The Companies Act 71 of 2008 ("New Companies Act")
became part of our law on 8 April 2009 and is intended to
be the modern corporate law for the modern corporate South Africa.
Subsequent to various delays in the approval process, the New
Companies Act came into force on 1 May 2011.
The New Companies Act will has some implications for public
benefit organisations that were registered as associations not for
gain incorporated in terms of section 21 of the Companies Act 61 of
1973 ("1973 Act").
From 'association not for gain' to 'non-profit
In terms of the New Companies Act, there are two broad types of
companies that may be incorporated, namely profit companies and
non-profit companies. Non-profit companies are the successors to
the associations incorporated not for gain in terms of section 21
of the 1973 Act ("section 21 companies").
The Act contains transitional provisions which provide for
pre-existing section 21 companies to be non-profit companies in
terms of This Act. As such, section 21 companies will, after the
New Companies Act comes into force ("effective date"),
continue to exist as though they were incorporated and registered
in terms of the New Companies Act with their respective names and
registration numbers. They will also be deemed to have changed the
ending expressions of their names to 'NPC'.
In terms of the New Companies Act, the memorandum and articles
of association are going to be replaced by one comprehensive
document, the memorandum of incorporation. Companies will have two
years after the effective date to adopt a memorandum of
incorporation in order to bring them in line with the New Companies
Act. This means that for the first two years after the effective
date, every non-profit company will be deemed to have amended its
memorandum of incorporation as of the effective date to expressly
state that it is a non-profit company.
Section 21 Companies are currently deemed to be public companies
in terms of the 1973 Act. However, in terms of the New Companies
Act, non-profit companies are an entirely seperate type of company.
Consequently, the distinction between private and public companies
will not be applicable to non-profit companies.
Non-profit companies as PBOs
Section 30(1)(a)(i) of the Income Tax Act 58 of 1962
("Income Tax Act") which contains the definition of
'public benefit organisation' was amended in 2010 (with
effect from 1 January 2011) in order to include non-profit
companies as defined in the New Companies Act.
An important implication to this inclusion by the legislature in
the Income Tax Act is that pre-existing non-profit companies that
already had their public benefit status determined and granted by
the Commissioner for the South African Revenue Service do not need
to re-apply in order to have their public benefit organisation
However, non-profit companies that have not yet been granted
public benefit organisation status are not automatically tax exempt
and they will still need to satisfy the requirements of the Income
Tax Act in order to obtain approval as a public benefit
organisation or a tax exempt entity.
Non-profit companies will not be subjected to extended
disclosure, transparency and auditing requirements and are not
obliged to appoint an auditor, company secretary or audit committee
unless the memorandum of incorporation expressly provides for the
appointment of such persons.
The effects of the New Companies Act on pre-existing non-profit
companies will be that pursuant to the effective date they:
may retain their approved names and designated company
will be referred to as non-profit companies and the acronym
'NPC' will be added at the end of their names;
have two years within which to adopt a memorandum of
will not be treated as public companies.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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