Non-Profit Company (NPC)

For your public society organisation to be recognised as a legal entity, you must register it as a Non Profit Company (NPC).

These are entities formed to assist people, for some good cause i.e churches, charity/cultural organisations. The primary objective of an NPC is not to make a profit, but to benefit the public.

While non-profit companies (NPC’s) are permitted to generate surplus revenues, they must be retained by the company for its self-preservation, expansion or plans. NPC’s can either have a board of directors or controlling members. Many have management as well as paid staff, while others employ unpaid volunteers.

Where there is a token fee, in general, it is used to meet legal requirements.

A non-profit does not mean that the company does not intend to make a profit, it merely means that the company has no owners and that the profit will not be to benefit any owners.

For more info on Non Profit Companies, view some of the main questions most business owners ask below.

NPC’s have a wide diversity of structures and purposes:

• Tax status of corporate and private donors
• Tax status of the foundation
• Provisions for the amendment of the articles of incorporation
• Provisions for the dismissal of the entity
• Accountability and auditing provisions
• Representation
• Supervision and management presentation
• Economic activity

In most jurisdictions some of the above must be expressed in the charter of establishment. While others may be provided by the supervising authority at each particular jurisdiction.

Most larger companies are required to publish their financial reports detailing their income and expenditure publicly. They are similar to corporate business entities in quite a few aspects, though there often are significant differences. Both not-for-profit and for-profit corporate entities must have board members, steering committee members, or trustees who owe the company a fiduciary duty of loyalty and trust. Churches who are often not required to disclose finances to anyone, are a notable exception to this.

The company may be controlled by its members who elect the board of governors, board of trustees and board of directors. In the case of a non-membership company, the board of directors may elect its own successors, whereas a non-profit may have delegate structure to allow for representations of groups or corporations as members.

The two major types of NPC’s are membership and board-only.

A membership company elects the board and has regular meetings, they also obtain the power to amend the bylaws.

A board-only company typically has a self-selected board, and a membership whose powers are limited to those delegated to it by the board. A board-only company’s bylaws may even state that it does not have any membership, although the company’s literature may refer to its donors as “members”.

In many countries it is allowed for non-profits to apply for tax exempt status, which means then the company itself may be exempt from income tax and other taxes.

In South Africa, when requested by donors, charities issue a tax certificate which can be used as a tax deduction by the donor.

Section 21 Companies are registered under the Companies Act, Trusts are registered by the Master of the High Court and Non-Profit Companies are registered under the Non-Profit Company Act. All are classified as voluntary companies and all must be registered with the South African Revenue Services.

Some NPC’s can also be a charity or service company. They could be organized as a not-for-profit corporation or a cooperative, as a trust, or they exist informally.

Supporting Companies are a very similar type of company which operates like a foundation, except for the fact that they are more complicated to administer, hold more favourable tax status and are restricted in the charities they support. Their goal is not to be successful in terms of wealth, but in terms of giving value to the groups of people they administer to.

The registering of a Non-Profit Organisation is a voluntary registration facility that enhances the credibility of the registered Non-Profit Organisation as it reports to the public.

It is expected of every registered NPO to comply with the requirements of the NPO Act.

Capacity building tends to be an ongoing problem experienced by NPC’s. As most rely on external funding to maintain their operations and changes, this may affect the reliability or predictability with which the company can hire and retain staff, sustain facilities, create programs or maintain tax-exempt status.

Resource mismanagement, in particular, is a problem with NPC’s, as the employees are not accountable to anybody. Which means an employee may start a new program without disclosing its complete liabilities. Liabilities can promise on the full faith and credit of the company, but have not recorded it anywhere. The NPC can suffer great financial problems unless strict controls are instated.

When selecting a domain name, many NPC’s use the .org or .us to differentiate themselves from those using the more typical .com space.

Traditionally noted .org is for companies who did not fit in anywhere else in the naming system, encompassing anything that is not classifiable as another category.

• The name of a Non Profit Company will end with “NPC”
• The NPC is incorporated by at least three persons for public benefit, social activities, communal or group interests, etc.
• Must have a minimum of three directors
• The primary goal is to benefit to the public and not to make a profit
• Income of property may not be distributed to the incorporators, members, directors or officers

Some companies are suggesting new, more positive sounding terminology to describe the sector, instead of being defined by “non” words. A growing number of companies as well as the Centre for the Study of Global Governance has used the term “civil society company” (CSO). A more broadly applicable term, “Social Benefit Company” (SBO) has been advocated for by companies.

The Companies Act No. 71 of 2008

In April 2009 the Companies Act No. 71 of 2008 was promulgated and replaces the 35 year old Companies Act No. 61 of 1973. The passing of this Act is the result of a lengthy and rigorous legislative review process that involved widespread public participation. The new Companies Act comes into force on a date to be determined by the President.