LEGAL AND FINANCIAL COMPLIANCE TOUCHING A PERSON TRANSFORMING

LEGAL AND FINANCIAL COMPLIANCE

TOUCHING A PERSON, TRANSFORMING A COMMUNITY AND BUILDING A NATION The Gatekeeper mission is to capacitate and resource communities by means of collaboration between business, the nonprofit sector and various service providers to the nonprofit 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 nonprofit 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 wants to assist and support nonprofit organisations in becoming legally and financially compliant which will make it easier for such organisations to be sustainable and to access funding.

An nonprofit 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: To provide an environment for organisations to flourish To establish an administrative and regulatory framework within which non-profits can conduct their affairs

Non-profit organisations Act (cont) Benefits of registering as an NPO in terms of the Act: • This will provide you with an NPO number and serve as proof that your organisation exists and is a legal entity • Funders can access the data base of the Dept of Social Development to see if your organisation has complied with the Act and filed narrative reports and financial statements • The website of the Dept contains standard documentation such as a model constitution which is easy to use and there is no cost involved in setting up and registering with them

Formation of a non-profit organisation in terms of the Companies Act • 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 CIPC • 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.

Formation of a non-profit organisation in terms of the Companies Act (cont) The CIPC website contains a model MOI for nonprofit companies 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 Non. Profit Organisations Act but this is not compulsory

Benefits of registering as an NPC Organisations that tend to be more complex in structure, and who 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

Formation of an NPO as a charitable trust in terms of the 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 compulsory

Benefits of registering as a charitable trust • A very high standard of conduct is required of trustees • 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 spelt 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 9 th Schedule to the Income Tax Act, for example: – the care and counseling of orphaned or vulnerable children, poverty relief, care and protection of asylum seekers etc

Benefits of being registered as a PBO ito Income Tax Act • The organisation itself would not pay income tax • 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

A PBO CAN TRADE AND MAKE PROFITS WHICH ARE TAX FREE • 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 R 100 000 will be exempt. EXAMPLE: Donations received R 450 000 Rental income R 90 000 Interest income R 50 000 Total receipts R 590 000 An amount being the greater of 5% of the total receipts iro trading activity or R 100 000 will be exempt from tax. The full R 90 000 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.