Generally, it is acknowledged that organised citizenry or civil society is essential for democracy and development. The common characteristic of the vast array of organisations which make up civil society is that they are private organisations, that is, they do not form part of government. Broadly speaking, civil society organisations can be categorised into:
From a constitutional perspective, the new South African constitution guarantees everyone the right to freedom of association. This right is essential for the formation of civil society organisations. From a legal perspective, South Africa, like other countries, has a legal framework which both enables civil society organisations to establish themselves as legal structures and then to regulate the way in which such legal structures operate.
This booklet is part of a series of booklets which focus on the laws which are relevant to NPOs. It discusses the Non-Profit Organisations Act, a new law that came into operation during 1997, which is relevant to the establishment and regulation of NPOs.
The Non-Profit Organisations Act No. 71 of 1997, (The Act), came into operation on 1 September 1998 as a result of a lengthy process of policy and legislative reform negotiated between the state and civil society organisations.
Primarily, the NPO Act hopes to achieve its objectives of creating an enabling environment for NPOs and setting and maintaining adequate standards of governance, accountability and transparency by creating a voluntary registration facility for NPOs which are defined as:" a trust, company or other association of persons:
- established for a public purpose; and
- the income and property of which are not distributable to its members or office bearers except as reasonable compensation for services rendered;" (Section 1 (x)).
Essentially, the Act provides a registration facility for the existing South African legal forms for NPOs, Section 21 Companies, Trusts and Voluntary and other non profit Associations, providing that certain minimum establishment requirements and annual reporting requirements are complied with.
Consequently, a Trust which must be registered with the Master of the High Court and a Section 21 Company which must be registered with the Registrar of Companies, may also choose to register in terms of the Act with the NPO Directorate of the Department of Welfare. Notably, the Act:
- enables a Trust, which also registers as an NPO, to be a body corporate with a legal personality. Trusts, although they are registered with the Master of the High Court, prior to the passing of the Act were not considered to be legal persons other than for certain specific purposes such as tax and insolvency.
- provides a registration facility for a Voluntary Association which is a 'universitas' or incorporated Association under Common Law. Prior to the passing of the Act, Voluntary Associations could not register with a government registry. This created difficulties for Voluntary Associations as usually, donors and third parties with which organisations interact, require a greater measure of legal formality and public accountability.
- The Act's 'mandatory' requirements for the registration of an NPO include the essential requirements necessary for a Voluntary Association, which is a "universitas" or incorporated Association to exist in Common Law.
The Minister may prescribe benefits or allowances for registered NPOs, (Section 11). As yet the Minister has not done so but if he should, only registered NPOs will be eligible for these benefits. It is anticipated that NPOs receiving any benefits or money from government will be required to be registered as an NPO.
The Lotteries Act requires that NPOs that wish to run a lottery must be registered in terms of the NPO Act. The tax laws for NPOs are being amended and the new laws are expected to come into operation in 2001.
They will require that NPOs which receive a tax benefit, be registered in terms of the NPO Act.
The Act adopts a 'carrot' rather than a 'stick' approach to public accountability in that the improved standards of governance and increased accountability and transparency which voluntary registration is intended to promote, will both increase public and donor confidence in NPOs and encourage organisations to register. Experience is yet to prove whether voluntary registration is an appropriate strategy for achieving the objectives of the Act.
The Act is aimed at creating an environment which will enable NPOs to flourish. Thus it will establish a regulatory framework within which NPOs can conduct their affairs and encourage NPOs to maintain adequate standards of governance, transparency, and public accountability, (Section 2).
It is significant that the objects of the Act are so clearly spelt out.
Historically, the Fundraising Act, which has largely been repealed by the Act and which regulated public fundraising by NPOs, was misused by the apartheid state to monitor and constrain the activities of NPOs which opposed it.
A clear articulation of the objects of the Act may assist to prevent this happening again.
In several instances the Act specifically limits the time periods in which administrative action should take place and the nature of further information the Directorate may request. These limitations are designed to reduce bureaucratic discretion and abuse. For example, within two months of receiving a registration application from an NPO, the Director must consider it and if satisfied that the applicant complies with the requirements for registration, register the applicant (Section 13(2)). Applicants who experience abuse or prejudice should be able to enforce administrative compliance.
Requirements for registration
The founding document or constitution of an NPO must comply with a number of requirements in order for it to be registered.
These 'mandatory requirements' are as follows:"(2) Unless the laws in terms of which a non-profit organisation is established or incorporated make provision for the matters in this sub-section, the constitution of a non-profit organisation that intends to register must -
- state the organisation's name;
- state the organisation's main and ancillary objectives;
- state that the organisation's income and property are not distributable to its members or office-bearers, except as reasonable compensation for services rendered;
- make provision for the organisation to be a body corporate and have an identity and existence distinct from its members or office-bearers;
- make provision for the organisation's continued existence notwithstanding changes in the composition of its membership or office-bearers;
- ensure that the members or office-bearers have no rights in the property or other assets of the organisation solely by virtue of their being members or office-bearers;
- specify the powers of the organisation;
- specify the organisational structures and mechanisms for its governance;
- set out the rules for convening and conducting meetings, including quorums required for and the minutes to be kept of those meetings;
- determine the manner in which decisions are to be made;
- provide that the organisation's financial transactions must be conducted by means of a banking account;
- determine a date for the end of the organisation's financial year;
- set out a procedure for changing the constitution;
- set out a procedure by which the organisation may be wound up or dissolved;
- provide that, when the organisation is being wound up or dissolved, any asset remaining after all its liabilities have been met, must be transferred to another non-profit organisation having similar objectives."
Essentially, the Act's 'mandatory' registration requirements include clauses, which:
- characterise non-profit organisations, (whether they be set up as a Voluntary Association, Trust or Section 21) and distinguish them from for-profit organisations, (Section 12 (2)(b, c, f & o));
- clarify the legal status of NPOs and provide that the NPO is a body corporate, which means it has a legal personality distinct from its members, (Section 12 (2)(d, e));
- always appear in the founding documents of NPOs because they are essential for the basic functioning of an organisation, notably, Section 12(2) (a), (g-n). The founding document/constitution of an NPO may provide for other matters relevant to the conduct of its affairs, some of which are listed in Section 12(3).
These optional clauses frequently occur in the founding documents of NPOs which have a membership. The Directorate is only entitled to refuse to register an NPO if it is not satisfied that the NPO has complied with the mandatory requirements for registration.
The Director must notify an NPO of its refusal; give reasons for the refusal and inform the NPO that it has one month from the date of the notice to comply with the requirements for registration. Should the applicant not comply timeously, the Directorate must refuse to register the NPO and notify it of its reasons, (Sections 13(3-6)).
4.2 The effect of registration
The certificate of registration is sufficient proof that the NPO is registered and that it is a body corporate (Section 16(1)). An NPO remains registered until it is deregistered.
4.3 Appeals against the refusal to register an NPO
The applicant has one month to appeal against the Directorate's refusal to register an NPO. Within three months of receiving the required appeal documentation, the Appeal Tribunal set up in terms of the Act, must hear the appeal (Sections 14(1-3)).
Once registered, an NPO is obliged to comply with various information and reporting provisions and formalities, namely the NPO must:
- Reflect its registered status and registration number on all its documents (Section 16(3)).
- Keep and preserve accounting records and supporting documentation for the prescribed period. (Sections 17 (1)(a) and (3).
- Within six months of the end of its financial year, draw up financial statements which include a statement of income and expenditure and a balance sheet (Section 17(1)(b)).
- Arrange for an accounting officer to compile a written report within two months after drawing up its financial statements confirming that the financial statements are consistent with the accounting records; the accounting policies are appropriate and applied, and that the organisation has complied with the financial reporting requirements of the Act (Section 17(2)).
- Submit to the Directorate a narrative report in the prescribed form together with its financial statements and the accounting officer's report (Section 18 (1)(a)) within nine months of the end of its financial year.
- Submit to the Directorate the contact details of its office bearers, even if they were reappointed within one month of their appointment; the NPOs physical address for service of documents and notice of any change of address one month before it takes effect, any other prescribed/information reasonably required by the Directorate for the purposes of ascertaining whether the NPO is complying with the material provisions of its constitution and the Act. (Section 18(1)(b-e)).
Non-compliance by a registered NPO with its constitution and its obligations in terms of the Act, after receipt of written notification requesting it to comply within a certain period, may result in cancellation of its registration.
It may also be referred to the South African Police Services for criminal investigation, should such non-compliance constitute an offence (Sections 20 and 21).
A procedure is set out for appeals against de-registration, (Section 22).
The Act sets out procedures for NPO name and constitution changes (Section 19); voluntary de-registration, winding up and dissolution (Section 23).
The Act provides that the public is entitled to access all documents submitted by an NPO to the Directorate, thus giving effect to one of the key objectives of the Act, namely public accountability and transparency (Section 25).
The Directorate is required to keep and annually publish a register of all NPOs which are registered, de-registered, wound up and dissolved (Section 24).
The Act makes it an offence to transfer the assets of an NPO when it is being wound up or dissolved other than to another NPO having similar objectives, (Section 29(1)).
The Act also specifically makes it an offence for an NPO to falsely represent itself as being registered and to make material, false representations in any document submitted to the Directorate (Section 29(2)).These statutory offences reinforce the Common Law offence of fraud insofar as it may apply to NPOs.
This Act repeals the Fund-Raising Act No.107 of 1978, with the exception of its Chapter Two which deals with Disaster & Relief Funds.
New legislation is currently being drafted which will repeal this chapter as well. Various interim arrangements were provided for, including the following:
- The functions of the old Directorate of Fund-Raising were taken over by the new Directorate of NPOs; (Section 34(1)).
- Organisations previously registered under the Fund-Raising Act were provisionally registered as NPOs for a transitional two-year period, which expired on 31 August 2000.11.
NPOs should first check that their founding document, that is, the Constitution of a Voluntary Association, Deed of Trust or Section 21 Company Memorandum and Articles of Association, comply with the mandatory Section 12(2) requirements of the NPO Act.
If not; the founding documents should be amended accordingly. NPOs should then send two copies of their founding documents together with the completed application form to the Directorate of NPOs.The application form can be obtained from and should be sent to the Directorate of NPOs, Department of Welfare: Private Bag X901, Pretoria 0001. Telephone: 012-3127676.
Legal Resources Centre offices
4th floor Elizabeth House
18 Pritchard Street
Tel: (011) 836-9831
Fax: (011) 836-8680
5th floor Centenary house
Tel: (012) 323-7673
Fax: (012) 321-6680
71 Ecumenical Centre
20 St Andrews street
Tel: (031) 301-7572
Fax: (031) 304-2823
116 High street
Tel: (046) 622-9230
Fax: (046) 622-3933
Department of Welfare, Directorate: NPOs. Legislation affecting the non-profit sector, Information Series no.1. 1999.Honey, M.
NPO Legal Support Project of the Legal Resources Centre. Legal Structures Commonly Used by NPOs, Information Series no. 1. 2000.
Honey. M. NPO Legal Support Project of the Legal Resources Centre. New Tax Laws For South African NPOs. Information Series no. 3. 2000.
Rosenthal R. And Walton M. Guidelines To Section 21 Companies, Trusts and Voluntary Associations. Memorandum Prepared for the Legal Resources Centre.
Constitution of the Republic of South Africa no.108 Of 1996Non-profit Organisations Act No. 71 Of 1997.
This publication was prepared by the NPO Legal Support Project of the Legal Resources Centre in Cape Town. The LRC is an independent, non-profit law centre which seeks to use the law to pursue justice, democracy and the realisation of socio-economic rights. The NPO Legal Support Project provides legal support for the establishment and good governance of non-profit organisations (NPOs).
This publication aims to assist community leaders, NPOs, service providers, paralegals, advice officers and all role-players involved in building and strengthening NPOs.
The publication of this text was made possible primarily through the generous support of the Charles Stewart Mott Foundation and a private donation.
Researched and written by Mary Honey
Edited by ARTWORKS
| Inputs and verbal reports
| Executive portfolios
| Conflict management
This material may not be used for profit without permission from ETU