After extensive negotiation between the state and civil society organisations, the NPO Act No. 71 of 1997, also known as “The Act,” went into effect on September 1, 1998. The Act which outlines the nonprofit laws primarily aims to establish a voluntary registration facility for NGOs. By and large, the goal is to foster an environment that is supportive of NGOs.
All in all, nonprofit laws seek to establish and uphold suitable standards of governance, accountability, and transparency.
- NPOs are expected to embrace a set of shared values such as nonprofit laws.
- In South Africa, Trusts are regulated by both common law and the Trust Properties Control Act
What are the various Nonprofit Laws in South Africa?
In this section, we will outline the various nonprofit laws in South Africa that govern the sector’s activities and operations.
1. Registration Regulations
Section 16(1) states that the certificate of registration serves as adequate evidence of the NPO’s registration and corporate status. Until it is deregistered, an NPO maintains its registration.
Also, after being registered, a nonprofit is required to adhere to certain guidelines regarding information and reporting. Essentially, this includes the registration number and status on all of its documentation.
2. Accounting Report
Secondly, nonprofits are required to maintain and safeguard accounting records and accompanying paperwork. Upon completion of the fiscal year, the organisation must prepare financial statements, comprising a balance sheet and an income and expense statement, within six months.
To begin with, make arrangements for an accounting officer to prepare a written report. All financial statements should be prepared, attesting to the organisation’s compliance with the Act’s financial reporting requirements. This also includes the appropriateness and application of the accounting policies and the consistency of the financial statements with the accounting records.
3. Narrative Report
Within nine months of the end of its fiscal year, nonprofits are required to submit to the Directorate a narrative report in the format specified. The financial statements and the accounting officer’s report should be submitted alongside.
In addition, the NPO shall provide the Directorate with specific information. This includes the physical address for document service, notice of any change of address one month before its implementation, and contact information for its office bearers. Any other information deemed necessary by the Directorate to determine if the NPO is adhering to the relevant provisions of the Act and its charter should also be submitted.
4. Nonprofit laws for Trusts
In South Africa, trusts are regulated by both common law and the Trust Properties Control Act. A trust may be created for philanthropic or personal reasons. Forthwith, a grantmaker must consult the trust deed to ascertain whether the trust satisfies South African legal criteria for being a charitable trust.
Trustees still have limited liability although they lack independent legal personality. Also, in their joint capacity as trustees, all rights and obligations belong to the trustees.
5. Nonprofit Laws for Nonprofit Organisations
According to Companies Act Section 3(1), a nonprofit organisation must have at least three directors and may be formed with or without members. Also, the nonprofit organisation is incorporated with the Company Commission for public benefit, cultural or social purposes, or interests of a community or group.
The non-distribution constraint requirement applies to the nonprofit organisation. Due to their legal personality, nonprofits provide their directors and members with limited liability. They can sign contracts, file lawsuits, and defend themselves in court.
Registered Non-profit Organisation
Although NPO Act registration is not mandatory, it is required to obtain funds from various government agencies and business sponsors.
Furthermore, according to the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act, an organisation must register as a non-profit (NPO) if it falls into any of the two categories. Firstly, registration is required for nonprofits that make donations to people or organisations outside of South Africa. Secondly, nonprofits that offer humanitarian, charitable, religious, educational, or cultural services outside the state must also be registered.
An organisation needs to fulfil all of the requirements listed below to be able to register as an NPO.
- The organisation is not “an organ of state” and has internal governance provisions in its founding document.
- It is a trust, company, or other association of people established for a “public purpose.”
- It does not distribute income or property to members or officers except for “reasonable compensation for services rendered.”
a. Regulatory bodies
A company wishing to register as a nonprofit organisation under the NPO Act must apply to the Department of Social Development’s Directorate for Non-Profit Organisations.
b. Income Tax Act
For nonprofits that work for the public good, the Income Tax Act offers two main advantages. The first is donor deductibility for contributions made to PBOs that engage in specific public benefit activities. Also, the act offers a partial tax exemption for organisations that meet PBO eligibility requirements. PBOs are also eligible for benefits such as transfer duty, estate duty, skills development levy, and donations tax.
Conclusion
To sum up, NPOs are expected to embrace a set of shared values such as nonprofit laws. This allows the sector to be recognised, regardless of the diversity of their interests and activities. In addition, these values impact the activities of NPOs in their fight against poverty and inequality as they work towards bettering the lives and affairs of all South Africans.
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