Structures for NPOs / Philanthropic Organisations
If you would like to undertake philanthropic activities on an ongoing / sustainable basis and would like to know the types of entities / structures that you could set up for this purpose, this is for you.
Set out below are four types of structures that you could consider as a vehicle through which to pursue your philanthropic endeavours.
Voluntary Association
A Voluntary Association is governed by the Common Law and is established in an agreement (the Constitution) by three or more people in pursuit of a common non-profit objective, which must be lawful and not primarily for gain or profit for its members. While such an agreement / Constitution may be verbal, it is highly advisable that it is reduced to writing, which creates certainty as to the terms of the agreement, It also compliance with requirements for registration as a Non-Profit Organisation (NPO) with the Department of Social Development (DSD) and / or as a Public Benefit Organisation (PBO) with the South African Revenue Service (SARS), both of which require that the constitutive documents of the relevant entity be in writing.
The common law requires that the entity’s Constitution must contain provisions specifying that the entity will enjoy perpetual succession – i.e. that the organisation will continue to exist despite changes in its membership. It must also contain a provision that the assets and liabilities of the organisation will be held separately from those of its members. Further, if you intend to use the entity to raise donations and to issue S.18A receipts to donors, it is important that its Constitution stipulates that it is established as an incorporated association (universitas) with an independent legal personality.
The entity can be established relatively quickly because it comes into existence as soon as the initial three members agree on and sign the Constitution.
However, unlike a company, such an entity does not have a “registration number” issued by a central registering authority nor is it possible to independently confirm the identity of its office-bearers. What we have observed is that institutions such as the Master of the High Court, SARS and the banks are not familiar with voluntary associations and needlessly call for its registration number and you have to constantly explain that no such number exists – which can be tedious and time-consuming. This could make such an entity unnecessarily admin-heavy.
Unincorporated Association
This is also a common law entity, which consists of an aggregation or collection of natural persons that are bound to one another by contract (i.e. the constitution) and who act jointly in pursuit of a common impersonal purpose (e.g. raising of funds for education purposes). It has no existence on its own and consequently cannot own property nor can it sue or be sued in its own name. It also lacks the feature of perpetual succession – the capacity to maintain its existence notwithstanding the change in its members.
While this structure can be established relatively quickly, its major drawback is that it does not meet the requirements of separate legal existence and perpetual succession, which are necessary to qualify for registration as a Public Benefit Organisation in terms of the Income Tax Act, 58 of 1962 nor can it be registered as a Non-Profit Organisation (NPO) under the Non-Profit Organisations Act, 71 of 1997.
Non-Profit Company (NPC)
A Non-Profit Company (NPC) is a type of company governed by the Companies Act, 2008. It has replaced the “old” section 21 company under the repealed Companies Act, 1973. Its Memorandum of Incorporation must contain a provision that the company is incorporated for a public benefit object, or an object relating to one or more cultural or social activities, or communal group interests. Further, the income and property of a NPC may not be distributable to its members or directors or to its incorporators, officers or related persons – other than as reasonable remuneration for services rendered by its office bearers. Upon its dissolution, the NPC must distribute its net assets to any non-profit entity with the same / similar objectives.
It currently takes the Companies and Intellectual Property Commission (CIPC) about 14 days to issues a registration number to an NPC.
It is very important to highlight that mere registration as an NPC does not accord any special tax status on the entity for fund-raising purposes. If you intend to use the entity to raise donations and issue S.18A certificates, the NPC will have to formally apply to SARS for registration as a PBO.
Trusts
Generally, Trusts are created under a Trust Deed that is signed by a Founder and initial Trustees who manage the assets of the Trust in pursuit of the object for which the Trust is established. The Trust Deed can contain any provision as long as it is lawful and not against public policy. Accordingly, the Deed can be customised to enable the Trust to limit its activities to public benefit activities and incorporate the provisions that SARS requires for registration as a PBO.
Depending on the office of the Master at which a Trust Deed is lodged, It takes the Master of the High Court approximately 6-8 weeks to register a Trust and issue Letters of Authority (LoA) to the Trustees, who can only thereafter commence activities in the name of the Trust.
The LoA bears the Trust’s number as assigned by the Master of the High Court and identifies the Trustees. This makes it possible to verify the existence of the structure and the authority of the Trustees to represent the Trust.
Although not a separate legal person, a Trust is a legal entity that (through its Trustees) can own assets and can sue and be sued its own name and also enjoys perpetual succession.
In sum, while a Trust is a flexible entity and can be customised for your unique requirements, what counts against it is that it could take up to 8 weeks to register a Trust, which is a drawback if you require a structure urgently. Kindly note that unlike an NPC, Trustees may neither transact on behalf of the Trust before they are in possession of a LoA nor may they ratify such transactions once they are in possession of the LoA.
Conclusion
The choice of structure to pursue philanthropic objects involves a delicate balance between the strategic vision of the philanthropist and the ease / speed of establishment, market perception of the structure and associated ongoing compliance obligations. To discuss your unique situation, reach out to Lex 24 at www.lex24.co.za / info@lex24.co.za.
Set out below are four types of structures that you could consider as a vehicle through which to pursue your philanthropic endeavours.
Voluntary Association
A Voluntary Association is governed by the Common Law and is established in an agreement (the Constitution) by three or more people in pursuit of a common non-profit objective, which must be lawful and not primarily for gain or profit for its members. While such an agreement / Constitution may be verbal, it is highly advisable that it is reduced to writing, which creates certainty as to the terms of the agreement, It also compliance with requirements for registration as a Non-Profit Organisation (NPO) with the Department of Social Development (DSD) and / or as a Public Benefit Organisation (PBO) with the South African Revenue Service (SARS), both of which require that the constitutive documents of the relevant entity be in writing.
The common law requires that the entity’s Constitution must contain provisions specifying that the entity will enjoy perpetual succession – i.e. that the organisation will continue to exist despite changes in its membership. It must also contain a provision that the assets and liabilities of the organisation will be held separately from those of its members. Further, if you intend to use the entity to raise donations and to issue S.18A receipts to donors, it is important that its Constitution stipulates that it is established as an incorporated association (universitas) with an independent legal personality.
The entity can be established relatively quickly because it comes into existence as soon as the initial three members agree on and sign the Constitution.
However, unlike a company, such an entity does not have a “registration number” issued by a central registering authority nor is it possible to independently confirm the identity of its office-bearers. What we have observed is that institutions such as the Master of the High Court, SARS and the banks are not familiar with voluntary associations and needlessly call for its registration number and you have to constantly explain that no such number exists – which can be tedious and time-consuming. This could make such an entity unnecessarily admin-heavy.
Unincorporated Association
This is also a common law entity, which consists of an aggregation or collection of natural persons that are bound to one another by contract (i.e. the constitution) and who act jointly in pursuit of a common impersonal purpose (e.g. raising of funds for education purposes). It has no existence on its own and consequently cannot own property nor can it sue or be sued in its own name. It also lacks the feature of perpetual succession – the capacity to maintain its existence notwithstanding the change in its members.
While this structure can be established relatively quickly, its major drawback is that it does not meet the requirements of separate legal existence and perpetual succession, which are necessary to qualify for registration as a Public Benefit Organisation in terms of the Income Tax Act, 58 of 1962 nor can it be registered as a Non-Profit Organisation (NPO) under the Non-Profit Organisations Act, 71 of 1997.
Non-Profit Company (NPC)
A Non-Profit Company (NPC) is a type of company governed by the Companies Act, 2008. It has replaced the “old” section 21 company under the repealed Companies Act, 1973. Its Memorandum of Incorporation must contain a provision that the company is incorporated for a public benefit object, or an object relating to one or more cultural or social activities, or communal group interests. Further, the income and property of a NPC may not be distributable to its members or directors or to its incorporators, officers or related persons – other than as reasonable remuneration for services rendered by its office bearers. Upon its dissolution, the NPC must distribute its net assets to any non-profit entity with the same / similar objectives.
It currently takes the Companies and Intellectual Property Commission (CIPC) about 14 days to issues a registration number to an NPC.
It is very important to highlight that mere registration as an NPC does not accord any special tax status on the entity for fund-raising purposes. If you intend to use the entity to raise donations and issue S.18A certificates, the NPC will have to formally apply to SARS for registration as a PBO.
Trusts
Generally, Trusts are created under a Trust Deed that is signed by a Founder and initial Trustees who manage the assets of the Trust in pursuit of the object for which the Trust is established. The Trust Deed can contain any provision as long as it is lawful and not against public policy. Accordingly, the Deed can be customised to enable the Trust to limit its activities to public benefit activities and incorporate the provisions that SARS requires for registration as a PBO.
Depending on the office of the Master at which a Trust Deed is lodged, It takes the Master of the High Court approximately 6-8 weeks to register a Trust and issue Letters of Authority (LoA) to the Trustees, who can only thereafter commence activities in the name of the Trust.
The LoA bears the Trust’s number as assigned by the Master of the High Court and identifies the Trustees. This makes it possible to verify the existence of the structure and the authority of the Trustees to represent the Trust.
Although not a separate legal person, a Trust is a legal entity that (through its Trustees) can own assets and can sue and be sued its own name and also enjoys perpetual succession.
In sum, while a Trust is a flexible entity and can be customised for your unique requirements, what counts against it is that it could take up to 8 weeks to register a Trust, which is a drawback if you require a structure urgently. Kindly note that unlike an NPC, Trustees may neither transact on behalf of the Trust before they are in possession of a LoA nor may they ratify such transactions once they are in possession of the LoA.
Conclusion
The choice of structure to pursue philanthropic objects involves a delicate balance between the strategic vision of the philanthropist and the ease / speed of establishment, market perception of the structure and associated ongoing compliance obligations. To discuss your unique situation, reach out to Lex 24 at www.lex24.co.za / info@lex24.co.za.
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(All Rights Reserved)
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Five (5) Things You Probably Did Not Know About an
Ante-Nuptial Contract (ANC)
Ante-Nuptial Contract (ANC)
1. If you choose the ANC with accrual, the only assets / property that you can lawfully exclude from the accrual are those that you own at the time you get married / sign the ANC (or assets purchased with the proceeds of such assets) Accordingly, and subject to the exclusions as per the relevant legislation, in the event of death or divorce, you cannot seek to exclude the value of your pension / provident fund, or any asset that you acquired during the marriage, etc. for purposes of determining the accrual in your estate;
2. South African law generally outlaws pacta successoria – i.e. agreements that regulate the distribution of one’s estate after one’s death – UNLESS it is contained in an ANC;
3. Where the accrual system applies, the party with the lesser growth in their estate cannot demand any particular asset / property from their spouse in satisfaction of their accrual claim. It is up to the party with the larger growth / accrual, how they settle that liability for the accrual claim;
4. Here is a shocker: An ANC does not afford automatic protection in the event of your spouse going insolvent / bankrupt. The Sheriff will attach the assets of the solvent spouse as well as the assets of the insolvent spouse. The only way to save your assets would be by proving that you bought them before the marriage or that you acquired them during the marriage using your own money / resources;
5. A party to a marriage out of community of property but subject to the accrual system, can apply to Court for an immediate division of the accrual if his or her right to share in the accrual of the estate of the other spouse is being or will possibly be seriously prejudiced by the conduct or proposed conduct of the other spouse;
For advice on how to incorporate an ANC in your estate planning, reach us at info@lex24.co.za or 076 525 8798
2. South African law generally outlaws pacta successoria – i.e. agreements that regulate the distribution of one’s estate after one’s death – UNLESS it is contained in an ANC;
3. Where the accrual system applies, the party with the lesser growth in their estate cannot demand any particular asset / property from their spouse in satisfaction of their accrual claim. It is up to the party with the larger growth / accrual, how they settle that liability for the accrual claim;
4. Here is a shocker: An ANC does not afford automatic protection in the event of your spouse going insolvent / bankrupt. The Sheriff will attach the assets of the solvent spouse as well as the assets of the insolvent spouse. The only way to save your assets would be by proving that you bought them before the marriage or that you acquired them during the marriage using your own money / resources;
5. A party to a marriage out of community of property but subject to the accrual system, can apply to Court for an immediate division of the accrual if his or her right to share in the accrual of the estate of the other spouse is being or will possibly be seriously prejudiced by the conduct or proposed conduct of the other spouse;
For advice on how to incorporate an ANC in your estate planning, reach us at info@lex24.co.za or 076 525 8798