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The NPO regulatory framework in South Africa: 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 non-profit organisations can be intimidating and confusing. Take the time to consider your options and chart a proper course to steer your organisation through the storms it will face, advises Cathy Masters of Cathy Masters Development Services.

While registration under the Act is voluntary, organisations seeking funding from this department or other government departments will find that registration as an NPO is a prerequisite. 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 NPOs 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?

1. An organisation that is already legitimately set up as a separate legal entity in one of three ways:
2. In terms of the Companies Act 71 of 2008, a Non-Profit Company (NPC) is registered at the Companies and Intellectual Properties Commission (CIPC) with a Memorandum of Incorporation as its founding document. (These were previously called Section 21companies.)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. The VA requires no formal registration to exist as a legal entity provided that 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 an NPO or an NPC. It is possible and perfectly acceptable for a single entity to be a registered NPC which then also applies for and is given NPO status.

What do we need to comply with?

All organisations of whatever form are required to register as taxpayers with SARS. This applies even if they apply for and are granted exemption from tax or Public Benefit Organisation (PBO) status. All organisations need to be given a taxpayer reference number before SARS will consider their exemption applications. All organisations, whether tax-exempt or not, need to file annual tax returns with SARS.

VAs have no ‘external’ or ongoing registration requirements. They need to follow the rules in their constitutions 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 an annual obligation to file a ‘return’ with the CIPC, which amounts to a small ‘registration’ fee. If you do not pay this fee, your NPC will be deregistered by the CIPC. As with a trust, all changes to directors, addresses and accountants/auditors must be reported to the CIPC.

All registered NPOs (whether an NPC, trust or VA) must submit a narrative report, in the prescribed format, and annual financial statements – signed by an accounting officer or auditor – within nine months of the financial year-end to the NPO Directorate. They must also report any changes to their address, office bearers and founding document.

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 other sectors of society.

Cathy Masters is the founder of CMDS, a specialised financial management consultancy for non-profit organisations. Contact  021 797 6226 or e-mail cathy@cmds.org.za