Registering a Non-Profit entity in South Africa: Part 1 – NPO vs NPC

South Africa has put certain measures in place to encourage public trust in non-profits and to allow for the building of more significant accountability and transparency infrastructure. One of these measures is the introduction of non-profit companies. Therefore, we now have the option of registering either an NPO or NPC.

While the term NPO has in the past been broadly used to refer to all non-profit bodies, it is in the modern terminology, being specifically restricted in use to describe the entity registered with the Department of Social Development; to distinguish it from NPCs and Non-profit trusts.

1. NPO or NPC?

A NPO (Non-Profit Organisation) is, therefore, an organisation, such as a Voluntary Association, registered with the Department of Social Development (DSD), and an NPC (Non-Profit Company) must be registered via the Companies and Intellectual Properties Commission (CIPC).

2. Similarities between NPOs and NPCs:

• The primary requirement for all non-profit entities is that the profits are not enjoyed by individuals but are reinvested into the purpose of the organisation or company, and which purpose should be a public benefit if you also want to register it as a PBO (public benefit organisation). I will write more about PBOs in the third article, (Part 3) look out for that one!
• There are no owners or shareholders in a non-profit entity.
• Both NPOs and NPCs can have employees, and you as the founder can also be one of the registered employees if you do remunerable work for it.
• When you receive the registration certificate, through either route of registration, you can technically do the same things:
  • Open a bank account;
  • Apply for funding or receive donations;
  • Apply for PBO registration.

3. Differences between NPOs and NPCs:

• A Memorandum of Incorporation is required for an NPC, and a Constitution is required for an NPO.
• An NPC is governed by the Companies Act 71 of 2008, and an NPO is regulated by the Department of Social Development (DSD).
• An NPC requires a minimum of three directors (who are also the incorporators) for registration, and these directors must be unrelated for PBO and s18A applications. Whereas for an NPO registration a minimum of five board members (with a minimum of 1 founder) are required. However, even for an NPO, when you reach the PBO registration step, 3 of these board members must be unrelated “founders”.
• The directors of an NPC have a fiduciary responsibility to ensure that there is no reckless, negligent, or wrongful financial management of the funds. The board members of an NPO do not have an overt fiduciary duty obligation towards it. Fiduciary responsibility is commonly misunderstood to equate to personal liability, but this is not true. Fiduciary responsibility is not a personal liability, but one of oversight, and it can be described as the responsibility to make decisions in the best interests of the entity and given the entity’s stated objectives. It is valuable as it adds to the accountability structure of the entity and therefore also increases public trust in it.
• Registration of an NPC can take a few weeks with the CIPC, and an NPO registration may take anything between 2-8 months to complete.
• The Companies Act, which regulates an NPC, requires that the entity has TAX audits if it’s income is above a certain determined threshold, and it can be compelled to have such audits. If the entity’s income is below the government’s threshold, independent reviews and annual financial statements will suffice. For NPOs, a narrative report and a copy of the signed annual financial statements (AFS) should be submitted annually to the DSD.
• For an NPC, this is regulated externally by the Act, and annual returns are required by SARS and the CIPC.  NPOs are regulated by the DSD, as well as SARS.
• NB: With the CIPC, if you don’t comply with the annual returns for 2 or 3 years, a de-registration process begins; this seems to ensure a fair degree of compliance.

Disclaimer: This article is for information purposes only and not intended as legal advice. You are welcome to contact me or any other Attorney to book a consultation for specific advice applicable to your circumstances.