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Why what your charity calls itself is (legally) important

Corporate social investment (CSI) in South Africa is largely channelled through non-profit organisations (NPOs), the Trialogue 2015 CSI Handbook reports. The vast majority of corporates (90% of the Trialogue sample) channelled a significant portion (52%) of CSI funding to NPOs. 

NPOs are accessing funding allocated to broad-based BEE Scorecard requirements, most commonly socioeconomic development, cited by 82% of respondents. And although 66% of NPOs have corporate donors, the government remains the largest single source of funding for NPOs, providing 20% of all funding NPOs received in 2015.

Although broadly called “NGOs” (a broad category that includes all non-governmental organisations) or “NPOs”, organisations established for a public purpose fall into three legal categories in SA:

• Voluntary associations, often informal community-based organisation, registered under the Non-Profit Organisation Act 71 of 1991 (known colloquially as the NPO Act).

• Non-profit companies, governed by the Companies Act 71 of 2008. They are usually more sophisticated and have a broader reach than their immediate geographic base.

• Non-profit trusts, governed by the Trust Property Control Act 57 of 1988.

The NPO Act defines a non-profit organisation as a trust, company or other association of persons that has been established for a public purpose and the income and property of which are not to be distributed to its members or office bearers, except as reasonable compensation for services rendered. It is specifically aimed at encouraging good governance, transparency and accountability, and to have a system in place that makes it easy to maintain a database of registered NPOs readily available to the public. Registration as an NPO is not automatic, but requires an application to and assessment by the NPO directorate of the department of social development. Of the 29  30 applications received during the year ending March 2015, the DSD granted 71.7% (21 092) organisations official non-profit status. Most of these applications came from Gauteng (32.2%) and the least came from the Northern Cape (2.1%). In South Africa, the national database of NPOs has grown from 65 633 organisations in 2009/2010 to 136  53 in 2014/15. The vast majority (93%) are registered as voluntary associations, with 6% registered as non-profit companies and 1% as non-profit trusts.

Thus, an NGO can be an NPO but it can also be a PBO — a public benefit organisation — that qualifies for tax exemption because its activities are for public benefit. A voluntary association, trust or company can apply for PBO status from the SA Revenue Service.

A new “category” has recently appeared, calling itself the social enterprise. According to umbrella organisation, “social enterprises are businesses that trade to tackle social problems, improve communities, people’s life chances, or the environment. 

“They make their money from selling goods and services in the open market, but they reinvest their profits back into the business or the local community.” Wikipedia defines a social enterprise as “an organisation that applies commercial strategies to maximise improvements in human and environmental wellbeing — this may include maximising social impact rather than profits for external shareholders”. There is no legal definition of a social enterprise in South Africa.

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