In terms of the Companies Act 71 of 2008 (“Companies Act”) a non-profit company must have a memorandum of incorporation which sets out at least one object of the company. Each such objective must furthermore be either a public benefit objective or an object relating to one or more cultural or social activities, or communal or group interests.
One of the core principals of a non-profit company is that it must apply all of its assets and income, however it is derived, in order to advance the stated objectives as set out in its memorandum of incorporation. Once this objective has been complied with, a non-profit company may acquire and hold securities issued by a profit company, or it may directly or indirectly carry on any business, trade or undertaking consistent with or ancillary to its stated objects.
A non-profit company may furthermore, not directly or indirectly, pay any portion of its income or transfer any of its assets to any person who is or was an incorporator of the company, or who is a member or director of the company. There are however certain exceptions, which include payments as reasonable remuneration for goods delivered or services rendered to the company, or payment of or reimbursement for expenses incurred to advance a stated object of the company.
It is important to note that incorporation as a non-profit company in terms of the Companies Act does note necessarily qualify non-profit companies for any particular status, category, classification in terms of the Income Tax Act 58 of 1962 or any other legislation (except to the extent that any such legislation provides otherwise).
The status as a non-profit company also has an impact on voting rights and each voting member of a non-profit company has at least one vote. The vote of each member of a non-profit company is of equal value to the vote of each other voting member on any matter to be determined by the vote of the members, except to the extent that the company’s memorandum of incorporation provides otherwise.
The Companies Act therefore places rather stringent requirements on non-profit companies which they will need to comply with to ensure that they do not fall foul of the regulation of the Companies Act.