Unfortunately, what often happens is that people with good intentions decide to create nonprofits, but they do not realize the special obligations that come with entities that do not pay tax, which is a privileged status intended for social good.
While some nonprofit leaders, may not realise their obligations, it’s important to remember that ignorance of the law, is not a defence. Therefore, nonprofits are legally required to comply with South African laws, including registering, if necessary, before any fundraising activities. It’s also important to recognise that compliance is one of the main purposes of board activities.
The key aspects of nonprofits are accountability, trustworthiness, honesty, and openness to every person who has invested time, money, and faith into the organisation.
The following are basic compliance issues you should keep in mind when starting an entity intended for social good:
A constitution is the foundation for building an organisation. It should contain all the key agreements made by members on how the organisation will work. In law it is called the “founding document” and it is legally binding on the executive and members of the organisation.
- NPO Registration
You can register your NPO for free with Department of Social Development. You can also register it as an NPC online with CIPC for a fee under R200. In order to register your NPO you will need a Constitution and at least 3 directors
- Elect a Board
One important requirement of a nonprofit organization is the formation of a board of directors. The board has the responsibility to set policy for the organization in accordance with all applicable laws and to see to it that the policies are implemented.
The size of the board should depend on the needs of the organization. If the board’s role is strictly policy-making and the policies are implemented by a qualified staff, a small board might be more appropriate. However, if extensive board time is required for fundraising or implementing programs, then a much larger board is in order. Minimum number of board members for an NPO in South Africa is 3.
- Create a Strategic Plan for up to 3/5 years
An organization’s strategic plan acts as a blueprint, a plan and a focus of what direction the agency will move. Strategic planning is essential if nonprofits are to achieve desired results and identify goals. Programs within a nonprofit can then use these goals to create individualized action plans that help serve the needs of the program while focusing on the global mission and vision of the organization. Having a strategic plan can help increase an organization’s focus to move the mission and vision forward while also helping the nonprofit to evaluate its progress, strengths and needs.
- All Management Policies including conflict of interest, HR and Finance in place
- Organogram (Organisational Structure)
Organizational structure designates formal reporting relationships, including the number of levels in the hierarchy and the span of control of managers and supervisors. There are seven core dimensions of structure: formalization, complexity, centralization, specialization, standardization, professionalism, and hierarchy of authority. Nonprofit leaders need to consider how much of each dimension is needed for an effective and ethical organization.
- Contracts of employment and job descriptions
This helps ensure productivity, accountability and that expectations are met. It also mitigates risks and limits liability.
- Register as a PBO at SARS
An NGO 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.
An NGO must register with SARS even if you are not going to register as a PBO. If you do not obtain PBO status from SARS, your organisation will be liable for Income Tax (if any income is received).
When applying to become a PBO, we suggest also applying for S18A status which will allow your organisation to issue S18A certificates. This will allow Donors (which are taxable entitities) to deduct their donations made to your organisation (subject to certain limitations).The application can take two months before approval is granted, so it is best to start the process as soon as possible.
One of the most important things when responsible for a Nonprofit is to always ensure good record keeping.