The difference between a non-profit company and a non-profit organisation

December 1st, 2019
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The idea of giving and helping others (charity) has been around since the beginning of time. Unfortunately, with the passing of time, and as humans became more evolved, charitable organisations were more often than not used for fraudulent and mischievous purposes rather than furthering their charitable objective. A legal solution was required in order to make the notion of charity more credible and less subject to malicious use. Enter non-profit companies (NPC) and non-profit organisations (NPO). These different legal entities and concepts are often used in South Africa (SA), however, they are confused with one another. So what is the real difference between NPC and NPO?

The Companies Act 71 of 2008 provides for two types of companies –

  • a profit company; and
  • a non-profit company.

An NPC is described in s 1 of the Companies Act as a company –

‘(a) incorporated for a public benefit or other object as required by item 1(1) of Schedule 1; and

(b) the income and property of which are not distributable to its incorporators, members, directors, officers or persons related to any of them except to the extent permitted by item 1(3) of Schedule 1’.

Schedule 1 of the Companies Act predominantly deals with NPC, and broadly speaking, the goal of the NPC is not to make a profit but to further a certain public benefit, by using the legal entity of an NPC to do so, and any income received must be applied to further this benefit. The income may not be distributed to any persons involved, except as reasonable compensation for services rendered. As with all things in the law, there are some expectations and further specific requirements to these statements (see sch 1 of the Companies Act).

Non-profit companies are incorporated in a similar fashion as profit companies on the Companies and Intellectual Property Commission’s (CIPC) website. However, there must be three initial directors, and if its Memorandum of Incorporation provides for it, members. Thus, an NPC can be registered as a

  • standard non-profit company (with members);
  • standard non-profit company (without members);
  • customised non-profit company (with members); or
  • customised non-profit company (without members).

The name of a non-profit company must end with NPC. An NPC is a juristic person, recognised by South African law as having rights and duties.

The Nonprofit Organisations Act 71 of 1997 (the NPO Act) states in s 1 that an NPO is ‘a trust, company or other association of persons –

(a) established for a public purpose; and

(b) the income and property of which are not distributable to its members or office-bearers except as reasonable compensation for services rendered’.

Clearly from this definition the confusion that most people have regarding the difference between NPC and NPO is evident, as the description of these two concepts are almost identical. Non-profit organisations are predominantly regulated by the NPO Act.

To register an NPO, you can either visit the offices of the Department of Social Development or apply online on their website at www.npo.gov.za. Only a trust, company or other associations of persons established for a public purpose (voluntary association) can be registered as an NPO. Registering an NPO is beneficial because it will improve your credibility and funding opportunities, allow your charity to open a bank account and can help with tax incentives.

Every new era ushers in a new set of ideas, principles and practices that affect how the charity-sector functions in society. As illustrated, the NPC and NPO co-exist in the South African legal environment, although they are commonly mistaken for one another. They mainly differ in the way they are registered (ie, how they come into existence) but their objectives are quite similar, if not identical. One main difference is that an NPC can register as an NPO, but an NPO cannot incorporate a company. Best practice will be to incorporate an NPC and to register it as an NPO to give the charitable organisation the best possible credibility, which will result in more donations and ultimately furthering the charitable objective with as little mischief as possible.

Elli Bissett LLM (UP) is a candidate legal practitioner at Henk Kloppers Attorneys in Pretoria.

This article was first published in De Rebus in 2019 (Dec) DR 11.