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 company'
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 status confirmed.
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 registration numbers;
- 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 incorporation; and
- 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.