A non-profit company (“NPC”) does not have as its aim the making of profit, and must be established for a public benefit or for a purpose relating to one or more cultural or social activities, or communal or group interests.
An NPC must use all its income and property to advance and aid its stated non-profit objectives as set out in its Memorandum of Incorporation (“MOI”) – the founding document of the NPC. This means that the NPC may not directly or indirectly pay any portion of its income or transfer any of its property to a founder, director or member – except as reasonable remuneration for goods delivered or services provided to the company, or as reimbursement for expenses incurred in advancing the NPC’s objectives, etc.
At the dissolution of a NPC, the net value of the company must go to another NPC which has the same or similar objectives as the dissolving NPC (as determined by its members or directors in its MOI) – or if such is not determined in its MOI then as determined by a court.
NPCs used to be incorporated in terms of section 21 of the old Companies Act 61 of 1973 (“old Act”) and was generally known as Section 21 Companies. The Section 21 Company was believed to be a public company with the relevant provisions applicable to public companies also being applied to Section 21 Companies under the old Act. However the new Companies Act 71 of 2008 (“the Companies Act”) replaced the Section 21 Companies with non-profit companies. Under the new Companies Act, NPCs are not treated as public companies but are seen as entities with their own legal nature apart from that of public or private companies.
As NPCs are treated as separate entities it also has separate requirements for its formation and registration, as set out by the Companies Act. The most important document for the formation and governance of an NPC is its MOI. The directors determine the rules for the conduct of the company and set them out in its MOI.
Although the MOI can be drafted to suit the objectives of the company, the Companies Act does prescribe certain provisions that has to be contained in the MOI in order to protect the members and directors of the company. For example, the MOI must set out what the objectives of the company are, as well as whether a company will have members or not. If it does have members the MOI must set out how the members may elect the directors of the company, and if the company does not have members the MOI must set out how directors are to be elected and appointed etc.
NPCs also have to register with the Companies and Intellectual Property Commission (“CIPC”). The first step in registering an NPC is to reserve a name for the company at the CIPC. Once the suggested name has been approved, the rest of the registration documents can be dealt with. These registration documents include:
- Form COR14.1 containing: incorporation date, company’s first financial year end, company’s registered address, how many initial directors there will be and whether a name has been reserved for the company;
- Form COR14.1A setting out the details of each director of the company, to be completed for every director of the company. The Companies Act determines that an NPC may not have less than three directors.
- Form COR15.1 (standard form MOI,) as a standard MOI template produced by CIPC which is not customised to meet the directors preferences and requirements. It may be advisable to have an attorney draft a customised MOI which provides for all the requirements, rules and regulations as set out by the directors and incorporators of the company.
All the forms together with certified copies of each director’s ID must be submitted to CIPC for the registration of the company. Once the company is registered a COR14.3 registration certificate will be issued by CIPC containing all the company’s and directors’ information as set out in registration documents submitted to them. The company’s name will be followed by the letters NPC (like the letters Pty (Ltd) would follow a private company’s name).
It is important to distinguish between a NPC and a Non-Profit Organisation. NPCs must be registered with the CIPC while Non-Profit Organisations must be registered with the Directorate of Non Profit Organisations at the Department of Social Development. Non-Profit Organisations are regulated by the Nonprofit Organisations Act 71 of 1997 and can take the form of a company, association or trust.
NPCs can also apply to the Directorate of Non-Profit Organisations to be registered as a Non-Profit Organisation. Once registered at the Directorate the organisation will be issued a unique NPC number which can assist in providing further credibility, transparency and accountability to the NPC as the NPC will also have to report to a public office which is often a funding requirement for most donor funding agencies.
If you are planning to set-up an NPC, it is advisable to consult a legal practitioner to assist in correctly tailoring the founding documents of the NPC. Consulting with a tax specialist may also be valuable to ensure potential tax benefits for an NPC are obtained.