registered nonprofit organisation fails to comply timeously with a compliance notice, its registration may be cancelled (Section 21 of the NOA).  An organisation can appeal against cancellation of registration (Section 22 of the NOA).

• In terms of Section 25 of the NOA, any member of the public has access to the documentation relating to a registered nonprofit organisation held by the Director, namely the constitution or other founding document of the registered organisation, and all reports (including financial reports) which that organisation is required to submit to the Director from time to time.

• Organisations which are already registered as fundraising organisations under the Fundraising Act, 1978, are regarded as being registered nonprofit organisations, and in order to maintain such registration must, within Two (2) years of 1 September 1998, make formal application in the manner set out above for registration.

Conclusion and Recommendation

In my view any body or organisation which qualifies as a nonprofit organisation would be advised to apply for registration as such, given that the benefits far outweigh any possible disadvantages.

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