1. An overview of non-profit organisations

    What is a non-profit organisation

    Non-profit organisations (NPOs) do not exist to make a profit from the work of the organisation for the office-bearers or members of the organisation. They exist to serve some public purpose rather than just serving the personal interests of the office-bearers or members of the organisation. They exist for the benefit of the general public or specific sections of the public. If members receive payment or benefits, it is only in the form of a reasonable salary and benefits in return for the work that is done as an employee of the organisation. Any profit that is produced is used by the organisation to make a greater impact in terms of their public purpose.

    The main purpose of for-profit organisations is to make money for members or owners.

    The definition of an NPO covers all organisations that do not exist to make profits for office-bearers or members. It does not cover private companies or even co-operatives or income generating projects that exist solely to produce benefits for members. The law regards these as for-profit organisations. However, NPO’s can exist to help communities develop income-generating projects.

    Most NPOs have to rely on grants and donations from fundraising because NPOs usually serve sections of the community that could not afford to pay the full cost of the service. NPOs do not usually choose their target groups according to who can pay for the service, but according to who needs the service most.

    What is a non-governmental organisation (NGO)

    Non-governmental organisations (NGOs) are organisations that are not part of government. This is a wide group of organisations, from large charitable NGOs like Child Welfare to small community organisations like sports clubs or civics. This could, technically, cover private companies but, in practice, when we refer to NGOs in South Africa, we mean only those non-governmental organisations that are non-profit as well.

    This guide on Constitutions is only relevant to organisations that are both non-profit and non-governmental. If your organisation is formed as a co-operative or income-generating project, you should contact the Legal Resources Centre (LRC) for advice on where you can go for help.

    The Non-Profit Organisations Act 71/1997

    In South Africa the Non-Profit Organisations Act (NPO Act) covers non-profit organisations and the legal steps for registering them.

    For a full explanation of what a non-profit organisation is and what different structures can be used, see the LRC guide on Legal structures commonly used by non-profit organisations. The NPO Act and the steps for registering an organisation are dealt with in detail in the LRC guide to the Non-profit Organisations Act.

    Co-operatives (co-ops) are not NPOs and do not fall under the NPO Act. The Legal Resources Centre defines a co-op as "a group of people, who are the members, who together own and control an enterprise for the profit and benefit of themselves. A co-op has the potential to operate democratically in that the members may work for themselves and decide together how to run the co-op and how to share the profits fairly." Co-ops are usually formed so that people can either work together to buy goods (in bulk, for example), market and sell goods produced, trade in goods or jointly produce goods. Because co-ops are formed to produce profits for the members, they do not fall under the NPO Act. Co-ops register with the Registrar of Co-operatives at the Department of Trade and Industry using a number of founding documents that are required. This guide will not be relevant to co-ops.

    Different types of Non-Profit Organisations

    This Guide is intended only for those organisations that fall under the Non-Profit Organisations Act (NPO Act). There are, however, different types of NPOs.

    All organisations defined as non-profit organisations under the Non-Profit Organisations Act (NPO Act) may choose whether to register with the Non-Profit Organisation (NPO) Directorate of the Department of Social Development. But, some types of non-profit organisations must register under other laws, whether or not they register with the Department. These laws tell you what must be coved by the founding document of your organisation.

    The three kinds of non-profit organisations referred to under the NPO Act are:

    • Voluntary Associations
    • Non-profit Trusts
    • Non-profit Companies

    The LRC guide on Legal structures commonly used by non-profit organisations will help you to understand

    • The difference between non-profit and for-profit organisations;
    • The basic issues of the Non-Profit Organisations Act and the benefits of registering under the Act;
    • Each type of non-profit organisation, what kinds of organisations each type of legal structure is most useful for and the advantages and disadvantages of each type;
    • What structures and laws apply to each type;
    • How to form an organisation of each type;
    • What the founding document must cover.

    Source: Education Training Unit (ETU) May 2019.

    Which organisations can apply for NPO status?

    A non-profit organisation” means a trust, company or other association of persons -

    1. established for a public purpose; and
    2. the income and property of which are not distributable to its members or office-bearers except as reasonable compensation for services rendered

    Any organisation that is not working for profit and is not part of government can apply for registration. These are mostly the following:

    • Non-Governmental Organisations (NGO)
    • Faith Based Organisations (FBO)
    • Community Based Organisations (CBO)
    • Non-profit trusts that have registered with Master of the High Court under the Trust Property Control Act 57 of 1988.
    • Non-profit Companies under the Company Act of 2008.
    • Any other voluntary association that is not-for-profit.

    Source: Charity SA May-19


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