Section 21 company incorporated not for gain
FREE
Ask the similar questions
Section 21 company incorporated not for gain
Fast FREE Section 21 company incorporated not for gain agreement download
Certain details of clauses that are applicable to a s21 Incorporated.
Section 21 Company Incorporated Nor for Gain
The Companies Act 2008 was finally, after much debate and controversy, made law on 1 May 2011. This Act created a new category of company, the Non Profit Company (NPC) and provided that all companies which had been registered as associations not for gain under section 21 of the previous Companies Act, as well as those registered under similar sections of prior acts, automatically became NPCs, and the end of their names were automatically changed to ‘NPC’ instead of the previous ‘Association Incorporated under section 21’.
A non-profit company is a company incorporated for public benefit or other object relating to one or more cultural or social activities, or communal or group interest.
In terms of the Act NPCs are no longer (as section 21 companies were) public companies, but are in a category of their own.
The Act introduced a couple of new options for NPCs, and if your NPC does want to take the opportunity to adopt these changes, or if it needs to amend its MOI for any other reason (satisfying SARS’ requirements is a common reason) then it would be appropriate and necessary to adopt a new MOI.
However, it is not true that it is absolutely necessary for all NPCs (or all companies, for that matter) to adopt a new MOI.
Registration
An NPC can be registered as:
• standard non-profit company (with members);
• standard non-profit company (without members);
• customised non-profit company (with members); or
• customised non-profit company (without members).
Non-Profit Companies
Many charities, sporting and recreational clubs and cultural organizations whose purpose is something other than profit-making, find it useful to structure themselves as a company and thereby gain the advantage of being a legal persona, that is to say, a legal entity. This simplifies the ownership of property, the maintenance of a bank account and the issue of who has signing powers in respect of contracts.
Under the Companies Act of 1973, such organisations could register as section 21 companies. Under the Companies Act of 2008 they can register as non-profit companies. The Companies Act 2008 has a special schedule (schedule 1) devoted to non-profit companies and the Act regulates such companies more tightly than the Companies Act 1973 regulated section 21 companies.
Sensibly, the new Act (unlike the old) does not require a non-profit company to have members, and the company can choose whether or not to have members. Since such a company does not have shares, its members cannot be called shareholders.
If an NPC chooses to have members, it is permitted to have two classes of members, namely, voting members and non-voting members. A non- profit company is prohibited from distributing its profits by way of dividends and there is thus no compelling reason for it to have members, and it will suffice for the company merely to have a board of directors to manage its affairs.
The directors will be elected by the voting members in the manner laid down in the company's memorandum of incorporation, If such a company chooses to have members, those members need not be individuals and can be juristic persons.
Thus, for example, the members of a charity, established as a non-profit company, could be the profit companies that provide it with financial support.
It needs to be borne in mind that registration as a non-profit company under the 2008 Act (as with registration as a section 21 company under the 1973 Act) does not automatically quality the company for tax exemption. It is only where the company satisfies the criteria laid down in the Income Tax Act as a "public benefit organization" and is given formal approval by SARS as such, that there will be any exemption from tax.
It seems that, in the past, some section 21 companies have been abused so as to clandestinely channel value in some form to members or directors, particularly when such companies were wound up.
On occasion, long-standing section 21 companies which owned land that had become very valuable were effectively hijacked by a cabal of members who wanted to gain control of the land for their personal enrichment. The new Act is more explicit than the old Act that no past or present member or director of a non-profit company is entitled to any part of the net value of the company after its liabilities have been satisfied.
The income and property of a non-profit company is not distributable to its incorporators, members, directors, officers or persons relating to any of them and must be used to advance the purpose for which it was created, as set out in its MOI. A non-profit company must have at least three incorporators and three directors and may be registered with or without members. As stated previously, a non-profit company is not required to have members. The members of a non-profit company are persons who participate in the activities of the non-profit company, such as members of a church or a pension fund. Non-profit companies registered without members, may be registered with a standard or a customized Memorandum of Incorporation (MOI).
If you wish to receive grants or donor-funding, you are required to register with the Department of Social Development. Non-profit companies registered with the Department of Social Development can apply for funding at the National Lottery Board.
The Companies Act of 2008 does not provide for the registration of branches of foreign not-for-profits as separate legal entities. A foreign company carrying on not-for-profit activities in South Africa, as specified, for six months or more must register as an “external non-profit company” with the Companies Commission (Companies Act Section 23).
A separate legal entity is not incorporated when a foreign company registers as an external company. The external non-profit company must maintain at least one office in South Africa (Companies Act Section 23). Registration as an external non-profit company is required for the foreign company to enter into employment contracts.
Paragraph 3 of Schedule 1 to the Companies Act prohibits a non-profit company from directly or indirectly paying any portion of its income or transferring any of its assets, regardless of how the income or asset was derived, to any incorporator, director or member of the company.
This prohibition has the following exceptions: reasonable remuneration for goods delivered or services rendered; reimbursement for expenses incurred to advance the company’s objectives; payment payable in terms of a bona fide agreement; payment in respect of any rights of that person to advance a stated objective of the company; and payment in respect of any legal obligation binding the company.
Dissolution
A non-profit company must, upon winding-up or dissolution, distribute the entire net value of the company to one or more non-profit companies, “external non-profit companies” carrying on activities in South Africa, non-profit trusts, or voluntary associations having objectives similar to its main objective.
The transferee(s) can be identified in the non-profit company’s Memorandum of Incorporation, by its members, if any, its directors, or a court of law if the members or directors fail to make such a determination. No past or present member or director is entitled to any part of the net value of the company after its obligations and liabilities have been satisfied (Companies Act Schedule 1 paragraph 4).
Certain details of clauses that are applicable to a s21 Incorporated.
Section 21 Company Incorporated Nor for Gain
The Companies Act 2008 was finally, after much debate and controversy, made law on 1 May 2011. This Act created a new category of company, the Non Profit Company (NPC) and provided that all companies which had been registered as associations not for gain under section 21 of the previous Companies Act, as well as those registered under similar sections of prior acts, automatically became NPCs, and the end of their names were automatically changed to ‘NPC’ instead of the previous ‘Association Incorporated under section 21’.
A non-profit company is a company incorporated for public benefit or other object relating to one or more cultural or social activities, or communal or group interest.
In terms of the Act NPCs are no longer (as section 21 companies were) public companies, but are in a category of their own.
The Act introduced a couple of new options for NPCs, and if your NPC does want to take the opportunity to adopt these changes, or if it needs to amend its MOI for any other reason (satisfying SARS’ requirements is a common reason) then it would be appropriate and necessary to adopt a new MOI.
However, it is not true that it is absolutely necessary for all NPCs (or all companies, for that matter) to adopt a new MOI.
Registration
An NPC can be registered as:
• standard non-profit company (with members);
• standard non-profit company (without members);
• customised non-profit company (with members); or
• customised non-profit company (without members).
Non-Profit Companies
Many charities, sporting and recreational clubs and cultural organizations whose purpose is something other than profit-making, find it useful to structure themselves as a company and thereby gain the advantage of being a legal persona, that is to say, a legal entity. This simplifies the ownership of property, the maintenance of a bank account and the issue of who has signing powers in respect of contracts.
Under the Companies Act of 1973, such organisations could register as section 21 companies. Under the Companies Act of 2008 they can register as non-profit companies. The Companies Act 2008 has a special schedule (schedule 1) devoted to non-profit companies and the Act regulates such companies more tightly than the Companies Act 1973 regulated section 21 companies.
Sensibly, the new Act (unlike the old) does not require a non-profit company to have members, and the company can choose whether or not to have members. Since such a company does not have shares, its members cannot be called shareholders.
If an NPC chooses to have members, it is permitted to have two classes of members, namely, voting members and non-voting members. A non- profit company is prohibited from distributing its profits by way of dividends and there is thus no compelling reason for it to have members, and it will suffice for the company merely to have a board of directors to manage its affairs.
The directors will be elected by the voting members in the manner laid down in the company's memorandum of incorporation, If such a company chooses to have members, those members need not be individuals and can be juristic persons.
Thus, for example, the members of a charity, established as a non-profit company, could be the profit companies that provide it with financial support.
It needs to be borne in mind that registration as a non-profit company under the 2008 Act (as with registration as a section 21 company under the 1973 Act) does not automatically quality the company for tax exemption. It is only where the company satisfies the criteria laid down in the Income Tax Act as a "public benefit organization" and is given formal approval by SARS as such, that there will be any exemption from tax.
It seems that, in the past, some section 21 companies have been abused so as to clandestinely channel value in some form to members or directors, particularly when such companies were wound up.
On occasion, long-standing section 21 companies which owned land that had become very valuable were effectively hijacked by a cabal of members who wanted to gain control of the land for their personal enrichment. The new Act is more explicit than the old Act that no past or present member or director of a non-profit company is entitled to any part of the net value of the company after its liabilities have been satisfied.
The income and property of a non-profit company is not distributable to its incorporators, members, directors, officers or persons relating to any of them and must be used to advance the purpose for which it was created, as set out in its MOI. A non-profit company must have at least three incorporators and three directors and may be registered with or without members. As stated previously, a non-profit company is not required to have members. The members of a non-profit company are persons who participate in the activities of the non-profit company, such as members of a church or a pension fund. Non-profit companies registered without members, may be registered with a standard or a customized Memorandum of Incorporation (MOI).
If you wish to receive grants or donor-funding, you are required to register with the Department of Social Development. Non-profit companies registered with the Department of Social Development can apply for funding at the National Lottery Board.
The Companies Act of 2008 does not provide for the registration of branches of foreign not-for-profits as separate legal entities. A foreign company carrying on not-for-profit activities in South Africa, as specified, for six months or more must register as an “external non-profit company” with the Companies Commission (Companies Act Section 23).
A separate legal entity is not incorporated when a foreign company registers as an external company. The external non-profit company must maintain at least one office in South Africa (Companies Act Section 23). Registration as an external non-profit company is required for the foreign company to enter into employment contracts.
Paragraph 3 of Schedule 1 to the Companies Act prohibits a non-profit company from directly or indirectly paying any portion of its income or transferring any of its assets, regardless of how the income or asset was derived, to any incorporator, director or member of the company.
This prohibition has the following exceptions: reasonable remuneration for goods delivered or services rendered; reimbursement for expenses incurred to advance the company’s objectives; payment payable in terms of a bona fide agreement; payment in respect of any rights of that person to advance a stated objective of the company; and payment in respect of any legal obligation binding the company.
Dissolution
A non-profit company must, upon winding-up or dissolution, distribute the entire net value of the company to one or more non-profit companies, “external non-profit companies” carrying on activities in South Africa, non-profit trusts, or voluntary associations having objectives similar to its main objective.
The transferee(s) can be identified in the non-profit company’s Memorandum of Incorporation, by its members, if any, its directors, or a court of law if the members or directors fail to make such a determination. No past or present member or director is entitled to any part of the net value of the company after its obligations and liabilities have been satisfied (Companies Act Schedule 1 paragraph 4).
Legal App FREE Download - We Handle Your Case On The Go
