A guide to setting up, registering and governing an NGO
Are you looking to establish a non-governmental organisation (NGO) or searching for resources to strengthen your pre-existing organisation? There are many descriptions of organisations that play a role in South African civil society. So, we have curated a guide that will help you think through the legal, financial and technical questions associated with setting up and governing an NGO – starting with a description of what we mean when we use the term NGO.
This guide is split into three sections; the first section covers questions related to setting up and registering an organisation, the second section covers organisational governance and the third section deals with an organisation’s finances.
How to use this resource
This is not a step-by-step guide because visitors to this site may be at different stages of organisational maturity or may need different things, which makes it difficult to present the information in chronological order.
The material and information contained in this guide is for general information use and does not constitute legal and/or financial advice.
How to give us feedback
We acknowledge that this is not a comprehensive guide that covers all aspects of establishing and operating an NGO, but it will help you to ensure you have the basics covered, at the very least. We value your feedback and will continue adding relevant information to this guide as we go. To send us feedback, contact email@example.com with the subject line “NGO Commons”. We want to hear from you and we value your input.
Guide For Establishing an NGO
What do we mean when we use the term NGO?
The term non-governmental organisation (NGO) was first used in Article 71 of the Charter of the United Nations in 1945. It is internationally recognised as it relates to independent international aid separate from government international aid but has been adopted to describe non-profit organisations or charities in a number of countries.
However, in South Africa, the term NGO has no legal standing. Organisations are known as non-profit organisations (NPOs) that are made up of voluntary associations, charitable trusts and non-profit companies. Other terms used in South Africa, that also do not have any legal basis, include civil society organisations (CSOs), social profit organisations (SPOs), third-sector organisations and community-based organisations (CBOs).
Use of the term NGO, whilst common, does create confusion when people attempt to establish an organisation and the incorrect legal term is used. There are many descriptions of organisations that play a role in South African civil society. These can consist of a large range of organisations, from small community-based entities, humanitarian organisations, early childhood education centres and environmental action groups, through to very large activist and advocacy organisations that undertake research, engage with government at the highest level and promote policy changes.
Many words are used to describe these entities, however, there are only two terms that have legal standing in South Africa, namely;
- Non-profit Organisations (NPOs) are on the register of the Non-profit Organisations Directorate in the Department of Social Development (DSD) and are regulated by the Non-profit Organisations Act No. 71 of 1997. Legal entities that qualify for NPO status include voluntary associations (associations of persons), non-profit trusts and non-profit companies. At present, registration with the NPO Directorate is voluntary.
- Public Benefit Organisations (PBOs) are recognised in terms of the Income Tax Act as qualifying for tax exemption. These can include voluntary associations, non-profit trusts and non-profit companies. Registration with the South African Revenue Services (SARS) for tax exemption is voluntary.
Public benefit organisations
Establishing a Non-profit Organisation
What exactly is an NPO?
The Non-profit Organisations Act No. 71 of 1997 (the NPO Act) became law in South Africa on 3 December 1997. It is one of several pieces of legislation that was introduced after the end of apartheid to support South Africa’s transformation and development. The Act (and its amendment, published in 2000) therefore, is widely viewed as an acknowledgement – on the part of the government – of the role that NPOs play in meeting the diverse needs of South Africa’s population. Through the Act, the government hopes to support the sector by providing a legislative environment that will:
- support NPOs to flourish;
- provide an administrative and regulatory framework within which NPOs can conduct their affairs;
- encourage NPOs to maintain adequate standards of governance, transparency and accountability and to improve these standards;
- allow for public access to information concerning registered NPOs; and
- promote a spirit of co-operation and shared responsibility within government, donors and amongst other interested persons in their dealings with NPOs.
A new NPO Amendment Bill is under consideration by South African lawmakers. This would provide for an Office of the Registrar of non-profit organisations (instead of the NPO Directorate); to provide for the registration of NPOs and compulsory registration of foreign organisations, as well as to provide for an Arbitration Tribunal for dispute resolution. There have been a number of submissions made by the non-profit sector in response to the draft Bill to date.
|Non-profit Organisations Act 1997||https://www.gov.za/documents/nonprofit-organisations-act|
|Non-profit Organisations Act Amendment Bill 2000||https://www.gov.za/documents/nonprofit-organisations-amendment-act|
|Draft NPO Amendment Bill 2022||https://www.gov.za/sites/default/files/gcis_document/202205/46349gon2074.pdf|
|General Laws Amendment Act||https://www.gov.za/documents/general-laws-anti-money-laundering-and-combating-terrorism-financing-amendment-act-22-2022|
|What is an NGO? What role does it play in civil society||https://learning.candid.org/resources/knowledge-base/ngo-definition-and-role/|
Why establish an NPO?Most NPOs are initiated by individuals or groups who have an idea or aim to transform society. NPOs function independently of government and the corporate sector and they can be established to serve the needs of a local community, the nation as a whole or even to work internationally. The causes supported by NPOs are very wide-ranging and they can include humanitarian or welfare support, advocacy for human rights and social justice, resources to deal with climate change, animal rights, education, gender-based violence, crime and health as well as high-level think tanks that provide research and advocate for changes in policy. It is important to note that NPOs have a special status because they cannot pursue individual self-interest or private profit. All their funds and resources need to be used to advance their purpose in the public interest. This means profits are not distributed to board members or staff. In turn, if they qualify, the government can provide the NPO with tax-exempt status so that all its funds and resources are directed to the social good. In order to operate as a non-profit organisation, a formal structure has to be established and registered. The advantages of formal registration include:
- Recognition as an independent legal entity.
- Capacity to enter into contracts and open a bank account.
- The ability to approach donors (or the government) for financial support.
- The capacity to attract volunteers to provide time and expertise to support the organisation.
- The right to apply to the South African Revenue Services for tax-exempt status so that you need not pay income tax on the income generated by the organisation.
- Greater capacity for transparency and accountability.
- The ability to collaborate and partner with others.
- Recognition of your organisation by others.
Purpose and objectives
It is essential that the proposed purpose and objectives of an organisation are carefully considered and clearly articulated in its founding document. This is necessary to obtain tax exemption, attract support and guide the organisation in the future.
|An Overview of Non-profit Organisations||https://www.jusdraft.co.za/legal/start-register-npo/npo-overview|
|NPO-related law and benefits in South Africa||https://www.linkedin.com/pulse/non-profit-organisation-related-law-benefits-south-africa-snyman-1f/|
|NPO Registration form||https://www.dsd.gov.za/index.php/documents/category/76-npo-forms|
What is a founding document and why is it important?
In the NPO Act, the founding document is simply referred to as “the constitution”. But, there are three different names for the founding documents of each of the three legal structures, described as NPOs:
|Legal Structure||Founding Document|
|Non-profit Trust||Trust Deed|
|Non-profit Company||Memorandum of Incorporation|
The most important thing to know about the founding document is that it is a legal document which defines the terms under which the organisation was established.
In addition to outlining the philosophy of the organisation, it also:
- guides members on the purpose and objectives of the organisation (what the organisation hopes to achieve); and
- regulates how the organisation is to be administered; how it should be run, its structure, and the duties of the Management Committee/Board of Trustees/Directors/Incorporates.
Particularly important, is that banks will ask for a copy of the founding document before a bank account can be opened in the name of the organisation. It is important, therefore, to ensure that the organisation’s founding document is duly signed and that all conditions and constraints that determine how the organisation will be administered and run (such as conditions of membership; procedures that need to be followed should the organisation be dissolved) be clearly outlined in the document.
If you are considering applying for tax exemption and registering with SARS, you must align the purpose and objectives of your organisation – within your founding document – to the requirements of the Income Tax Act, 1962 (Act No. 58 of 1962 as amended), i.e. “The sole or principal object of the organisation must be to carry on one or more of the Public Benefit Activities listed in the Ninth Schedule”.
It is essential that the proposed purpose and objectives of an organisation are carefully considered and clearly articulated in its founding document. This is necessary to obtain tax exemption, attract support and guide the organisation in the future.
The organisation’s founding document must:
- State the name of the organisation;
- State the organisation’s purpose and ancillary objectives;
- Declare 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 have an identity distinct from its members or office-bearers;
- Make provision for the continued existence of the organisation notwithstanding changes in the composition of its members 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 structure and mechanisms of governance;
- Set out the rules of convening and conducting meetings, including quorums required at meetings and the minutes to be kept at those meetings;
- Determine the manner in which decisions will be made;
- Provide that the organisation’s financial transactions must be conducted by means of a bank account;
- Determine a date for the end of the organisation’s financial year;
- Set out a procedure for changing the constitution or founding document;
- Set out a procedure by which the organisation may be dissolved; and
- Provide that, when the organisation is being dissolved, any assets remaining after all liabilities have been met must be transferred to another NPO with similar objectives.
It is also highly recommended that a Conflict of Interest clause be inserted into the founding document or constitution to enhance good governance and to provide guidance should conflicts of interest arise.
Model Constitution for a Voluntary Association
Constitutions for Non-Profit Organisations
Types of NGOs
What legal options are available?
The South African Constitution guarantees all South Africans the right to freedom of association. From a legal perspective, this means that South Africa has a legal framework that allows civil society organisations to establish themselves as legal structures and regulates the way in which these legal structures operate.
In South Africa, civil society organisations largely operate as:
- Voluntary Association
- Non-profit Trust
- Non-profit Company
All three forms are recognised as distinct (separate) legal entities and guidelines for the establishment and regulation of NPOs are primarily legislated through the NPO Act. However, it is helpful to get expert legal advice before you make the decision on what type of organisation you wish to be and before you start the process of actually establishing the organisation.
|Basics of non-profit law in South Africa||https://ngolawsa.co.za/the-basics/|
|NPOs: From Starting Up to Closing Down – a how-to guide to the relevant statutory and governance framework||http://lrc.org.za/wp-content/uploads/pdf/2018%20NPO%20Guide_final.pdf|
|Nicole Copley, non-profit lawyer||https://ngolawsa.co.za|
|Ricardo Wyngaard, non-profit lawyer||https://nonprofitlawyer.co.za/index.php|
A Voluntary Association (an association of persons) is formed by three or more people who agree (either verbally or in writing) to achieve a common objective that is primarily not-for-profit. This category often applies to clubs, churches and associations that elect their management committees.
Voluntary Associations tend to have the following features:
- Usually formed by small and informal community groups (individuals, community-based organisations, faith-based organisations) and are regulated by Common Law;
- Generally based on open membership;
- Managed from within, by general members or a management/steering committee, according to a constitution that is drawn up by members; and
- Not registered with any legal body.
It is highly recommended that Voluntary Associations have a written constitution. Without a written constitution they cannot register as NPOs, cannot open a bank account and cannot apply for tax exemption. It is also important for members in the future to understand the objectives of the association and a written document assists with this.
Voluntary Associations must meet three legal requirements:
- They must be able to demonstrate perpetual succession (be able to continue even if there is a change in membership);
- They must be able to hold property distinct from their members; and
- They must declare that no member may have any rights to the property of the association.
By far, the vast majority of NPOs in South Africa are established as Voluntary Associations.
Non-profit Trusts are established when ownership of a property or funds is transferred (by written agreement/testament or court order) to another party/group, who will administer the assets for the benefit of others or to achieve a specific goal. Often, Trusts are created during the lifetime of the founder of the Trust, with the specific intention of using assets to carry out public benefit activities.
Non-profit Trusts may be regulated by Common Law, but this is seldom the case. They tend to have the following features:
- Established in terms of The Trust Property Control Act 57 of 1988
- Have closed membership
- Governed by a Board of Trustees
Further legal requirements include:
- the Master of the High Court oversees the appointment of Trustees;
- trustees can only act in this capacity once authorised – in writing – by the Master;
- the first Trustees must lodge a Trust founding document – also known as a Trust Deed – with the Master of the High Court. The Trust Deed outlines the purpose and activities of the Trust, sets out the powers of Trustees and any public officer; and
- overall responsibility for policing the performance of the Trustees’ duties with respect to the property of the Trust, rests with the Master.
A Non-profit Company is recognised as a separate category of company which has been established for a public benefit purpose, to promote specific cultural or social activities, or communal or group interests. Previously known as Section 21 Companies, Non-profit Companies have the following features:
- Established in terms of the Companies Act No. 71 of 2008 (the Companies Act was signed into law in April 2009 but only came into operation on 1 May 2011); and
- Operates in terms of a Memorandum of Incorporation which sets out the purpose and objectives of the company.
A Non-profit Company may be established with or without members, however, the following must take place:
- The Memorandum of Incorporation must be signed by three people, known as incorporators;
- Its income and property may not be distributed to its members, officers, incorporates or directors, except as reasonable compensation for services; and
- They must be governed by a Board of Directors that guarantees to hold responsibility in the event of the financial failure of the company.
It is important that the Memorandum of Incorporation of the Non-profit Company is clear about its purpose and its objectives in order to obtain tax-exempt status and support from donors.
Registering with the South African Revenue Services for tax exemption
What is tax exemption? Section 30 of the Income Tax Act
An NPO may apply to SARS for tax exemption as a Public Benefit Organisation (PBO) if it meets the requirements of the Income Tax Act of 1962. As is the case with NPO registration, PBO registration is also voluntary (an organisation does not need to be an NPO in order to be approved as a PBO).
To qualify for registration as a PBO under Section 30 of the Act, organisations must have as their sole and principal objective (sole purpose), one or more of the following Public Benefit Activities listed in Part I of the Ninth Schedule to the Income Tax Act:
- Welfare and Humanitarian
- Health care
- Land and Housing
- Education and Development
- Religion, belief or philosophy
- Conservation, Environment and Animal welfare
- Research and Consumer rights
- Providing of funds, assets or other resources.
Tax exemption under Section 30 provides for exemption from a range of taxes including donations tax, estate duty, transfer duty, dividend tax and capital gains tax. The Commissioner may withdraw the approval as a PBO if that PBO has, in any year of assessment in any material respect or on a continuous or repetitive basis, failed to comply with Section 30 or with its founding document as it relates to Section 30.
To register as a PBO, organisations need to submit the following documents to the Tax Exemption Unit of SARS.
- A certified copy of the organisation’s founding document.
- A completed application form to register a PBO (Form EI 1).
- A written undertaking to be signed by three board members confirming that they take fiduciary responsibility for the PBO (Form EI 2).
- A written undertaking to be signed by three board members if the organisation provides bursaries or award for study.
What is tax exemption? Section 18A of the Income Tax Act
Registration for tax exemption under Section 18A of the Income Tax Act is very important for donors, especially individuals and corporates. It provides for tax deductions of up to 10% of the donor’s taxable income and, if the donation exceeds 10% in any tax year, the balance can be rolled over to the next tax year. The types of organisations that can provide their donors with 18A tax certificates are more restricted than the list of organisations that qualify for exemption under Section 30. The list of public benefit activities that qualify for 18A status can be found in Part II of the 9th Schedule of the Income Tax Act and it provides substantial detail of the organisation that qualifies under the following headings:
- Welfare and Humanitarian
- Health Care
- Education and Development
- Conservation, Environment and Animal Welfare
- Land and Housing.
|Income Tax Act of 1962||https://www.gov.za/documents/income-tax-act-29-may-1962-0000|
|Basic Guide to Income Tax for Public Benefit Organisations||https://www.sars.gov.za/wp-content/uploads/Ops/Guides/LAPD-IT-G16-Basic-Guide-to-Income-Tax-for-Public-Benefit-Organisations.pdf|
|Basic Guide to Section 18A Approval||https://www.sars.gov.za/wp-content/uploads/Ops/Guides/Legal-Pub-Guide-IT17-Basic-Guide-to-Section-18A-Approval.pdf|
|Tax Exempt Institutions||https://www.sars.gov.za/businesses-and-employers/tax-exempt-institutions/|
|SARS Basic Guide to Income Tax for Public Benefit Organisations||https://www.sars.gov.za/wp-content/uploads/Ops/Guides/LAPD-IT-G16-Basic-Guide-to-Income-Tax-for-Public-Benefit-Organisations.pdf|
Reporting requirements for both NPOs and PBOs
What do I need to know as an NPO?
Once an organisation is registered as an NPO, it is required in terms of Sections 18 and 19 of the Act to submit annual reports comprising a narrative report and a financial report to the NPO Directorate. It is very important to note that these must be submitted within nine months after the end of the financial year. Reporting should include any changes to the organisation’s constitution, physical address and office bearers.
Narrative (written) Report: This report covers the activities of your organisation over the last twelve months and includes the following sections:
- Section A: Basic details about the organisation on the form provided.
- Section B: The organisation’s major achievements over the year, in response to the questions provided.
- Section C: List of important meetings held by the organisation during the year, and details of any changes to your constitution.
Financial Report: This report needs to be completed by a registered accounting officer or an auditor. The financial report includes the following sections:
- Section A: The organisation’s income and basic accounting details on the form provided.
- Section B: A copy of your most recent Annual Financial Statements, which include a balance sheet and an Income and Expenditure Report.
A thirty days notice from the NPO Directorate should be served to all registered NPOs whose reports are overdue. Organisations that fail to comply with this notice risk having their registration status cancelled in terms of Section 21 of the Act. Once deregistered, it is a criminal act to represent the organisation as a registered organisation.
What do I need to know as a PBO?
Approved PBOs are required to submit annual income tax returns to the SARS Commissioner. The Commissioner must also be informed of any changes to the service delivery address (and address for delivery of notices from the Commissioner, if this is different) of the PBO.
If you are registered under Section 18A and issue receipts to your donors, these receipts, which must bear a unique receipt number, must contain the following:
- Organisation’s reference number, as issued by the Commissioner for the purposes of Section 18A;
- Date of the receipt of the donation;
- The legal nature of the organisation (natural person, Non-profit Company, Non-profit Trust, Voluntary Association etc.);
- Name and address of the PBO, together with an address to which enquiries may be directed in connection with the donation;
- Email address and contact number of the PBO;
- Name and address of the donor;
- Amount of the donation or the nature of the donation (if not made in cash); and
- A certification statement confirming that the receipt is issued in terms of Section 18A of the Act and that the donation has been/or will be used exclusively for the purpose of carrying out its public benefit activities.
In addition, SARS has added the following requirements for a valid Section 18A receipt:
- Donor nature of person (natural person, company, trust, etc.);
- Donor identification type and country of issue (in case of a natural person);
- Identification or registration number of the donor;
- Tax reference number of the donor (if available);
- Contact number of the donor;
- Email address of the donor;
- A unique receipt number; and
- Trading name of the donor (if different from the registered name).
|DSD Obligations of Registered NPOs||https://www.dsd.gov.za/index.php/16-obligations|
|DSD Model Narrative Report||https://www.gov.za/documents/nonprofit-organisations-act-model-narrative-report-non-profit-organisations-draft|
|PBO application for 18A status||https://www.sars.gov.za/businesses-and-employers/tax-exempt-institutions/application-for-section-18a-2/|
|PBOs and tax exemption||https://www.sars.gov.za/businesses-and-employers/tax-exempt-institutions/public-benefit-organisations/|
|All about audit certificates (18A)||https://www.hashtagnonprofit.org/resources/finance/all-about-audit-certificates|
Things to know about registering your organisation
What is the difference between establishing and registering an organisation?
Once the NPO has been legally established and its founding documents meet the appropriate legal requirements, it is able to begin its work. At this point, the organisation also qualifies for registration as an NPO (with the South African Department of Social Development Non-profit Organisations’ Directorate (NPO Directorate)) and/or as a Public Benefit Organisation (PBO) with the tax exemption unit at SARS. It is, however, important to note that registration with both the NPO Directorate and SARS are voluntary processes and organisations decide whether or not they wish to register with these bodies.
What are the benefits of registering as an NPO with the NPO Directorate of the Department of Social Development?
The benefits of NPO registration include the following:
- Many donors require this registration as it is viewed as an additional layer of governance.
- Registration as an NPO is frequently important for voluntary associations as the bank may not open an account without NPO registration.
- If you plan to seek money from government departments (such as subsidies) or apply for funding from quasi-government entities (such as lotteries), this registration is essential.
What are the benefits of registration as a tax-exempt organisation with SARS?
The benefits of registration as a tax-exempt organisation with SARS include the following:
- The organisation will be exempt from donations tax; income tax (such as membership fees or income from services that are aligned with the organisation’s objectives); tax on interest; dividend tax and capital gains tax.
- Note: Technically speaking, the organisation is not exempt from paying VAT. However, PBOs that are registered as VAT vendors are entitled to claim back the VAT on expenses incurred in the delivery of its public benefit activities. All expenses for which VAT is being reclaimed must be accompanied by a relevant VAT invoice.
Non-profit Organisation-related law and benefits in South Africa
What Public Benefit Organisations should know about Value Added Tax (VAT)
The role of the NPO Directorate
What do I need to know about the NPO Directorate when registering my organisation?
The NPO Directorate is housed within the South African Department of Social Development. The Directorate was established in terms of the NPO Act, primarily to administer a Register of Non-profit Organisations in South Africa. It is important to understand that the Register of Non-profit Organisations is a voluntary registration facility. Organisations are, therefore, not obliged to register with this facility.
However, the Register is widely accepted as a public record of NPOs in South Africa and registration does imply that organisations have been able to demonstrate compliance with the requirements of the NPO Act, particularly with respect to regulatory laws and governance structures. Registered organisations are also required to regularly report to the Directorate.
It is worth remembering that a willingness on the part of organisations to show this level of transparency and accountability is often the reason why funders ask to see – and place a high value on – an NPO registration certificate and registration number which is issued by the Directorate on registration.
The Directorate has an online NPO registration process.
What is the Code of Good Practice and is it important to me?Section 6(1)b of the NPO Act also tasks the NPO Directorate (housed within the Department of Social Development) with the preparation and issue of Codes of Good Practice for NGOs. The first draft of the Code was published in 2001. But, the Act did not (and this is still the case) regulate government responsibility for implementing the Code. What this means is that government provides no support, in terms of its statutory mandate, to strengthen regulatory mechanisms within organisations. Across the sector, therefore, the Code of Good Practice for NGOs is seen merely as an effort to encourage registered organisations to ensure that their founding documents comply with the basic requirements of good governance, in terms of the NPO Act.
The process of registration
What documents do I need?
An NPO registers with the Non-profit Organisations Directorate in the Department of Social Development. To register, organisations must be able to provide the NPO Directorate with:
- a completed application form (see link under Useful Documents); and
- two copies of the organisation’s founding document or constitution. A checklist is included in the application form, to help you with this.
Is the registry made public?
Once registered, the organisation’s details appear on the Register of Non-profit Organisations, which is available for the public to access. Although registration is voluntary, it is worth remembering that donors often ask to see a registration certificate, as it provides some confidence that the organisation is able to prove that it has been properly established and that proper management structures have been put in place.
NPO Annual Reports
General Laws Amendment Bill
Guides to help your NGO thrive
Navigating the technicalities of establishing, registering and running an NGO can be intimidating. We provide free guides to help your organisation grow and thrive. With easy-to-follow instructions on important topics from how to establish an NGO to governance, monitoring and evaluation, as well as useful tools and templates, we’re here to help you!
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