Legal and Financial Compliance

The Gatekeeper Foundation
communities by means of collaboration
between business and the non-profit sector, to
optimize the impact upon the ultimate
beneficiaries, in a manner that is sustainable
and transparent.
Legal and Financial Compliance
In order for any organisation to succeed, it
needs to have a proper structure and it needs to
be financially and legally compliant.
There is little difference between a start up
enterprise and a start up non-profit organisation
– an organisation with a proper structure may or
may not succeed, but an organisation which is
not legally and financially compliant, with a
proper structure, is bound to fail.
The Gatekeeper Foundation assists and supports
non-profit organisations to become legally and
financially compliant which will make it easier
for such organisations to be sustainable and to
access funding.
Organisational structure
An non-profit organisation can be a trust,
company or other association of persons,
established for a public purpose, whose income
and property are not distributable to its
members or office bearers, other than as
reasonable compensation for services rendered.
Legislative framework
Non-Profit Organisations Act(No 71 of 1997)
Companies Act
Trust Property Control Act
Income Tax Act
Broad Based Economic Empowerment Act
Non-profit Organisations Act
Registration is voluntary. The purpose of the Act
is to establish an administrative and regulatory
framework within which non-profits can conduct
their affairs.
It is also a source of information, for example
narrative reports must be filed on the work
done by the non-profit organisation.
Non-profit organisations Act- benefits
of registration
An NPO number Is issued and serves as proof that
the organisation exists and is a legal entity.
Funders can access the data base of the
Department of Social Development to verify
compliance with the Act.
The website of the Department contains standard
documentation such as a model constitution which
is easy to use and there is no cost involved
registering an organisation as an NPO.
Non-profit Companies
An organisation can come into existence by
registering with the CIPC (the companies office)
in terms of the Companies Act.
It will do so by registering its name and filing its
Memorandum of Incorporation (MOI) with the
The organisation will have the letters ‘NPC’ at
the end of its name to indicate it is a not for
profit company registered in terms of the Act.
Companies Act
The CIPC website contains a model MOI
(memorandum of incorporation) for non-profit
An MOI serves the same purpose as a constitution
of a voluntary association registered ito the NPO
Act – it regulates the affairs of the NPC.
An NPC can also register as an NPO ito the NonProfit Organisations Act but this is not compulsory.
Benefits of registering as an NPC
Organisations that tend to be more complex in
structure, and which is likely to receive
substantial funding should rather register as an
NPC as the affairs of an NPC are regulated in
terms of the Companies Act which sets a high
standard of conduct for directors, and provide
protection for members or beneficiaries
(stakeholders) of organisations.
Trust Property Control Act
A non-profit organisation can come into existence
with the registration of a Charitable Trust with the
Master of the High Court.
The trust deed will determine the manner in which
the organisation (charitable trust) operates and will
for example, set out the powers of the trustees.
An Charitable Trust can also register as an NPO ito
the Non-Profit Organisations Act but this is not
Benefits of registering as a charitable
A high standard of ethical conduct is required of
The trust deed is a creature of its own making, that
means the trust deed can be drafted with great
particularity to determine the manner in which the
organisation is managed and controlled and
disputes are resolved.
The provisions of the Companies Act do not apply
and the rights and interests of beneficiaries can be
clearly set out in the trust deed.
Registration as a PBO in terms of the
Income Tax Act
An organisation can register with SARS as a
Public benefit organisation which would entitle
it to tax relief
It has to have an object (purpose) aligned to
what is set out in the 9th Schedule to the Income
Tax Act, for example:
– the care and counseling of orphaned or vulnerable
children, poverty relief, etc
Benefits of being registered as a PBO
The organisation itself would not pay income
The organisation itself would not have to pay
transfer duty if it were to purchase property.
No capital gains tax is payable.
It can approach its municipality for rates relief
on any property it owns.
Donors gets tax relief and can donate up to 10%
of its trading profits, tax free to a PBO.
Non-profit organisations (NPO) as
public benefit organisations (PBO)
An NPO registered as a PBO may now conduct a
trading activity or business undertaking where the
activity is utilised as a source of funding for the
approved Public Benefit Activity (PBA)
This means that as long as the trade takes place in
furtherance of the objective for which the
organisation exists, for example poverty relief, tax
exemption will apply, provided that the carrying on
of the business does not in effect become the sole
or principal object or activity.
Tax Exemption for trading activities
• The greater of 5% of the total receipts and accruals of the
PBO or R100 000 will be exempt.
Donations received
R450 000
Rental income
R90 000
Interest income
R50 000
Total receipts
R590 000
An amount being the greater of 5% of the total receipts iro
trading activity or R100 000 will be exempt from tax.
The full R90 000 will thus be exempt
Vat Exemption
A PBO may register for VAT, and claim the VAT
that they incur as input tax and only levy output
tax where they charge for the supply of goods
and services.
In conclusion
Organisations who do have good financial
management systems, is well managed and have a
sound organisational structure will have a
competitive advantage when it comes to funding.
The Gatekeeper Foundation, in conjunction with its
partners, wish to make it possible for every
organisation, no matter how large or small, to be
legally and financially compliant and its objective is
to facilitate this and to assist with the building of
capacity within organisations.

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