What is the Law on Non-Profit Organisations?

It’s a fact of life that most people work for either themselves or for their direct family. Most of us spend long hours at our jobs because we want to live a certain lifestyle or because we want to provide our loved ones with similar benefits. It’s a perfectly valid reason to work and make money, but it’s not the only cause out there.  Many people find meaning in work that provides for others rather than for themselves. They put effort into causes that they believe in, even if those causes aren’t likely to make them much money. Occasionally, they even find kindred spirits who share their vision, and together they form groups that pursue a common, often altruistic, goal. We normally refer to such groups as Non-Profit Organisations and many of them serve a vital purpose. But what are the requirements for such organisations? Who regulates and investigates them? And what does the law say about all of this? What is the Law on Non-Profit Organisations?

In South Africa, various organisations (trusts, companies, voluntary associations) which are nonprofit and not part of the government, can register as Non-Profit Organisations (NPOs) at their nearest provincial social development office or online.

NPOs are split into 3 main categories, each established under different fields of law – 

• Voluntary Associations (common law)
• Non-Profit Trusts (statutory law)
• Non-Profit Companies (statutory law)

Any of these groups may voluntarily register as NPOs so long as they meet the necessary prerequisites. This registration provides certain benefits which we will go into later. 

Overall, NPOs and their dealings are governed and regulated by the Nonprofit Organisation Act of 1997, although other relevant legislation includes – 

• The South African Constitution
• The Companies Act of 2008 
• Various others

While all of these acts and laws are influential in the regulation of NPOs, it is in our best interest to focus on the NPO act specifically. 

What is the NPO Act?

The Nonprofit Organisation Act of 1997 (NPO Act) is the primary piece of legislation dealing with the organisation and regulation of NPOs in South Africa. 

It has many legal functions, but the most important aspects are as follows – 

What are the Benefits of Registering as an NPO?

There are 3 main benefits that come along with NPO registration – 

1. Enhances recognition, credibility and funding opportunities (government and corporate)
2. Enables the group to open a bank account
3. Provides tax benefits in certain situations (partial income tax exemption, donation tax exemptions, etc).

How Much Does it Cost to Register as an NPO?

Registration for NPO status is free. 

How Long Does it Take to Register as an NPO?

It should take roughly 2 months. 

What are the Legal Requirements of a Non-Profit Organisation?

Beyond the requirements for registration, which vary depending on the type of NPO in question, there are certain legal duties that must also be conducted. These include, but are not limited to, – 

• Financial records must be kept concerning things like income, expenditures, assets, liabilities, etc. 
• Changes in the constitution or name must be properly reported. 
• Dissolution of the NPO or cancelling of registration must be properly reported.
• The NPO status and registration number must be reflected on all documentation.

Is an NPO a Legal Entity?

A registered NPO is considered to be a legal entity so long as it has a constitution and other valid documentation.

Who Investigates Non-Profit Organisations in South Africa?

Many NPOs are primarily scrutinised by the Companies and Intellectual Properties Commission (CIPC) via their auditing process. 

Additionally, NPOs operate under the watchful eyes of –

• The NPO Directorate in the Department of Social Development 
• The Financial Intelligence Centre (FIC)
• SARS

It should be said, however, that the inherent nature of NPOs puts them at risk of money laundering schemes, and criticism of the accountability mechanisms has been noted. 

Who can register as an NPO?

As mentioned, organisations that are nonprofit and not part of the government can register as NPOs. This includes – 

• Community-Based Organisations (CBOs)
• Non-Governmental Organisations (NGOs)
• Faith-Based Organisations (FBOs)

How do NPOs receive Partial Tax Exemption?

Many NPOs are able to apply as Public Benefit Organisations (PBOs). This status usually provides preferential tax treatment which can come in the form of partial income tax exemption, donation tax exemptions, etc. 

It is important to note, however, that NPOs do not automatically qualify for these benefits and they must first apply for the status change. 

What is a Donation Tax Exemption?

There are taxes applied to pretty much everything, so why should donations be any different?

Currently, this donations tax is applied to residents of South Africa when they make most of their donations, however, PBOs can receive an exemption from this tax in certain scenarios so long as their status applications are successful. 

How do you Register as a Public Benefit Organisation?

All those tax exemptions sound pretty good, right? Well, if you want to register your NPO as a PBO and receive them, you just need to apply for the exemption status with SARS. This will require quite a bit of paperwork but you will get your exemptions if you receive the proper approval. 

In Conclusion – What is the Law on Non-Profit Organisations?

South African organisations that are nonprofit and not part of the government can apply for a Non-Profit Organisation (NPO) status either online or from their nearest provincial social development office. This includes groups such as Community-based organisations (CBOs), Faith-based organisations (FBOs), and Non-Governmental Organisations (NGOs).

Such organisations are encouraged to apply for this status as it can provide benefits such as enhanced recognition and credibility, tax benefits, and the ability of the organisation to open a bank account. 

These organisations could also open themselves up to funding from corporate sources or from governmental ones (if priorities align). 

NPOs are usually split into 3 different categories which are each established under certain fields of the law. Voluntary associations fall under common law, while non-profit trusts and companies are under statutory law. 

Generally speaking, the law on NPOs is organised within the NPO Act of 1997, but other relevant legislation includes the Constitution, the Companies Act, etc. 

The NPO Act provides important legislative clarification when it comes to: The relevant definitions relating to NPOs and their functions, the various requirements for NPO registration, the appeal process that may potentially follow, and the offences which relate to NPOs alongside the relevant penalties that may be incurred. 

The act of registering your group as an NPO is free and usually takes around 2 months to complete. So long as these registered organisations include a constitution and other valid documentation, they will be considered to be legal entities. 

There are also many legal requirements related to NPOs, such as the duty to keep financial records and to report certain changes within the group. 

It should be noted that the nature of NPOs tends to make them potential breeding grounds for money laundering, which is a serious criminal act and can carry hard fines and prison sentences. Many NPOs are subject to auditing procedures set out by the Companies and Intellectual Properties Commission (CIPC) to identify any inconsistencies in their financial dealings. Other groups which may take an interest in these dealings include SARS, the Financial Intelligence Centre (FIC), and the NPO Directorate in the Department of Social Development. 

NPOs are also able to register as Public Benefit Organisations (PBOs) with SARS. This is also encouraged as it provides various tax benefits ranging from income tax exemptions to donation tax exemptions. There is a lot of paperwork that needs to be done to attain this status but it is important for NPOs to focus on it because their group will not automatically qualify for these benefits. 

Disclaimer LAW101: All of our posts are for research purposes only. Law 101 aims to assist its readers with useful information on the laws of our country that can guide you to make decisions in line with the South African Governmental Laws currently in place. Although our posts cite the constitution in many instances, they are intended to assist readers who are looking to expand their knowledge of the law. Should you require specific legal advice we advise you to get in touch with a qualified legal expert.

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