Category: News and views

Welcome to the first ngoLAW Brief of 2024

This is the first ngoLAW Brief of 2024 and coming to you a bit later than usual, as it has been a busy (and tough) first quarter of the year for ngoLAW, and many others.  And it comes to you on an auspicious day, as we await results from our journeys to the polls yesterday. Whatever the election outcome, non-profits will continue to do their work, so take deep breaths and dive into our updates on and explanations of: The 18A third-party filing roll-out (31 May deadline) Beneficial Ownership- what does it mean and what do we have to do about it? Why is updating directors with CIPC suddenly so hard? Discrimination in employment for faith-based organisations. The new ‘multinational tax’- should we worry? Keep the questions coming and send us suggestions for future topics – visit our website, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided. Aluta continua Nicole, Bandile, Janice, Chelsea, Lisa, Dorothy and Alison Below: our logo made with Woza Moya (Hillcrest Aids Trust) baskets on our office wall. 18A FILING REQUIREMENTS – DEADLINE, GUIDES AND SOME GOOD NEWS For those unfamiliar with the concept of 18A third-party returns, please see the introductory note in our 2023 2nd quarter Brief: https://ngolawsa.co.za/second-quarter-2023-ngolaw-in-brief/ The first mandatory deadline for filing these returns is 31 May and SARS has issued some updated information, guides and FAQs here: Tax Exempt Institutions Connect Issue 5 (May 2024) | South African Revenue Service (sars.gov.za) Please do visit this TEI issue and the FAQs for all of the detail, but our snapshot of useful bit is: The tax reference number of donors is not mandatory in this first filing season. However, advice from Somaya Khaki of SAICA is that the efiling form still makes it mandatory and this has not yet been fixed by SARS.  It will become mandatory in subsequent filing seasons, so please do collect them, file them if you have them, and, depending on how soon the efiling fix is on place, there should be no need to panic in this filing season if you have not historically collected donor tax reference numbers. Organisations which have 18A status and have not issued any 18A receipts in the period 1 March 2023 to end Feb 2024 DO have to file an IT3(d) but it will be a Null declaration. This may be submitted via efiling. The period for which you file is not connected to your financial year, but is for the exact period required by SARS; SARS does accept an annual (summary) receipt being issued for monthly/other periodic donations, and has issued a Binding General Ruling in this regard: Legal-IntR-R-BGR-70-Issue-of-a-Single-Section-18A-Receipt-to-a-Donor-Taxpayer-for-Multiple-Bona-Fide-Donations.pdf (sars.gov.za). You may choose whether to issue monthly or annual receipts. The IT3(d) reporting may be conducted on efiling for up to 50 receipts being reported. The full set of FAQs contains a lot of useful detail and some step-by-step tutorials and can be found here IT3(d) Third Party Data FAQs | South African Revenue Service (sars.gov.za) (Please note that ngoLAW is not able to assist with the actual filing, as we leave those to accountants who have this skill set). WHO ARE OUR ‘BENEFICIAL OWNERS’? For non-profit organisations which, by their very nature, cannot be owned, the idea of having ‘Beneficial Owners’ is alien and feels ill-fitting.  However, this is the globally understood phrase for ‘people in control’ and it seems we are stuck with it. Although non-profits have no owners, they are administered and controlled by people, and the identification of ‘Beneficial Owners’ is about listing (and then reporting on) the actual (warm-bodied) people who have the ultimate responsibility for and authority over the organisation. Beneficial Owners are not: In the case of non-profits, they are not owners. They are also not beneficiaries (unless the beneficiaries also have voting powers in the organisation). They are not other companies or organisations but are the people at the very bottom (or top!) of the structures. They are not anyone whose vote or power is less than 5% of the total voting power for the part of the organisation they serve on or belong to.  So, for a club, association or with-members NPC which has more than 20 members, those members are not ‘Beneficial Owners’ and do not have to be listed as reported on.  (We predict an uptick in membership for organisations whose member quotient is hovering under 20!) Beneficial Owners always include the Board All of those who serve on governing bodies of any type of non-profit will be counted as ‘Beneficial Owners because: They are people; They are in charge.  So: For NPCs, the directors will all be Beneficial Owners; For Trusts, the trustees will all be Beneficial Owners; For voluntary associations, the main governing body (whether called Board, Management Committee or Governing Body) will all be Beneficial Owners.  For organisations which have only Boards, only the Boards are the Beneficial OwnersFor no-members NPCs and Trusts, if there are no people or organisations which have ‘Founder’ or “Donor’ powers, then the Beneficial Owners are the directors or trustees.  End of. Just them. For organisations with members or Founder/s there are more Beneficial OwnersRemember the guiding principles – we are looking for warm-bodied people who have 5% or more of voting power: For a with-members NPC or voluntary association where: all of the members are people; and there are 20 or fewer members; those people are Beneficial Owners (as well as the Board). For a with-members NPC or voluntary association where: all of the members are people; and there are more than 20 members; none of the members are Beneficial Owners. For a with-members NPC or voluntary association where some or all of the members are companies or other organisations, the Beneficial Owners will be the shareholders or members of the member companies or member organisations unless there are 20 or more of them. For any type of organisation which has named ‘Founder/s who have ongoing powers such as to appoint the board or veto certain decisions: If the Founder/s is/are people, they will be Beneficial Owners (in

Welcome to the last ngoLAW Brief of 2023

First the news that the latest iteration of the “Spy Bill” (which looks like being rushed through committees and Parliament in the dying days of 2023 in the same way that the FIC General Laws Amendment Act was in 2022) has dropped specific references to security vetting of all NGOs, but is still terribly vague on accountability and lacking in enforceable oversight of the security sector. See Heidi Swart’s article at https://intelwatch.org.za/2023/11/28/op-ed-new-spy-bill-will-businesses-be-next-to-face-state-security-vetting/ to follow and add support to the civil society stand against invasive overreaches of State power. Regarding the FIC provisions and Grey Listing the Financial Action Task Force, has recently issued amendments “to address the misapplication and misinterpretation of Recommendation 8, that had led countries to apply disproportionate measures on Non-Profit Organisations (NPOs)” for the full story: https://www.fatf-gafi.org/en/publications/Fatfrecommendations/protecting-non-profits-abuse-implementation-R8.html In the rest of this Brief we deal with some questions and issues often encountered in our work: How can we help boards do better? Why do the CIPC standard-form MOIs not contain the PBO clauses? What is the fuss about Objects clauses? Is it a conflict of interests or a breach of duty? We end with a note on changes coming for parental leave rights for employees, based upon our fabulous Bill of Rights. Long may she provide the impetus for South Africans to equally and fairly enjoy their rights. We hope that you find all of this information useful and,  as usual, please feel free to send this on to anyone who you think might benefit from it. If you have been sent this by someone else and would like to receive future newsletters, click this link to subscribe  If you would rather not be sent these, then unsubscribe at the end of the newsletter. Keep the questions coming and send us suggestions for future topics – visit our website, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided. The end (of 2023) is nigh! Nicole, Bandile, Janice, Chelsea, Lisa, Dorothy and Alison TOP THREE THINGS TO HELP BOARDS DO BETTER In a recent training/refresh session with the profoundly passionate and highly qualified board of WESSA, https://wessa.org.za/ I was put on the spot with the question: “What three things should we do to make sure that new board members, who may come from a corporate context, are able to properly engage with the work of governing a non-profit?”     With WESSA’s permission, I share here my generally-applicable top three, in no particular order:  Enable proper understanding of NGO financial reports.  These reports should clearly show the difference between ‘deferred’ funds (held for donors and to be spent in particular way) and the funds available for running the organisation.  The language used to describe different sorts of income should be accurate and make sense to outsiders/new board members. Give the board an accurate picture of the extent of work and time which fundraising takes.  They cannot oversee the work of the CEO if they do not understand the demanding nature of raising funds and then reporting to donors; Let the board directly encounter the work being done: field trips to projects and bringing project-managers into the room to report will do so much more to inspire, inform and allow useful input than all of the lovely words and numbers that are sent to them. (I am still mulling on my recent visit to the new home ground of the Siyazisiza Trust and now have a real and ‘live’ connection to the amazing work being done there https://siyazisiza.co.za/ .) THE SARS CLAUSES AND STANDARD NPC MOIs When SARS grants PBO (and some other sorts of exempt) status, it usually includes in the exempting letter a requirement that the founding document of the organisation is amended within a period of time, in order to include the clauses which are legally required under the relevant section of the Income Tax Act. Those who have registered as a non-profit company (NPC) using one of the standard-form memoranda of incorporation (MOIs) available from CIPC are often surprised to find that these standard MOIs do not include the required SARS clauses. Because there are many varieties of tax exemption and also not all NPCs will be applying for the status, it is not possible for the CIPC standard documents (or any standard or precedent MOI)  to also do the SARS-end work. For those NPCs who are granted exempt status, the MOI will have to be amended by special resolution of the members (or directors, if it is a no-members NPC)  and the amended MOI registered with CIPC, and then sent to SARS. At ngoLAW, we see the drafting of these amended MOIs as a wonderful opportunity to create for the organisation a ruling, founding document which is appropriate, relevant and useful for their governance and protocols.  There are others who might (instead of drafting a unique MOI) lodge with CIPC an addendum to that standard form MOI with all of the SARS clauses slapped into it, but we do not take this approach as: We think that this adds confusion, as you then have two (unintelligible) documents to refer between and confusion and misunderstandings arise; Annexures which deal with things also dealt with in the main body will almost invariably introduce internal contradictions, which make thinking lawyers break out in hives; We think the standard form MOIs are not easy to follow and take every chance we get to replace them with documents more useful to governance.  The good news is amending the MOI need not be a rushed affair. Even if the deadline in the SARS letter has expired, they cannot remove exempt status from you without notice and an opportunity to correct matters. If you did receive a notice to comply, a response that the board is engaging with the process of crafting a special MOI which will be sent to SARS in due course is, all else being well, likely to be satisfactory. So the members or board may approach the matter in a considered way. But a start should be made. OBJECTS: WHAT ARE THEY GOOD FOR? We routinely come across organisations whose ‘objects clause’

NGOs are under attack by the South African state again – including the knitting clubs

Non-profits must be alert to a new threat to their freedom of association and ability to operate from a draft Intelligence Laws Amendment Bill. (This article was written by Nicole Copley, and appeared in the Daily Maverick on 03 Sep 2023)

Second Quarter 2023 ngoLAW in brief

Welcome to June!- the past couple of months have brought more regulatory changes to the sector, including the final versions of: the NPO Act Regulations (the draft version was dealt with in our previous Brief) and the new Companies Act Regulations (which we will deal with in our next Brief). For this Brief, though, the focus is on 18A and the new “third party return”– which is in the pipeline -but needs to be prepared for. This Brief will explain the general principles, and then the next issue will go into the finer details of preparations required. We also deal with the difference between ‘doer’ and ‘donor’ 18A status and why the details of this distinction are so important. We end with reflections arising from a recent online webinar hosted by Trialogue and the lively debate with two CSI Foundation Leaders- also a link to that webinar included. We hope that you find all of this information useful and, as usual, please feel free to send this on to anyone who you think might benefit from it. If you have been sent this by someone else and would like to receive future newsletters, click this link to subscribe If you would rather not be sent these, then unsubscribe at the end of the newsletter.Keep the questions coming and send us suggestions for future topics – visit our website, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided. Hands to the plough and eyes on the horizon, as ever! Nicole, Bandile, Janice, Chelsea, Lisa, Dorothy and Alison NEW FROM SARS- “THIRD PARTY RETURNS”  BY 18A ORGANISATIONS In our previous Brief https://ngolawsa.co.za/first-quarter-2023-ngolaw-in-brief/ we explained the new details which have to be captured on the expanded version of the 18A receipt to be issued to SA taxpaying donors who request them. In the next step towards closing down 18A fraud, SARS has introduced a new tax filing requirement for organisations issuing 18A receipts (and for trusts which ‘vest’ an amount in a named beneficiary)- the filing of “third party returns”. What is a “third party return”?These are information returns (so reports filed with SARS in a specific format) and they are currently required to be filed by banks, medical schemes, and other entities as part of their tax compliance obligations. For example, banks and other financial institutions in South Africa are required to submit third party returns to SARS (the IT3(b) and IT3(c) returns) which give information about interest earned, dividends paid, and other investment income earned by their customers. Similarly, medical schemes are required to submit third party returns such as the IT3(m) return, which provides information about contributions received from and benefits paid to their members. These third party returns are used by SARS to verify the information provided by the bank customers and medical aid members when these taxpayers file their individual tax returns. The information reported in these returns helps SARS in its efforts to detect and prevent tax evasion, and to ensure that taxpayers are accurately reporting their income and deductions. So, a “third party return” is a sort of tax return which is not about your own tax affairs, but about the tax affairs of others (your customers, members and now donors) and helps SARS to connect the dots and check that people are not making false claims in their tax returns. SARS issued a draft Notice in April 2023, adding to the list of the organisations needing to file what are called third party returns. The new additions to the list of organisations which must, when the final Notice is issued, submit these returns is: Organisations which have 18A (donor deductibility) status and which have issued 18A receipts within the relevant period; and Trusts which are established or managed in South Africa and which ‘vested’ any amount in a beneficiary during the relevant period. The process of rolling these requirements out is in the testing phase and the first date by which submissions will be due is only end February 2024 (in respect of the period 31 Aug 2023 to end Feb 2024). SARS is, however, calling for early adopters to assist in testing their systems (and the organisation systems) and for voluntary submissions to be made. If the organisation you work with is likely to have innate complexities which will make this process difficult, or lack of technical expertise and support, we suggest that you do volunteer and make these returns before they are officially due, as the SARS systems will be refined and updated based upon the practical examples they process in their systems. Before getting into the details, it is good to know that the main aim of SARS in all of this is not to make the lives of NGOs more difficult, but to make giving and getting 18A deductions easier for donors, while clamping down on fraud. The end-game is that, when donors come to file their tax returns, the fields for 18A donations made will be pre-populated for them, based upon the information submitted by the recipient 18A organisations. Also, the likelihood of a need for an audit or for supporting documents to be filed by donors will be greatly reduced, as the system will independently verify the tax deductions claimed. Another important point to note is that SARS has not so far proposed any penalties for non-compliance with the requirement to file– they anticipate that there will be tweaks and accommodations to be made, and want to encourage participation so that they can make the necessary adaptations. Early adopters who make errors or who battle with the requirements need not fear that there will be SARS penalties for mistakes or technical issues. Will our tax-exempt organisation have to submit an 18A third-party return?Not all tax-exempt organisations and not even all tax exempt organisations which have 18A status will have to submit these new returns- SARS is only interested in the information of SA taxpayers (so, individuals and corporates) who have made a donation to an 18A organisation, and requested an 18A receipt to be issued to them.

Corporate Foundations webinar

https://youtu.be/YmwxQhQceNA This link is to a high-speed panel discussion, featuring Nicole and hosted by Trialogue, on Corporate “Foundations” Trialogue’s primary research shows that 43% of companies surveyed in 2022 managed some or all of their corporate social investment (CSI) through a separate legal entity, 28% through trusts and 15% through non-profit companies. This is an increase from 35% in 2021. On 30 March 2023, responsible business consultancy Trialogue hosted a webinar to explore the motivation behind setting up these separate entities, and to consider which may be best for corporate CSI. The panellists included Tshego Bokaba (Group CSI Manager, Momentum Metropolitan Holdings), Arthur Mukhuvhu (General Manager, MTN SA Foundation), and Nicole Copley (founder of ngoLAW). Three legal options for companies Nicole Copley indicated that there are three legal options available to companies that do not wish to manage their CSI function internally. These are: A voluntary association A charitable trust A non-profit company (NPC) None of these entities can be owned, although they retain strong ties with the company funding them, and they can be registered as non-profit organisations. “They all exist for a purpose, as against organisations that exist to make a profit,” Copley noted. It is recommended that organisations that want to raise funds externally should consider externalising the CSI function. A voluntary association can be established under common law with no registration necessary, says Copley. It is inherently democratic and is often a grassroots or community-based organisation, with new committee members voted in each year. Although it is a quick and affordable option, companies may get into trouble as they may not want members, but donors will be under the impression they have them. This is generally not a good structure for CSI, according to Copley. Charitable trusts have long been a favourite with companies. They are governed by a board of trustees and must have their own bank accounts. However, trust deeds must be physically registered with the Master of the High Court, and the Master must be notified in writing every time a trustee is changed. This is a time-2 consuming process, which is why trusts are becoming less popular. Copley notes that the Master will be introducing electronic systems in future, though this may not apply retroactively to existing trusts. Non-profit companies were previously known as Section 21 companies under the previous Companies Act and had to convert to NPCs when the new Companies Act came into being in May 2011. A Memorandum of Incorporation replaced the Memorandum and Articles of Association. “An NPC provides you with greater flexibility as you can set it up with or without members,” says Copley. It can also appoint a diverse board consisting of external board members. Another obvious advantage is that you can make any changes electronically and any information can be verified online – for example, whether directors have been filing their annual returns.” Although greater compliance is required, this confers greater credibility. The tax picture An in-house CSI department may claim expenses as tax deductions, which can be justified as marketing or stakeholder engagement expenses, for example. However, there is always the chance that an auditor may question whether expenses have been incurred in the production of income, and this may prompt a company to set up a separate legal structure for tax reasons. Companies can’t provide Section 18A certificates, while other legal structures can, says Copley. However, it is important to note that Section 18A certificates can’t be issued for anything other than authentic donations. “It can’t be a disguised payment for something that’s actually a marketing service,” she notes. “If you can satisfy the requirement of section 11A, which applies to pre-trade expenses incurred, then you can claim a normal tax deduction. However, if you can’t justify such a deduction inside the business – if it’s inherently misaligned and there’s no tangible benefit to the business – a Section 18A can be issued.” Momentum Metropolitan Foundation Tshego Bokaba explained that the Momentum Metropolitan Foundation was established in 2009 when the two companies merged. “We did this because the business was highly fragmented, with subsidiaries of companies within companies,” she pointed out. “This made it difficult to manage CSI initiatives, especially from an SED perspective – and it limits the impact of your CSI, because that is also fragmented. We had to set up a structure where all the business units could contribute their NPAT to the foundation.” Another challenge involved different business units wanting to report separately. “There needs to be alignment from both the SED and ESD perspective, or we could potentially return to a fragmented approach, which we don’t want,” Bokaba said. “The closer the foundation works with the business the better. We can’t operate in silos – both stakeholders have to work together for the benefit of business and society.” Copley remarked that there can be a lack of control where there are many business units, and bringing their work together under one umbrella makes sense, not least of all because it is easier to put across consistent brand messaging. “I don’t believe in having extra organisations you don’t need, and it’s a good thing if you can run your initiatives in-house. However, you often have placatory or piecemeal, reactionary giving, and a new entity can bring proper strategic focus,” she said. “You can consolidate funds and have big ambitions, as well as demonstrate real impact to donors.” 3 For the foundation, setting up a trust was never an option. “We felt all the requirements would make it too cumbersome,” Bokaba said. “Setting up an NPC is seamless, and it has the same benefits as a trust.” MTN Foundation Arthur Mukhuvhu says the MTN Foundation was registered in 2007. “Before this, our charitable initiative was a part of the business,” he says. There were a number of factors that persuaded the company that setting up an NPC would be the best vehicle for its CSI initiatives. “The funding model itself appealed to us as the business provides cash flow,

First Quarter 2023 ngoLAW in Brief

This year has begun with a bang, as the contents of this Brief will show- there are three major regulatory changes for the NGO sector to understand and respond to: A major expansion of the FICA Schedule of “accountable institutions’ and who it now applies to; New 18A receipt rules, effective 1 March 23 (so, last week already); and Draft Regulations for the NPO Act released for comment and submissions by 23 March. We will deal with the last one first, as it is crucially important that news about the draft Regulations is spread widely and that the sector engages with it by the deadline set. (Also, we know you will keep reading for the 18A bit, anyway!) We hope that you find all of this information useful and, as usual, please feel free to send this on to anyone who you think might benefit from it. If you have been sent this by someone else and would like to receive future Briefs from us, click this link to subscribe. If you would rather not be sent these any longer, then please unsubscribe at the end of the email. Keep the questions coming and send us suggestions for future topics – visit our website, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided. Hands to the plough and eyes on the horizon, as ever! Nicole, Bandile, Janice, Chelsea, Lisa, Dorothy and Alison NPO ACT : DRAFT REGULATIONS Status update: Those who have been following (or who were involved in) the submissions made on the ‘Octopus Bill’ will be interested to know that: The ‘Octopus Act’ (General Laws (Anti Money-Laundering and Combatting Terrorism Financing) Amendment Act 2 of 2022) was gazetted and promulgated on 29 December 2022; and The promised regulations relevant to the NPO Act and the amendments made to it by the Octopus Act were released in draft form for comment on 21 February  2023, with a 30-day deadline for comments which we make to be by close of business on 23 March 2023 (the draft regulations may be accessed at PMG: https://pmg.org.za/call-for-comment/1251/ and comments and enquiries can be directed to the persons there listed. Parts of these draft regulations will affect all organisations which are already voluntarily registered as Non Profit Organisations (NPOs) as well as that group of organisations for whom NPO registration will become compulsory with effect from 1 April 2023; and then there are parts which will apply only to those who fit the definition of organisation for whom registration is now compulsory. Recap:  Organisations for whom registration as an NPO is now compulsory are those SA-based organisations which: make donations to individuals or organisations outside of South Africa; or provide humanitarian, charitable, religious, educational or cultural services outside of South Africa. (Those who have been following the saga will recall that the initial plan was to make registration compulsory for all organisations of a non-profit nature in South Africa.  As the proposed changes were intended to deal with the risks highlighted by the Financial Action Task Force, our legislators were persuaded to dial back the requirement and focus on organisations where the perceived risks were higher.  Bottom line:  your knitting club need only register as an NPO if the knitting is a cross-border project! For a bit more detail on the process so far see the opening part of our previous newsletter https://ngolawsa.co.za/last-quarter-2022-ngolaw-in-brief/ ) Initial note on the draft Regulations:Those who take the time to read the draft Regulations will soon detect that parts of them are in language not appropriate for regulations and seem to be informative, rather than enforceable. This is because those who laid the Regulations out included the explanatory notes within the main text of the Regulations.  This appears to have been done in error and we suggest that those submitting detailed comments merely reflect, for each of these portions, that they are not part of the Regulations. For those wanting a shortcut, our list of the probably purely explanatory parts is: the last five lines of the para 2(a) on page 3, the top part of which is intended as regulation 8A; on pages 4-5, the items numbered (3) to (8); at the foot of page 5, items (4) to (6); near the end of page the items (80-(10). The following summary of Regulations is only our snapshot of what each of them contains and then what we think they mean. We have tried to restrain ourselves from actual commentary, where possible, so as not to constrain the creative and independent engagement which will be so useful. For each of the draft regulations, think through the practical impact on the organisation you serve. In your commentary we advise that you give examples and illustrations of any negative or inacceptable practical impact and also, if possible, come up with alternative suggestions for the relevant part of the draft regulation. As we did in the comments on the Octopus Bill. We have provided an easy-to-use tabulated version of the proposed regulations, with a blank column for your own comments and alternate suggestions. Download this from our website  at https://ngolawsa.co.za/wp-content/uploads/2023/03/NPO-draft-Amended-Regulations-2023-A.docx. SUMMARY OF REGULATIONS 7A In December 2022 a new Section 25A was added to the main NPO Act and contains a list of sorts of status or behaviour which will bar people from service on governing bodies of NPOs.  This is the first time the NPO Act has had such a list.  This list includes  disqualifications/ineligibility standards already applicable to directors of NPCs and trustees of trusts, but adds convictions or sanctions for fraud, dishonesty, money laundering or terrorist financing (amongst others) to the list. This regulation 7A deals with the register of disqualified persons which the Directorate of NPOs must now maintain, the details required to be kept, and a right of public inspection of this list (limited to inspection of a physical list, kept in Pretoria and during office hours only – not terribly useful). Regulation 7A also seems to place the burden upon registered non-profit organisations to assemble and populate this public list.  It requires that a registered

Understanding the differences between NPO, NGO and NPC and the governance policies

NGO, NPO, NPC, PBO – all these acronyms lead to confusion as to where charitable organisations and other similar entities fit into the equation. This also speaks to the funding models and criteria for each of these organisations, interrogating the issue of governance, transparency, and accountability in the organisational operations. NGO stands for a Non-governmental Organisation and is an international term used to describe a voluntary group or institution with a social mission, which operates independently from the government. Although these terms are not necessarily interchangeable, an organisation similar to an NGO may also be called non-profit, charity, non-profit organisation (NPO) or a voluntary organisation. A Non-profit Organisation (NPO) is a trust, company or other association of persons established for a public purpose. The income and property of these organisations are not distributable to the members or office bearers except for reasonable compensation for services rendered to the organisation. NPOs are required to register with the Department of Social Development under the NPO Act and must register with SARS as taxpayers. NPOs may apply for approval as a tax-exempt institution (see PBO underneath) if they meet the relevant requirements. NPC is the acronym for a Non-profit Company and is defined as a company incorporated for a public benefit. Here again the income and property are not distributable to the incorporators, members, directors or any office bearers. NPCs are required to register with the Companies Intellectual Property Commission (CIPC) under the Companies Act, must register with SARS as taxpayers and may also apply for approval as tax exempt institutions (see PBO underneath) if they meet requirements vant require Source

Last Quarter 2022 ngoLAW in Brief

Our last newsletter of 2022 begins with an update on (and some practical advice coming out of) the major legislative changes that we have been engaged with government over, in an effort to: avoid grey-listing of our country by the Financial Action Task Force (FATF); AND limit unnecessary, not useful and potentially harmful extra regulatory requirements which were being unilaterally imposed on the non profit sector. We also report back on some recent community trustee training and deal with some practical advice on these topics:  What is an ‘independent’ board member and why do we need some? Can government employees serve on the boards of non-profits? Can public benefit organisations purchase shares in (and receive dividends from) commercial companies? We end with links to other places you can see our work (and that of others) – the Independent Philanthropy Association South Africa (IPASA)’s 2022 Annual Review of South African Philanthropy and Book Dash- “Matthew is Up” (and other books). We hope that you find all of this information useful and, as usual, please feel free to send this on to anyone who you think might benefit from it. If you have been sent this by someone else and would like to receive future Briefs from us, click this link to subscribe. If you would rather not be sent these any longer, then please unsubscribe at the end of the email. Keep the questions coming and send us suggestions for future topics – visit our website, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided. We wish you a proper rest and more gladness, less madness over the holiday season. Chelsea, Dorothy, Bandile, Nicole, Janice, Lisa and Alison THE OCTOPUS BILL UPDATE AND IMPACT The dust has all but settled on the submissions and responses on “A” (for Alarming 😊) and then the updated, “B” version of the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill. We have taken to calling this Bill the ‘Octopus Bill’ because of its impact on multiple Acts, many of which affect the nonprofit sector.  For the background, see https://ng olawsa.co.za/urgent-call-for-submissions-on-the-anti-grey-listing-compulsory-npo-registration-bill/ . The most important result of our engagement has been the removal from the Bill of the proposed mandatory registration of all non-profits in South Africa. In the “B” version of the Octopus Bill (which we anticipate will be passed into law shortly) compulsory NPO registration has been limited to the ‘at risk’ category of non-profits, as per the proposed amendment to section 12 of the NPO Act: (b) A nonprofit organisation must be registered under this Act if it— (i) makes donations to individuals or organisations outside of the Republic’s borders; or (ii) provides humanitarian, charitable, religious, educational or cultural services outside of the Republic’s borders. TAKE-AWAYS FROM THE OCTOPUS BILL PROCESS FOR THE SECTOR AS A WHOLE Civil society, and all of it, needs to be able to speak to government and proposed changes with an informed, coherent and broad-based voice. We will not always agree on all aspects, but we should be more active in finding common ground and being able to show government departments and parliamentary committees the number and extent of organisations we speak for.  In the process just ending, a fabulous effort was made around this in the very short time available.  (When we complained that we had not had enough time for proper responses and were asked ‘but what would more time have allowed you to do better?’ our answer was – ‘consult more broadly, engage and inform more extensively, consolidate a joint response in a more considered fashion’.) Despite the short time given, when we apply ourselves to making practical, engaging and relevant responses, our voices are heard and even appreciated. Government is often disconnected from the reality of life and struggles in South Africa, and civil society is a very useful window to reality. The non-profit sector needs to have people who are dedicated to doing long-term, big-picture work on behalf of the entire sector on an ongoing basis. The Octopus Bill may have come at us suddenly, but there was, really, plenty of advance warning of the brewing FATF process.  But there was no-one on the look-out on behalf of the non-profit sector with the spare time and energy to galvanise an earlier response or pro-active actions. Imagine a world where, instead of Treasury driving the FATF response, a collaboration of non-profits had already undertaken a detailed risk analysis, survey and research and had proposed an action plan and even a private Bill, if we thought it necessary. In our view, this is the main lesson to be learnt here, that there are opportunities to be more pro-active and to lead the way, and we need to lift our heads up long enough to spot them, and then work together to get them done. Being more pro-active can start now.  We could: drive greater participation in the survey and risk analysis already undertaken by Treasury; commission and conduct our own research and analysis; come up with our independent recommendations on appropriate and implementable steps to meet the ongoing FATF requirements and standards; come up with our own set of risk factor ‘red-flags’ for organisations to watch out for and make sure that they do not fall prey; and develop materials and tools to allow non-profits to assess, evaluate and report on the identified risk factors and how, if they arose, they were dealt with. The NPO working group is already engaging independently with various international FATF meetings and reviews of their proposed approach to the non-profit sector worldwide and invites interested organisations to join the network, support, assist and stay informed.  Email suzanne@inyathelo.org.za  to get onto the mailing list and see the  history of the work done at Inyathelo | The South African Institute for Advancement – NPO Amendment Bill. TAKE- AWAYS FROM THE OCTOPUS BILL PROCESS FOR INDIVIDUAL ORGANISATIONS FATF has highlighted the risks of non-profit organisations being abused for money laundering, terrorist financing and other

URGENT call for submissions on the anti-grey-listing (compulsory NPO registration) Bill

https://www.dailymaverick.co.za/article/2022-10-08-mandatory-registration-requirement-in-money-laundering-and-terrorist-financing-bill-will-badly-hurt-sa-non-profits/ In an effort to prevent the severe economic consequences arising from the imminent threat of the “grey-listing” of South Africa, a General Laws Amendment Bill has been published that aims to avoid this grey-listing by demonstrating compliance  with the recommendations contained in South Africa’s Mutual Evaluation Report of the Financial Action Taskforce Force (FATF). The non-profit sector, which depends heavily on foreign donor funds, would be devastated by the grey-listing, which would block and/or slow the flow of funding to South Africa. It is of crucial importance that the Bill is passed but not in its current form as it contains sweeping provisions which are not useful, appropriate or achievable. With sensible and suitable adjustments made, the Bill could ward off the grey-listing and allow donor funding to continue to flow. But the sector needs to engage with and lodge comments on the Bill, for this to occur. The Bill was released for public comment on Tuesday 27 September 2022 :  General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill | PMG. with a deadline for submissions to be made by noon on Monday 10 October 2022. The actual Bill is available by copying and pasting the following link into your browser: https://static.pmg.org.za/B18-2022_General_Laws_Anti-Money_Laundering.pdf Please also see the background information as posted on the SARS website:  https://www.sars.gov.za/businesses-and-employers/tax-exempt-institutions/exempt-institutions-connect-issue-1-september-2022/ The pressure and impetus for this Bill comes from FATF’s recommendations, which are that a risk-based approach be adopted  to reducing the opportunities for legal structures in South Africa to be used to hide money laundering, terrorist financing and the promotion of terrorist activities. The Bill proposes to amend five Acts: The Financial Intelligence Centre Act, Trust Property Control Act, Companies Act, Nonprofit Organisations Act, and Financial Sector Regulation Act with the main aims of: exposing the ‘beneficial owners’ (people ultimately in control of) all companies and organisations; making it compulsory for all companies and organisations ‘operating’ in South Africa to be registered with a regulatory authority.  In the case of non-profits, it makes NPO registration compulsory, including for foreign non-profits ‘operating’ in South Africa; and adding a range of fraud-related offences to the lists of things which will make it impossible to hold a fiduciary office in a company or organisation, and requiring CIPC, the Master of the High Court and the NPO Directorate to keep a list of those who are so ineligible for office, and order their removal. [siteorigin_widget class=”SiteOrigin_Widget_Image_Widget”][/siteorigin_widget] In an effort to prevent the severe economic consequences arising from the imminent threat of the “grey-listing” of South Africa, a General Laws Amendment Bill has been published that aims to avoid this grey-listing by demonstrating compliance  with the recommendations contained in South Africa’s Mutual Evaluation Report of the Financial Action Taskforce Force (FATF). The non-profit sector, which depends heavily on foreign donor funds, would be devastated by the grey-listing, which would block and/or slow the flow of funding to South Africa. It is of crucial importance that the Bill is passed but not in its current form as it contains sweeping provisions which are not useful, appropriate or achievable. With sensible and suitable adjustments made, the Bill could ward off the grey-listing and allow donor funding to continue to flow. But the sector needs to engage with and lodge comments on the Bill, for this to occur. The Bill was released for public comment on Tuesday 27 September 2022 :  General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill | PMG. with a deadline for submissions to be made by noon on Monday 10 October 2022. The actual Bill is available by copying and pasting the following link into your browser: https://static.pmg.org.za/B18-2022_General_Laws_Anti-Money_Laundering.pdf Please also see the background information as posted on the SARS website:  https://www.sars.gov.za/businesses-and-employers/tax-exempt-institutions/exempt-institutions-connect-issue-1-september-2022/ The pressure and impetus for this Bill comes from FATF’s recommendations, which are that a risk-based approach be adopted  to reducing the opportunities for legal structures in South Africa to be used to hide money laundering, terrorist financing and the promotion of terrorist activities. The Bill proposes to amend five Acts: The Financial Intelligence Centre Act, Trust Property Control Act, Companies Act, Nonprofit Organisations Act, and Financial Sector Regulation Act with the main aims of: exposing the ‘beneficial owners’ (people ultimately in control of) all companies and organisations; making it compulsory for all companies and organisations ‘operating’ in South Africa to be registered with a regulatory authority.  In the case of non-profits, it makes NPO registration compulsory, including for foreign non-profits ‘operating’ in South Africa; and adding a range of fraud-related offences to the lists of things which will make it impossible to hold a fiduciary office in a company or organisation, and requiring CIPC, the Master of the High Court and the NPO Directorate to keep a list of those who are so ineligible for office, and order their removal. [siteorigin_widget class=”SiteOrigin_Widget_Button_Widget”][/siteorigin_widget]

Special Brief from the Companies and Compliance team at ngoLAW

NOTICE TO NON PROFIT COMPANIES (AND PTYS): THE CIPC CHECKLIST WHAT IS IT? The Companies and Intellectual Property Commission (CIPC) has introduced an additional compulsory reporting requirement for companies with effect from the 2020 year, to increase awareness of and compliance with the obligations and processes of the Companies Act 71 of 2008. This additional requirement takes the form of a checklist, and companies must each year indicate which of the listed sections of the Companies Act they have complied with. Please note that this compliance requirement is only applicable to companies which are registered with the CIPC. For those who are trusts or voluntary associations, you may ignore this notice.   ngoLAW CHEAT SHEET As the compliance checklist issued by CIPC refers just to the numbers of the sections of the Act,  ngoLAW has created  a user-friendly version of the checklist, which explains the sections and the factors to consider when answering the questions. The brief but precise explanations of each item in the ngoLAW CIPC checklist have been crafted specially for use by the non-profit clients of ngoLAW. They do not contain all of the words in the Act, just the parts we think most relevant. (We think that this approach is more likely to achieve accurate reporting and compliance.)   THE YEARS CIPC currently has two years available for filing the checklist- 2020 and 2021. Both of these are currently due. The process is being rolled out by CIPC and there is still leniency with deadlines, but the ongoing requirement will be that companies are required to submit their responses for the preceding calendar year (based on anniversary of incorporation date) within 30 business days of each anniversary of incorporation date.   IF WE ARE NOT HANDLING YOUR ANNUAL RETURNS TO CIPC please check with your accountant, bookkeeper or auditor whether they are handling the compliance checklist function. If they are, they may already have contacted you for the details they would need in order to do this. If they have not been in contact, and are not in a position to assist OR if their document or list of questions is difficult to understand, please contact us for our assistance on CIPCTeam@ngolawsa.co.za .     IF ngoLAW ALREADY HANDLES THE FILING OF YOUR ANNUAL RETURNS and you do not shortly receive an email from us, feel free to email CIPCTeam@ngolawsa.co.za.   HOW IT WORKS Our compliance checklist is made available in an online form and, once you have completed it, the answers to your questions are sent directly and securely  to ngoLAW, so that we can enter these into the CIPC reporting database on your behalf. We have also built in a step of checking the answers given and assisting you with answering accurately. A copy of the completed checklist would be sent to you for signature, and for filing with your records. (Alternatively, you or your accountants or auditors could use the completed checklist to file the responses).   THE COSTS For the 2020 and 2021 compliance checklists owed, we are offering the catch-up service or assistance with it for a discounted fee of R950 plus VAT for both years. For those who subscribe to our ngoComply annual service, the checklist will become part of that service for future years.   ANY QUESTIONS If you have any concerns about the checklist or about any compliance issues arising, please let us know and we can assist.  Please let us know if you would like this assistance by return email to CIPCTeam@ngolawsa.co.za .

SECOND Quarter 2022 ngoLAW in Brief

Our winter newsletter has a little of something for everyone, and most of them come from questions our clients have asked us in the last couple of months – An introduction to a new CIPC annual compliance requirement; The question of the AGM- who needs to have one; For organisations which have a (dormant) trust lying around- can you just leave it in the back drawer in case it is needed in future, or should you terminate it? For NPCs- the process to remove an unwanted director; and Some ideas on agendas for and minutes of meetings- what job they do and how to make them work harder and better. We hope that you find all of this information useful and, as usual, please feel free to send this on to anyone who you think might benefit from it. If you have been sent this by someone else and would like to receive future Briefs from us, click this link to subscribe. If you would rather not be sent these any longer, then please unsubscribe at the end of the email. Keep the questions coming and send us suggestions for future topics – visit our website, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided. Stay safe, keep calm and carry on- A Luta Continua! Nicole, Bandile, Janice, Lisa, Dorothy, Alison and Chelsea   CIPC COMPLIANCE UPDATE: THE ANNUAL CHECKLIST For NPCs and PTYs, CIPC is in the process of rolling out a new compulsory compliance process which involves submitting a report to CIPC on which sections of the Companies Act the NPC or PTY has (or has not) complied with. Because the language in the sections of the Act can be hard to navigate, particularly for non profits, ngoLAW has created an NGO-friendly checklist, and an online form which is easy to complete. For those of our clients where we are already filing your annual returns, you should shortly receive a link to our online form and instructions to follow. We guide you in your answers where needed compile a final version and lodge the required reports with CIPC. If your accountants or auditors are filing your annual returns, they should also be completing and filing this report. If they send to you a set of questions which you need assistance with navigating, please contact us for access to our NGO-friendly version. If you find that your accountants or auditors have filed the report without consulting the board or management for the details required, please note that there are penalties and fines for inaccurate responses and that the board should ensure that the proper process is followed and that answers are accurate. The CIPC compliance checklist is a useful tool for the board and should be used to improve governance and as part of the annual compliance routine. For support and enquiries, please contact our compliance team at bandile@ngolawsa.co.za WHO NEEDS TO HAVE AN AGM? An annual general meeting (AGM) is a meeting of members or shareholders, and its usual function is to elect the board, hear the reports on the activities and plans of the organisation, and view the annual financial statements (AFS). For a non-profit which has members, the AGM is a fundamental part of the governance routine allowing the members a regular opportunity to receive information, and to exercise their basic function of holding the board to account and electing board members. For a non-profit which has no members (a trust or a no-members non-profit company (NPC)), an AGM is not required, as the board has no-one to report to. For no members NPCs and trusts, the annual functions of approving the AFS and selecting new board members to replace those whose terms of office have come to an end will take place at a board meeting. (When lodging NPO reports for these organisations, you can say ‘no AGM required as no members’). For a voluntary association, which has to have members in order to exist as a legal structure, an AGM is certainly required. For a with-members NPC, the provisions of new Companies Act are somewhat confusing as: Section 61(7) makes an AGM mandatory only for public companies, and NPCs are not public companies under the new Act. However, with-members NPCs are required, in terms of sections 30(1) and 30(3) of the Companies Act to present the AFS to an annual general meeting. Our view is that the requirement that the AFS be presented at an AGM effectively does make the AGM mandatory for all companies with members or shareholders. Also, for NPCs with members, the members should be gathered together (in a room or virtually) at least once a year to play their basic role of holding the directors to account. If this annual routine is not followed, then the board is in danger of forgetting who the members are, and the members themselves might think that their services are no longer required. If it is worth having members, then one needs to keep them up to date and engaged. We too often see organisations which have neglected to follow the membership routines and the members fall into disarray and cannot play their role when they are needed. CAN WE LEAVE OUR UNUSED TRUST DORMANT? The functioning of the various Masters of the High Court being what they are (and the comparative speed and ease of use of CIPC being markedly better) we are quite often asked by clients who have decided to no longer use a trust as their main operating entity, whether they could and should just leave a trust which is not currently in use “dormant”, or whether they should take the active step of notifying the Master that it is being terminated and close officially it down. Technically and in terms of the law as strictly applied, a trust does terminate as soon as it has no assets. However, the office of the Master does not seem to actively investigate or police this, and relies rather

First Quarter 2022 ngoLAW in Brief

It almost seems like it might be (hopefully, possibly) if not the end, at least the beginning of the end of our days of being dogged by pandemic panic. Please, God. Hope springs, facing forwards etc and this Brief is packed with useful, normal advice and insights for the day to day job of governing credible, successful NGOs. There is something of a governance focus in the Brief (and don’t glaze over or think it will be boring!) Some practical insights, and possibly controversial views, follow. So keep with us for a bit- you will be rewarded as we deal with: “EX OFFICIO”- what does it mean and is it useful? UNIQUE MOIs- why would an NPC need one of these? DISPUTE RESOLUTION CLAUSES- do they belong in founding documents of non-profits? We hope that you find all of this information useful and, as usual, please feel free to send this on to anyone who you think might benefit from it. If you have been sent this by someone else and would like to receive future Briefs from us, click this link to subscribe ….. If you would rather not be sent these any longer, then please unsubscribe at the end of the email.   BOARD TRAINING IN GOVERNANCE While we are on the topic of governance, we wanted to mention one of our favourite things that we are able to do again, properly, now that some sorts of gatherings are allowed–  training Boards in governance concepts, requirements and how to fulfil their duties. We find that (wonderful supportive, talented) people who agree to serve on boards often do not know what is expected of them or how to engage with the important work of governance. There are all sorts of things which can go wrong on boards, as we all know, ranging from: The disengaged Board: The CEO is doing a fabulous job, everything seems to be running smoothly and this well-fed crowd manages to pretend to have read the board pack and minutes of the previous meeting (which they may have had a short nap during, anyway); to The ‘getting stuck in’ board, which micro-manages all aspects of the work of the organisation, wearing themselves and the CEO out in the process! We love to get into a room with a board and take them through what it means to be on the board, what is expected of them and then how they can find fresh ways to keep engaged and supportive in overseeing and supporting the amazing work being done. We recently had a fabulous time with the board of Singakwenza in Hilton, KZN, and this is what they had to say: “I just wanted to thank you most sincerely for a fantastic presentation today. You really inspired our Board and made this process so easy to understand for everyone. Your ability to put very complex legal terminology into language that us plebs can comprehend is a real gift!” (Julie Hay, Founder and Director) “Just to say an enormous thank you for the most outstanding training session on Monday.  You brought just the right amount of humour combined with practical theory to make it thoroughly engaging!!  Who’d have ever thought that Good Governance could be fun, but somehow you made it so.” (Louise Duys –louise.duys72@gmail.com– and Simone Dale –elementscoachingsa@gmail.com-: Strategy & Organisational Resilience Consultants) Coming soon to a board near you, contact enquiries@ngolawsa.co.za to make a booking.   DICTIONARY CORNER: “EX OFFICO”- WHAT DOES IT MEAN? This (widely misunderstood) term means “by virtue of another office held” and simply means that the person automatically becomes a board member because of some other position they are in. Those who serve ‘ex officio’ are not voted on, do not resign and are not subject to terms of office, as they are in when they are in the (other) office, and out when they leave. Please note that the “ex officio” status does not mean that they are non-voting on the board. If anyone (the CEO, the CFO etc.) is appointed to the board ex officio and the board wants the ex officio board member/s to be non-voting, the founding documents will need to specifically provide for this. However, we advise that you think through this carefully. Our view is that it is inherently unfair to put someone in a position of responsibility and then not give them the tools they need (their vote) to carry out the responsibility. If the Execs at the board meetings are not to vote, then we would rather suggest entrenching in the founding document a provision that certain specific (or at least one/two senior execs) attend all board meetings (except the parts of them where their service and performance may be discussed) but stop short of having them appointed to the board. Executives are appointed by and report to the board and will, if they are also on the board, often struggle with the switching of hats required by these dual roles. The trend towards including executives on boards ex officio can be traced back to the King governance codes, which support the ‘balanced board’ idea, meaning that there is an equal number of management and non-executives on the board. In our view this is appropriate in the for-profit environment, where all directors are appointed by shareholders and the directors often are shareholders themselves, but careful thought should be given to the issues of accountability and responsibility before applying this principle of King IV to a non-profit.   NPC ADVICE: WHAT IS A ‘UNIQUE MOI’ AND DO WE NEED ONE? Many NPCS which are registered in a hurry or without any understanding of the importance of the Memorandum of Incorporation (MOI) of an NPC are often established with the CIPC standard form MOI as their founding document. At ngoLAW we only register with a standard CIPC MOI as a short-term emergency measure when the NPC needs to be registered fast and it is felt that there is not sufficient time for the board to engage with the process

October 2021: news and updates including: NPO Amendment Bill

Welcome to October and to the final newsletter of the year from the team at ngoLAW. There is quite a bit of content here so, to help you navigate it and find the bits you need first, a summary: The times we live in Reflections on our mental state, a handy document for organisation health-checks, and mental health resources for non profits. Useful for: NGO leaders and founders, those looking for tailored support. POPIA update Updated suggestions for approaches to compliance and resources Useful for:  practical tips and links for all NGOs on their journey with compliance 18A legislation changes coming A small tweak to section 18A of the Income Tax Act that could have a big (positive) impact but which requires some attention and planning for compliance Useful for: All organisations which issue 18A receipts and want to make sure they continue to comply with SARS requirements NPO Amendment Bill Some alarming and some rather puzzling proposed amendments to the NonProfit Organisations Act. Response opportunity closes end October. Please share immediately and widely – to ensure that your networks of organisations have a chance to comment and influence the amendments. Training: Financial Management for nonprofit leaders Links to a training series by Cathy Masters. Useful for: topical, practical guidance on financial management We hope that you find all of this information useful, not too alarming (!) and, as usual, please feel free to send this on to anyone who you think might benefit from it. If you have been sent this by someone else and would like to receive future newsletters, click this link to subscribe ….. If you would rather not be sent these, then unsubscribe at the end of the newsletter. Keep the questions coming and send us suggestions for future topics – visit our website, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided. Stay safe, keep calm and carry on- A Luta Continua! Nicole, Bandile, Janice, Lisa and Dorothy   THE TIMES WE LIVE IN Those who work in and for non-profits and those who govern them know what they are signing up for and are under no illusions about the commitment, the effort and the energy it takes to do good and do it well.   And NGO leaders and workers are used to obstacles and setbacks, to constant change in the funding environment and we adapt, we are so good at that.  Many NGOs are built to deal with crises, with urgent and pressing needs, so you would think that surviving in a long-term global pandemic and dealing with unrest and instability would be in our DNA, yet still … All of us are under what feels like relentless pressure, and without the outlets, social interactions and connections which might before have buffered, balanced and diluted the demands on us.  Electronic communication has been a life-line (and has given us some new opportunities) but has come with its own costs and downsides. As we prepare for year-end board meetings and many are counting the cost of losses (fiscal, opportunities and personal) we wish all of our readers a chance for deep and honest reflection and the understanding and support that you need to make hard choices.  Your bravery, perseverance and devotion to those you serve is seen and we hope that you are carving out some real time for self-care and to rest and recover, so that we may face future challenges with renewed strength and hope. For those looking for help and support for the mental health and recovery of those who work in their organisations, please see this link to a free mental health support service that has been set up specifically for those who work in and for non-profits https://www.npowersa.org/about . Their toll free hotline is 0800 515 515. This from their website: “NPOs have always been important in providing support and care to South Africans and this has been highlighted throughout the Covid-19 pandemic. Although NPOs provide such crucial services, resources are often stretched and teams are overworked and facing trauma every single day. Pandemic-related issues have caused many NPOs to close their doors and to stop the valuable work they have been providing when communities need it the most. NPOs have always provided help, resources and support to others, but never before has the mental health of our NPOs and their staff been prioritised. While many corporates have Employee Assistance Programmes in place, the NPO sector has been forgotten in these processes. Now more than ever, we need to give NPOs the Mental Health support they so desperately need.  NPOwer is a first-of-its kind NPO Mental Health Support Programme and 24-hour toll-free Helpline that offers FREE Mental Health care and support to all NPOs in South Africa. This initiative sees Tshikululu Social Investments partnering with SADAG (South African Depression and Anxiety Group) who provide psychological first aid to NPO leaders, staff and volunteers, many of whom are experiencing unprecedented strain and burnout.”  The NPOwer programme includes a dedicated 24-hour NPO Mental Health and Psychosocial Support Helpline manned by a team of dedicated counsellors. The programme also includes capacity workshops on NPO related issues. The Toll-Free NPOwer helpline is now LIVE and will be open 24 hours a day, 7 days a week, 365 days a year with counselling available in all 11 official languages.” Please make use of this valuable resource and long may it continue! At ngoLAW we are embarking on an internal year-end  reboot-reflection process, and have developed the following questionnaire for use in preparation for our sharing session, please click on the link to access and use, or customise for your purposes.   POPIA COMPLIANCE UPDATE: RESOURCES AND OPTIONS The ‘D’ day for POPIA compliance has come and gone.  Some of us have it all sussed and sorted, some had good intentions but have been diverted by other dramas, and some are still wondering whether they need to engage with POPIA (for the last lot, yes you do!) The good news is that the Information Regulator’s office seems to be as stuck as its website still is, with the Information Officer registration portal still

Updates, Advice, Links and Events

Dear Friends It has been a while since we last wrote, but I know that we have all been busy, re-building what had fallen, creating new ways of working, adapting as we always have, to survive and continue to serve. In this ngoLAW Brief we bring you a mixture of topics and links that we hope are useful to you including: The POPI deadline looms– should we be afraid? (and a link to Nicole’s intro webinar) A note (from a SARS binding private ruling) on possible consequences of acting outside of your objects; The SARS 18A audit certificate requirement– who needs to pay attention to this? Janice and Nicole have an adventure with Wildlife Act; Marcus Coetzee on Founder Syndrome – an extract and link to the full article; The 18A Q&A answers and Words That Count Growth Academy; and The Papillon Fundraising Conference – sign up now (links here) [siteorigin_widget class=”SiteOrigin_Widget_Image_Widget”][/siteorigin_widget] Please feel free to send this Brief on to anyone who you think might benefit from it. If you have been sent this by someone else and would like to receive future newsletters, click this link to subscribe ….. If you would rather not be sent these, then unsubscribe at the end of the newsletter. Keep the questions coming and send us suggestions for future topics – visit our website, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided. Stay safe, keep calm and carry on- A Luta Continua! Nicole, Lize, Bandile, Janice, Lisa and Dorothy   THE POPI ACT: DO WE NEED TO BE AFRAID? The deadline for POPIA (Protection of Personal Information Act) compliance is 30 June 2021 and those of us who have been busy with other things (!) are doing some quick scrambling (and a small amount of panicking) to make sure we are not in breach. For an introduction to the basic concepts of POPIA and path to compliance, follow this link to the POPIA for Non Profits presentation, hosted by Fundraising Talk. https://www.youtube.com/watch?v=MloJlyYXp7g Data is the currency, the treasure of our age and the quest to protect it is a good quest and true- it is a battle against the commodifying of what makes each of us (and all of us) who we are. Commercially-driven data accumulation has been going on, unseen, for some time and although we are now busy building fortresses and digging moats against these brutish invasions, we also have to deal with the internal mould that has quietly taken hold. We are aiming to include POPIA focus points in each of our next few newsletters but, for now, some good news which should help you to approach POPIA calmly and with a measure of confidence: NGOs are not the ‘bad guys’ that POPI has in its sights. We focus on uplifting, serving and protecting our beneficiaries, and not on selling their details to the highest bidder. We have always been required to adhere to confidentiality protocols and our work has always been, project by project, for a defined purpose (an important POPIA concept). The scary fines and consequences that those who are selling POPIA services, tools and seminars keep mentioning are only applicable in very limited circumstances, and to actions which we would all recognise as criminal or deeply unethical (selling data, giving false evidence, obstructing investigations, failing to comply with an enforcement notice). For more routine compliance gaps and misses, there is an enforcement process (with much lower or less severe ultimate consequences) and which goes through the stages of: POPIA requires that organisations take “appropriate, reasonable technical and organisational measures” to safeguard the data they hold. It is not a ‘one size fits all’ requirement, and it cannot be dealt with ‘all in one’. POPIA compliance should be dealt with in the same way as any other compliance matter is: beginning with an assessment of the risks, dealing with the biggest gas and risks first, and then putting in place a compliance plan which, step by step, builds awareness into the systems and psyche of the organisation. It is a process. A sneak peek at our summary of suggested first steps:     ACTING OUTSIDE YOUR OBJECTS- TAX AND OTHER CONSEQUENCES Some people believe that trading is prohibited for PBOs, and others that all income of PBOs is tax exempt. Neither of these is true, and the answer lies somewhere between the two extremes: Under Section 10(1)(cN) of the Income Tax Act, all non-trading income and some types and parts of trading income are exempt from tax if the organisation has PBO status. Any organisation with PBO status potentially receives three categories of income: Non-trading tax exempt income; Non-taxable trading income; and (the rest) which is taxable trading income. One way to understand this is that PBO status is granted to your organisation, but tax exemption only applies to certain parts of the organisation’s income stream. Section 10(1)(cN)(ii)(aa) says that business or trading income which satisfies all of (A), (B) and (C) in that section will not be taxable.  The three parts (summarised) are: The income is integral and directly related to the object of the PBO; and It is substantially a cost-recovery operation; and Taxable entities are not unfairly competed with. A recent SARS Private Binding Rule (BPR 348) examined part (A) in relation to a particular PBO. (Although these BPRs are not of general legal application, they do give an indication of how SARS will approach and interpret this part of the law.) In this case, the PBO was set up with the object of promoting entrepreneurship through education and training.  It now wished, as part of its entrepreneur-training programme, to provide seed funding to young entrepreneurs.  The proposed loans granted to the beneficiaries would not attract interest in the usual way, but beneficiaries would repay the loans by paying a small percentage of monthly revenue to the PBO.  The income received by the PBO would be used to provide further funding or for other PBAs. SARS was

Fundraising Talk Session February 2021: 18A Q&A

[siteorigin_widget class=”SiteOrigin_Widget_Headline_Widget”][/siteorigin_widget] [siteorigin_widget class=”SiteOrigin_Widget_Headline_Widget”][/siteorigin_widget] Q: In proposals, can we still offer to put their information on our sites (social media and website) if they donate alongside the 18A certificate? Q: If you are writing articles or posting on social media about a donation, is that considered them getting something back for the donation? A: Recognition and association with an organisation is the only benefit a donor can expect when donating (for it to still be classified as a donation). However, there is a line that can be crossed and a point at which it may become a marketing expense and expenses for the donor/client. Q: A company is allowing us the use of their boardroom/conference room/ stand at their event/ discounted accommodation for meetings as part of their BEE requirements. Would this qualify for a S18A certificate? A: No. Use of a space for free or offering a rebate on the usual rental does not qualify as it is not a donation of funds or property in kind. , donating a stand at an event or use of space for free would not qualify. Q: We receive a donation of books to be used as teaching resources. Does this qualify for S18A? A: Yes. Donated books are classified property in kind and qualify for 18A. Q: Can we issue a donation receipt if a plumber offers their service as a donation without advertising? A: No. The donation of a service such as time, skill, or effort to a section 18A-approved organisation will not qualify as a deduction for purposes of section 18A since a service is not a donation of funds or property made in kind. Q: Should we not advocate for 18As for services as these can save our organisations significant funds? A: You are not currently permitted to issue 18A receipts for services. It seems extremely unlikely to us that this will ever be permitted or drafted into law, as the potential for fraud and difficulty of control is too great; and it does not accord with basic accounting practice for a deduction to be given where services are offered. [siteorigin_widget class=”SiteOrigin_Widget_Headline_Widget”][/siteorigin_widget] Q: If a donor donates a computer, do we put the depreciated value or the value of the item on the donor’s assets register? A: If the computer is an asset used in the donor’s trade, the value to be used is the lower of the fair market value on the date of donation of the property or the cost to the taxpayer of such property less any allowance (other than an investment allowance) deducted from the income of that taxpayer for that asset. Q: When you receive a new computer from a computer company, do you issue the 18A to the value of the cost or the sales price? A: If it has been donated by a business that sells computers as part of their trading stock, the value will be the amount which has been taken into account for that year of assessment for the value of that trading stock forming part of trading stock of the taxpayer under section 22(8)(C) or paragraph 11 of the First Schedule, as appropriate. Q: If items are near expiry date, but the donor provides us the market value, can we use that as the value? A: Yes. The value of the donation is taken as the value on the date the donation was made. Q: Some NGOs state that they do not issue 18As for second-hand items. Only new items. Is this correct? A: No. The Act allows for items used by donor in conducting their trade (but are not trading stock) such as used computers, crockery, cash registers, garden equipment etc. to give rise to 18A receipts. Only issuing 18As for new items is too restrictive an interpretation, and not required by SARS. Q: Is it correct to issue a s18A on scrapped goods (goods that were damaged and written off on the company’s side)? Is it the legal obligation of the NPO to discover if the corporate has written off the item? A: When the donated item is trading stock, the value will be the lower value of the fair market value or the cost to the donor. However, it is not the responsibility of the organisation receiving the donation to verify that the value is the lower of the two or do investigations into how the donation will be recorded in terms of the donor’s internal accounting systems. [siteorigin_widget class=”SiteOrigin_Widget_Headline_Widget”][/siteorigin_widget] Q: If somebody donated an item like a computer, do they need to give us an invoice before we can give them an 18A? A: The organisation is not legally obligated to require an invoice to issue an 18A certificate. Where a donor whose financial system requires a document reflecting the value, they will do so and the organisation will use that as the value. However, where the issuing of an invoice is not required by a donor system, the organisation must merely request the value of the items in writing. Q: May we use a PO Box in the address section, or must it be a street/physical address? A: The SARS guide is not specific and merely refers to an ‘address’ of the donor. Our feeling is that a P.O box address may be used in this case. Q: We issue receipts on request, but sometimes donors request these two or three years down the line. Can you still issue and update your tax receipt schedule for the relevant years – and update subsequent returns? A: Receipts can be issued at any time but must be factually correct (ie. must record the actual date of donation). Q: is it abuse for an organization to use the 18A certificate if the donation does not affect the beneficiaries directly? A: An 18A receipt may be issued if funds are used to carry on public benefit activities. Part of the carrying-on of activities are the admin, staffing, head office or ‘care’ costs of developing and

An invitation to join us on a #FUNDRAISINGTALK Webinar with Nicole Copley

Please join us as Nicole, hosted by FundRaising Talk, gives a free webinar from 10 -11 am (log in from 9.45 am) on Thursday 4 Feb 2021 about: 18A in practise – be careful what you promise! (basics, updates and what to watch out for) and the ‘audit certificate’ newly being required by SARS (do you need to worry about it, does it apply to your organisation?) Feel free to forward this invitation to anyone else who may be interested. Login Details Zoom ID: 845 3733 2799 (If you can’t connect, try and remove the spaces) Password: FRtalk Email melanie@wordsthatcount.co.za with any questions. (Ps: If you can’t make the webinar, it will be uploaded to this link, along with other useful webinars) [siteorigin_widget class=”SiteOrigin_Widget_Video_Widget”][/siteorigin_widget]

November 2020: letter eight from lockdown

In this, our last letter of the year, we: deal with the upcoming NPO register clean up (!) in some detail, with practical tips; discuss whether the PBAs SARS classifies organisations under matter; and give some practical advice on filing objections with SARS.  We also introduce our theme for the next few letters:   Governance: Why and How “Governance” is a word more likely to produce a (politely stifled) yawn than any excitement or interest. It does not sound like fun and many founders of organisations and those who go on to lead them treat it as an irritation and a hindrance, something that is a boring waste of time and money when there are (surely) more interesting and impactful things to do with funds and energy. In fact, good governance (which entails putting in place systems, limits and controls and a rigorous, ongoing adherence to them) is a crucial component of building an organisation which makes an impact, attracts support, draws in good board members and staff, and survives in the long term.  Passion and drive are important for success but governance is the ‘yin’ to passion’s ‘yang’ – it is the foundation-stone and the central support.  I may be getting a bit poetic here, but really believe that good governance is like the soft rain which falls all night, nourishing and feeding. It is hard enough to build a sustainable organisation which achieves its objects over the long term and survives in a world of ever-changing demands and pressures with good governance mechanisms in place – try to do it without a firm support structure, and you will find the work, the dreams and the people start to fray, to come apart at the seams, and rupture under strain. This view of the fundamental importance of governance is one we have arrived at after long years of experience with organisations. Over our next few letters, we will examine some of the important components of governance, and open spaces for conversation and learning.  If you have any stories to share, and suggestions to make about topics and issues to discuss under the heading of ‘governance’ be sure to let us know on enquiries@ngolawsa.co.za or go to our website, and send us your suggestion in the ‘contact form’ on www.ngolawsa.co.za.   Alert:  Clean-Up of the NPO Register Cometh Initially promised to be implemented in 2020, but delayed because of the impact of Covid-19, the long-overdue update of the NPO register (restoring confidence in the register’s credibility by removing non-compliant NGOs) will be effected as follows: From 3 November 2020, the Minister of the Department of Social Development (‘DSD’) launched an awareness campaign called ‘Know your NPO status’ designed to encourage all NPOs registered with DSD to check on their status, update details and lodge any annual reports which are due. From 1 April 2021 (and also from 1 July 2021- typo suspected in the DSD notices, but we have not been able to obtain clarification): organisations which were granted NPO status between 1998 and 2012 and which owe reports will be de-registered. From 1 October 2021: organisations with outstanding reports with registration dates 2013 – 2015 will be deregistered. From 1 April 2022:  organisations which were registered between 2016 and 2019 but which owe reports, will be de-registered. Please note that the ‘order of attack’ is not based upon the date that reports are due from, but date of registration as an NPO, beginning with those who were registered first and then working forwards. In the period 1 April 2021 to end September 2021, DSD typo notwithstanding, we conclude that they will begin their work with those registered in 1998, which should mean that those who are registered in 2010, for instance, have a few more months to get things straight. The lack of consequence for non-filing of reports over the past eight or ten years has meant that many organisations have become complacent. The time for complacency is over, and all organisations which wish to retain their NPO status and who owe reports, need to get moving now. In our experience with catch-up reports, there is often a bit of back and forth with DSD, as there may be registration details which need to be updated and it is often the case that the organisation gave up filing because of administrative/documentation issues along the way. So please allow for a couple of extra months to get things right. We suggest that you plan to have all outstanding reports filed 6 months before the applicable deadline, to allow for these sorts of issues, and also because the deluge of reports landing at DSD is likely to affect turnaround times in processing the reports. If you are not sure of your organisation’s compliance status and/or need help in getting outstanding reports lodged, please let bandile@ngolawsa.co.za know, as we have a team who are experienced with these reports and able to assist and advise.   Some practical tips from ngoLAW for getting NPO reports up to date File reports in date order, starting with the oldest one due; If you are lodging reports online, make sure that the login password is being sent to a current email address, or you will not be able to lodge reports.  Email npoenquiry@dsd.gov.za to find out whose email address is on record. The link to the form to change the email address is http://tcn.org.za/wp-content/uploads/2019/08/FORMS.pdf Make sure the accounting officer puts their practice number on the financial reports; For any changes in board members bearers, send the following: Voluntary associations Signed Minutes of meeting and signed attendance register reflecting clearly changes in board members Trusts New letters of authority and copy of signed Deed of Assumption NPCs New CoR39 If the online system is not useful to you, courier physical reports to DSD at NPO Directorate, Department of Social Development, HSRC Building, 134 Pretorius Street, Pretoria 0001 (phone number 012 312 7500).   PBAs: Do they matter? (This discussion is a follow-on from a topic of a previous brief, ‘Mission-Drift in Time of Covid’.  To access that newsletter, please go to our website https://ngolawsa.co.za/16-june-2020-letter-six-from-lockdown/) If you have an organisation which has a much-coveted exempting letter

17 July 2020: letter seven from lockdown

AGMs in the time of COVID For many organisations, AGM (Annual General Meeting) season is upon us, and we are having clients ask- Do we have to hold an AGM, or can we postpone it, or even skip it for this year? We have elderly or immune-compromised members, and we do not want to risk calling them to a physical meeting – how do we allow them to participate? Will a Zoom/Teams/Google hangouts AGM be allowed and be valid? First: please note that, as we will mention again, these are strange and unusual times- the advice that we give here is based upon the law as we know it, and aimed at being practically useful. Please send your questions and any other suggestions through for sharing- scroll to the end for options. Before we get into the detail of alternatives, let us examine the possibility of and restrictions on a physical meeting, looking at the Stage 3 Lockdown regulations – and this is an extract from the relevant part: “Gatherings 37. (1) All gatherings are prohibited except a gathering at – … (d) conferences and meetings which is subject to- (i) a limitation of 50 persons, excluding those who participate through electronic platforms; (ii) restricted to business purposes; and (iii) strict adherence to all health protocols and social distancing measures as provided for in directions that must be issued by the responsible Cabinet member, after consultation with the Cabinet member responsible for health;” It does not appear that any specific protocols have yet been issued for conferences and meetings. In their absence the general protocols of screening: upon entry for fever, sanitising upon entry, taking full details including up-to-date contact details from all who attend (to allow for contact tracing), maintaining physical distance, and wearing of masks which fit properly and cover both mouth and nose throughout the meeting, will probably be advisable as minimum requirements. It should be noted that the meeting must be ‘restricted to business purposes’. Any social or networking component of the AGM should not take place (no lunch/dinner/tea together afterwards or at the break) and, to limit potential exposure, the meeting should be tightly managed to keep it as short as possible. The suggestions made later in this Brief on ways to take care of aspects of meetings remotely will be useful in trimming the time of the in-person meeting. For instance, if all documents and reports are circulated and read by members before the meeting, then there is no need to read/present the reports at the meeting, and you may proceed straight to question time. You should probably warn members clearly in advance that this will occur, as many (sadly) may not be in the habit of reading reports prior to meetings. Regarding the serving of tea/refreshments, it should be noted that many cases of spread of infection have come from the tearoom or breakroom. People who are eating and drinking will not be wearing masks and it will be hard to maintain the physical distance requirements. It is probably better to serve nothing at all. Recent research indicates that a meeting held out of doors or in a very large venue with all doors and windows open, will be the safest bet. Of course, any in-person meeting involves some risk, particularly if the crowd is large and sociable. It may be hard to ensure everyone’s safety. Nonprofits will not want their AGM to be the cause of spread of infection, both because they will want to care for their members and also because the media is unlikely to be kind when reporting that your meeting was the “epicentre” (that much-misused word!) of a local outbreak. So, if you have decided that an in-person meeting is not possible or advisable, what are your options? The first question you need to ask is:   1. DOES OUR ORGANISATION HAVE TO HAVE AN AGM? To answer this question, you will need to know what sort of organisation you have, what type of legal entity. This handy table will tell you which you are and whether you need to have an AGM: Founding document is:  Type of organisation Members/No Need AGM? Constitution Voluntary association Has members Must hold AGM Trust deed Trust No members No need for AGM Memorandum of Incorporation (MOI) which states it is a “with members” NPC Was called a section 21 company, now called a non profit company (NPC) The old memo and articles will specify that there are members Must hold AGM Memorandum of Incorporation (MOI) which states it is a “with members” NPC With-members NPC Has members Must hold AGM Memorandum of Incorporation (MOI) which states it is a “no members” NPC No-members NPC No members No need for AGM As you can see from this table, only organisations which are membership-based need to hold an AGM of members. If your organisation is a trust or a NPC (non-profit company) without members, then an AGM is not necessary. However, if it is a voluntary association or a NPC which has members, then an AGM is required. If an AGM is required by law then it is not advisable to just skip the AGM this year. For organisations which have members, AGMs serve a purpose and, if they cannot be held in person, the organisation should find a way to have the functions of the AGM take place in different way from usual.   2. CAN WE HOLD A VIRTUAL MEETING? With-members NPCs: The Companies Act specifically permits participation in meetings electronically or by electronic communication by members provided that the members can properly participate in the meeting in the same way as they would if they were in the same room with the same effect. Voluntary associations: You will need to have a look at your constitution. You may find that it already provides for an electronic participation by members in meetings. If the constitution does not mention Zoom/Skype/other online meetings, and your members are able to participate in an electronic meeting, then you

16 June 2020: letter six from lockdown

MISSION-SHIFT in the time of COVID MISSION-SHIFT in the time of COVID The times are a’changin, and it looks as though we will have to reset to a ‘new normal’ for the foreseeable future. At ngoLAW we are helping our clients adjust and this ngoLAW Brief deals with a current adaptation taking place:  NGOs who need/want to shift their focus and embark new sorts of work/projects (Our next newsletter will deal with the practical question of looming AGMS: how do organisations comply with legal obligations while protecting their members?)   Before we get into the detail of the mission-shift question, I would like to refer you to a recent article by our friend, strategic consultant Marcus Coetzee, on decision-making at this time. It has been immensely helpful to us https://www.marcuscoetzee.co.za/recent-events-have-made-our-decisions-simpler-but-not-easier/. I would also like to share with you a distillation of some insights from Mike Saunders, author of Human Centric https://mikesaunders.com/. Mike’s observation is that the usual role of leaders is to drive progress and change in their organisations by pushing their people out of the comfort zones of the known and the stable, and into some of the chaos which is required for creativity and growth. However, at this time of pervasive, wide-ranging and (often) terrifying uncertainty, the people who we lead need just the opposite from us – they require stability and routine so that they can settle, focus and be productive.  Mike advises that we prioritise creating for our teams a dependable work rhythm and predictability in these turbulent times, so that we all feel that we have some solid ground under us, some comfort from the familiar. Our work is all about people, and we need to remember that it is done by the people we lead and that they need to be able to function and deliver. We hope that the information and ideas in this newsletter are useful to you. Please feel free to share it with anyone who you think would benefit. If you would like to be added to our mailing list, please click on the “Subscribe” link here or at the end of the email.   MISSION-SHIFT- CAN WE CHANGE WHAT WE DO?  We are regularly getting calls from clients that go something like: We are set up to deliver sanitation systems, but are now wanting to deliver food parcels; or We generally fund bursaries but now want to set up online learning platforms or buy laptops, can we do this? Non profits are good in a crisis, and used to pivoting to meet new challenges (and access new funding sources!) and if your organisation has built a network and has employees with expertise but no way to send them out fulfilling your usual mission, then the temptation (or the need) to diversify might be compelling.  This is especially when you are in direct contact with real and immediate needs/threats to be dealt with. Before you change track, however, there are some legal and strategic questions which need to be answered, to determine whether you can go in a new (or additional) direction and these are: Do grant agreements/other agreements with donors or stakeholders permit the shift? Does our founding document allow us to carry out the new or added activities? and Is the shift a wise move, looking at the history, focus, strategy, sustainability and structure of the organisation?   GRANT AGREEMENTS AND OTHER CONTRACTS  Many organisations have in place grant agreements which are project-specific:  the funds are paid over but only drawn against delivery of defined projects and activities.  These are what we call ‘restricted’ funds’. They do not belong to the organisation until they are spent and, if not spent in accordance with the grant agreement, they must be returned. Organisations also often enter into service agreements with government or other NGOs.  Here again there is specified work to be done and payment is only made if that work is performed. In both of these circumstances the funds may only be used or allocated for the agreed purpose and, if the organisation wishes to use any part of the funds for emergency response or poverty relief or any other work not agreed on, the donor or other party will have to agree to the change and this agreement generally has to be in writing.  The first step therefore, is a conversation with the donor/other contracting party, to explain the deviation and request written consent. NASCEE (National Association of Social Change Entities in Education) has done some collaborative research on this and has put out this very useful guide  https://nascee.org.za/resources/nascee-guidelines-for-unrestricted-grants.pdf which gives input on this conversation with donors. The Independent Philanthropy Association of South Africa has issued the following ‘best practice’ guide for donors, http://ipa-sa.org.za/newsletter/ipasa-best-practice-guidelines-during-covid19/ which may also be helpful in managing these relationships.   WHAT ARE THE LIMITS IN OUR FOUNDING DOCUMENT? Every founding document defines the objects/mission of the organisation and 98% of founding documents will say that the efforts and the funds of the organisation may only be expended in pursuit of that defined object. This echoes the Income Tax Act requirements for tax exempt entities: activities and expenditure are strictly limited to those which further and support the objects of the organisation.   The first step, then is to find your constitution/ trust deed/ memorandum of incorporation and have a close look at the objects clause.   If your objects are fairly widely phrased and the new/additional work you intend falls within them, then you can go ahead. If, however, this is not the case, then you cannot proceed without first amending your founding document as those who serve the organisation are literally only empowered to do so in pursuit of the objects and any actions taken which fall outside of the pursuit of the objects will be unauthorised and could be called into question and be classed as a breach of duty by the individuals involved.    Now, amending your founding document is a pretty, well, foundational thing to do, and will require: In the case of a voluntary association or an NPC with members, a vote by members and with a higher percentage of agreement required than ordinary resolutions (typically 75%); In the case of a trust, the

23 April 2020: letter five from lockdown

With a week left of lockdown and restrictions after the 30th seeming inevitable, we bring you in this ngoLAW Brief:  an update on the C19-TERS scheme (some good news and some clarity); a warning about a scam doing the rounds in the non-profit sector; and some guidance on ways to deal with the risk of scams.   TERS UPDATE:  IT’S COMPULSORY! (ALSO: ANNUAL LEAVE, PAYE AND THE SUMS) Please note that the TERS Directive has been amended (and expanded) again. It has been clarified in signed amendments of Thursday 16 April (which have not yet been published in the Government Gazette) that: Employers who, as a result of the Covid-19 pandemic, close all or part of their operations for a three month (or lesser) period must apply for Covid-19 benefits for and on behalf of affected employees. This is a dramatic change, as there was previously no wording making the TERS application compulsory; Applications for TERS funding may be made even in cases where the relevant employees have already been asked or agreed to take annual leave during the period of closure of the business or organisation. Also, employers who have requested their employees to go on leave: “may set off any amount received from the UIF in respect of that employee’s COVID-19 benefit against the amount paid to the employee in respect of annual leave provided that the employee is credited with the proportionate entitlement to paid annual leave in the future” Employers who may not receive the applied-for COVID-19 benefits in time to pay employees are encouraged to make the payments and then wait to be reimbursed by the UIF: “To speed payment of COVID 19 benefits to employees, employers are urged to pay employees based on clause 3.4 of the Directive and reimburse or set off such with COVID-19 benefits claim payments for UIF.” Please note that the tax treatment of TERS payments should be like UIF: they are not taxable (i.e. PAYE should not be deducted from them), and should be recorded as “TERS/UIF benefits” on the payroll. There are some  practical difficulties for those administering these payments to employees. Among them: if the payments arrive as a lump sum, how do you know how to divide it out? If the payments do not arrive before payday, how can employers be sure how much they should pay out in the interim; and, where employers are topping the payments up, how will they know what proportion of the payment they should not deduct tax from? If a breakdown does not arrive from UIF, our suggestion is  that you ask your accountant for guidance and, if that is not possible or useful, you use an online UIF calculator, with adjustments being made as follows: Insert the maximum period (48 months) as the period of employment is not relevant; Adjust any result amounts under R3500 up to R3500; and As the UIF calculator works with a lower maximum base salary than TERS (it seems to max out at R12500) apply the lowest percentage (38%) to the salary amount between R12500 and R17712. Please also note that some of those who have been paid out under TERS are being required to submit additional documents to comply with the follow-up audit requirements. These include proof of payment of UIF, Compensation Fund documents, payroll reports, attendance registers,  UI-19 declarations and sample copies of employment contracts and salary slips. To read our previous detailed advice on the TERS scheme and process please see Letter four from Lockdown and Letter three from Lockdown For assistance from ngoLAW with these applications please email  lisa@ngolawsa.co.za. We are offering slashed rates on fees for the lockdown period and are able to assist with, advise on and/or make these applications on your behalf.   THE “NGO CERTIFICATE” SCAM At ngoLAW we have been inundated with queries and requests to ‘convert’ the registrations of non-profits from an “NPO” to an “NGO”. This request originates in a scam operation, in which a fraudster has induced panic in the non-profit sector by claiming that this “NGO” certificate is required in order to access a huge pot of overseas relief funding. There are costs involved, of course: the immediate fee paid to the defrauder of  R1999; and the (potentially bigger and riskier) cost of providing them details and documents that would enable hijacking of the organisation. DSD has issued a formal statement on this renouncing this scheme as a fraud (Read statement here) and  correct legal position is the following: An NGO is not a type of legal entity, it is just a general word used for all types of non-profit organisations, at whatever stages of registration. There are three types of legal entities in South African law which non-profits can be established as – a voluntary association, a charitable trust or as a non-profit company (“NPC”) (previously known as a Section 21 Company). A voluntary association is established and comes into being by agreement between its members and its founding document is a constitution which contains the governing rules of the association. Legally this agreement and the adoption of a constitution with the required clauses is the only requirement necessary for a voluntary association to be formed; A charitable trust has a trust deed as its founding document which is registered at the Master of the High Court; and An NPC (section 21 company) has either a Memorandum of Incorporation (MOI) or Memorandum and Articles of Association and is registered with the Companies and Intellectual Properties Commission (“CIPC”). When you have a properly established legal entity you may apply for further registration with the NPO Directorate at the Department of Social Development and they will issue you with an NPO number and certificate and this is will be your proof of registration with the Department. You may also make an application to SARS for income tax exemption (also known as public benefit organisation “PBO” or “section 30”) status. If anyone is telling you that another registration is required for your organisation in order to acquire funding please note that it is fake news and a scam being perpetuated on you and you should

09 April 2020: letter four from lockdown

GAME CHANGING ALTERATIONS TO THE C19-TERS UIF BENEFITS If you or any business or organisation you know is considering retrenching staff or putting them on short time now, please read this first (and pass it on) – or you could be missing out on a real opportunity to support and retain your staff. As you may know, C19-TERS is a temporary UIF-based scheme which provides funding for payment to employees during a temporary closure of operations of the organisation due to the Covid-19 pandemic. TERS is intended to allow organisations to survive a break in operations of up to three months without retrenching its employees. TERS IS AVAILABLE To organisations which are registered for UIF; For employees who are registered with UIF; and For the duration of a closure due to COVID-19, up to a maximum of three months. The Minister of Employment and Labour gazetted on Wednesday, 8 April amendments to the Directive on the Covid-19 Temporary Employee/Employer Relief Scheme (C19 TERS) which have dramatically changed the landscape for those considering applying for support under this system. The major amendment now specifically allows employers to top up TERS payments received by employees under the Covid-19 TERS scheme.The previous version of the Directive had prohibited an employee who was receiving any payment from an employer from benefitting from the TERS scheme. The amended Directive now states that if an employee is receiving a TERS benefit, the employer may top up this payment subject to a maximum ceiling of the salary that the employee would ordinarily have received.  This change to the Directive means that those who have dismissed use of the TERS scheme because the amount that would have been paid out under the scheme was unconscionably low in supporting their employee, can now apply and, if they have funds, add to the amounts received from the C19 TERS UIF scheme for employees under TERS. The other major amendment is the recognition that a total closure of the organisation or its operations should not be applicable as a pre-requisite to apply for C-19 TERS. The previous directive as gazetted on 26 March 2020, had referred to a “temporary closure of business operations” or a temporary “closure” of the company.Those who read our previous brief on the TERS regulations will recall a discussion around whether any organisation which wanted to survive post Covid would be able to comply with the previous TERS requirements and close all of its operations. The Minister has recognised this and provided that the TERS benefit is available during a “temporary closure of business operations whether total or partial”.  The regulation now also refers to a “reduction in work” as opposed to a complete cessation of work.Whereas the previous Directive had provided for where an employer “as a direct result of Covid-19 pandemic close[s] its operations for a three month or lesser period” it now provides for a scenario where an employer “as a direct result of Covid-19 pandemic close[s] its operations or part of its operations for a three month or lesser period”. Please note that, when it comes to applying, the amended Directive now refers to “affected employees” as those who may benefit. This amended section now reads: “Should an employer as a direct result of Coviid-19 pandemic close its operations or part of its operations for a 3 (three) months or lesser period affected employees shall qualify for a Covid-19 Temporary Relief Benefit” Therefore, where a unit/project/division of an organisation/business is still operational and funded, the employees who are busy with this work, whose salaries are still covered and whose income is not affected by Covid-19  do not qualify for the C19 TERS benefit. However, where there is partial closure or where Covid-19 has resulted in a sudden drop in income/funding for operations, our view is that all those employees who are affected by the partial closure and/or the lack of income  do qualify. Thus, all employees working for an organisation or business which is not fully operational  will qualify for the C19-TERS benefit. The third important change made is that the previous directive referred to the minimum amount that would be paid under the TERS scheme being the minimum wage in the sector concerned.  All of the references in the Directive to minimum wage in the sector concerned have now been amended to refer to the figure of R3 500.This means that employers need not concern themselves with proving which sector they are in in order to calculate what the applicable minimum amount would be as it is now R3 500 across the board. The language used in the previous directive resulted in some confusion around the maximum amount that would be paid out and many had believed that the maximum amount paid out would be R17 712 per month, based on the way that the regulation was phrased.  The language of the directive has now been amended to clarify matters.It is now clear that the maximum amount to be payable will be calculated at the UIF rate based on a maximum salary being taken into account of R17 712.  The clause now reads:“The salary to be taken into account in calculating the benefits will be capped at a maximum amount of R17 712 per month, per an employee and an employee will be paid in terms of the income replacement rates sliding scale (38% – 60%) as provided in the UI Act”. This last clarification is one which will not be welcomed quite as gladly by those who were hoping that the actual amount of R17 712 would be paid out.  The maximum benefit, as previously advised by us will be R6 730. There is also some clarity (for those who are thinking about the details) on the MOA (agreement) to be signed with the UIF. Applicant businesses or organisations must sign and lodge it, but a simpler version (not requiring a separate bank account) and already signed by UIF is now being provided.   The cumulative effect of these changes is immense- organisations and businesses which have not totally closed are included; employees in closed/slowed-down divisions qualify; employers who had intended to commit to at least a ‘survival’  wage can now

06 April 2020: letter three from lockdown

Many organisations, facing significant drops in funding and other income, as well as the inability to carry out many of their projects, are considering temporary or even permanent shutting of operations, and looking for advice on how to support employees at this time.  There is much discussion (and confusion) around the new TERS (Covid-19 Temporary Employer/Employee Relief Scheme)) scheme offered in the  Directive issued under the Disaster Management Act on 25 March 2020.  Some of the confusion was sown by an inaccurate initial guide issued, and some of it is contained in the Directive itself. In this ngoLAW Brief we: Examine the TERS offering, explain how it works and when it is applicable, and deal with the misconceptions; and Compare the TERS option to the more final option of retrenching and allowing ex-employees to claim UIF. We don’t deal with the mechanics of the application and the forms, as there is plenty of useful information already in circulation on these aspects.   Please note that this advice is our current interpretation (6 April) of a Directive which was speedily drafted, and which has not yet been tested (people know how to make the TERS applications,  but we have not yet spoken to anyone whose claims have been paid). If anyone has any practical experience which sheds further light,  please let us know.  We will be sending out updates as the situation unfolds. We apologise for the length of this- it is not “Brief” but we have many clients wanting this guidance urgently. In the emails to follow this one, we will Analyse the other options available to organisations (leave, reducing working days, advance payments etc); Answer further questions on the TERS option and other questions you send us; and Discuss those who work for the organisation, but who are not formal employees: consultants, short-term contractors- ‘piece’ workers.  Neither the TERS nor the UIF benefits will be available to these workers.  WHAT IS TERS? TERS is a temporary UIF-based scheme which provides funding for payment to employees during a temporary closure of operations of the organisation. TERS is intended to allow organisations to survive a break in operations of up to three months without retrenching its employees. WHEN IS TERS IS AVAILABLE? To organisations which are registered for UIF For employees who are registered with UIF; and For the duration of a closure due to COVID-19, up to a maximum of three months. IMPORTANT DIFFERENCES BETWEEN TERS AND UIF FOR UNEMPLOYMENT (this table does not deal with short-payment UIF, which will be dealt with in the next Brief) How do we calculate the TERS benefit? The benefit will be calculated in terms of the UIF INCOME REPLACEMENT RATE SLIDING SCALE of 38 % (for high earners) up to 60 % (for low earners) as provided in the Unemployment Insurance Act 63 of 2001 (UI ACT). The maximum benefit for a high earner would be 38 % of R17 712 a month, which amounts to about R6 730 a month. For the duration of the shutdown or a maximum period of three months, the benefit will not be less than the minimum wage applicable for the relevant sector. To allow you to compare the options and see the resulting payments, we have taken examples of  levels of monthly salary and then showed you the amount which would be paid. (The benefits here stated are taken from the examples in the Third Schedule to the UI Act, and with the help of the calculator at http://ezuif.co.za/uif-calculator/) . The numbers are intended to be illustrative only. We have presumed in this table that the national minimum wage is applicable and, remember, the period of employment is not relevant: Example: TERS MYTHS (and truths) INITIAL TERS QUESTIONS Complete closure required? The Directive issued seems to contemplate and assume that there is a complete closure of the organisation, in order for the TERSbenefit to be applied for, and many commentators have agreed with this. However it is unlikely that all of the staff of any organisation will be unable to do any work during a temporary cessation of activities and, certainly, if the intention of TERS is to assist organisations so that they do not close down for good or retrench staff, then we believe that it must be accepted that certain levels of organisational operations must continue. For instance, if the TERS payments are to be processed and made to the employees during temporary closure, then the finance and admin team will have to be working. And, if the organisation is to survive this crisis, then marketing and fundraising should be harder at work than ever. It also may be that there are certain projects or divisions which cannot continue, and then some which can. If an organisation is, for instance, involved in one project which is about delivering essential services, then that project can continue but others which are not essential (and the workers who are not essential to the essential services) will not be working. Our feeling is that, if the TERS support is required for employees who are not able to work due to COVID-19, then the organisation should make the application to register for TERS for those employees. Although the Directive does not seem to contemplate the realities we have outlined, we feel that our interpretation is in the spirit of what is intended. Can we claim TERS and the short-payment UIF benefit at the same time? Because TERS is for temporary closure and short payment UIF benefit is for carrying on work but for fewer hours/days, the applications and the system is not designed to accept applications for both sorts of applications from one employer. Although a technical argument could be made that different employees could be treated differently (if our position on the total closure aspect holds up)  we very much doubt that an application for both TERS and short-payment UIF support from the same employer will be accepted and processed. Can we claim TERS and top it up with what we can, to support employees?

02 March 2020 – letter two from lockdown

Every day and every hour brings messages about new initiatives and partnerships to deal with the health and economic crisis in a holistic way and to support and join together all citizens in flattening the curve.

March 2020: letter from lockdown

While the earth (and we personally) may welcome the compulsory reset of the lockdown, our beneficiaries and organisations are going to be hard hit by the halting of many projects. NGOs across South Africa have been a step ahead in taking responsible action, and many have already suspended programs and activities.  NGOs are also showing typical resourcefulness and grit, finding new ways to continue their work and to ensure that their organisations survive this period. There is much work to be done, and it is time to work together, to let the voices of our beneficiaries be heard and to be the leaders which our communities need. This brief newsletter contains the latest information on closures of the government departments that NGOs typically deal with, and our comment on the ongoing work which may be done. At ngoLAW we will be continuing our work and will research and draw together information and advice to assist you with thinking through and making some tough decisions over the next while.  Watch this space for our correspondence and conversations and please forward to anyone who may benefit. To submit your questions, visit our website  https://ngolawsa.co.za/, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided. Stay safe, keep calm and carry on- A Luta Continua! Nicole, Lize, Bandile, Janice, Lisa and Dorothy   Government service status:     GOVT DEPARTMENTS CLOSURES AND DEADLINES IN THE MEANWHILE The CIPC (Companies office) has announced that: it will be closed entirely from 4.00 pm on 24 March until 31 March. Limited electronic services will resume on 1 April, and the rest of their services will resume on 17 April. We will still be able to compile and create CIPC documents for lodging, and will be able to submit some on 1 April and the balance on 17 April. Email lisa@ngolawsa.co.za The NPO Directorate will be closed from 27 March until 16 April. The clean-up of the NPO register,which was planned to start on 1 April, will be delayed until 1 July. We do not yet have exact details of the plan, but we know that organisations with the longest outstanding NPO reports will be deregistered first.  The lockdown gives organisations which are behind with their reports a chance to catch up. ngoLAW will continue to obtain information and compile NPO reports but will lodge these from 17 April onwards. No new NPO applications will be made during the lockdown period, but we will gather information and prepare for them. Organisations which are behind with NPO reports should contact us urgently for assistance in using this time to get the reports ready to lodge. Emailbandile@ngolawsa.co.za SARS had already called on citizens to stop coming into branches and to use e-filing. The TEU (Tax Exemption Unit) will be closed and will not be dealing with applications during the lockdown period. ngoLAW will continue to work on and assemble exemption applications so that they are ready to be lodged when the TEU re-opens for business. Email janice@ngolawsa.co.za Courts across South Africa are halting new court applications, restricting access to existing hearings and issuing directives around non-essential work and working from home. No national directive has yet been issued specifically around trust administration departments but our feeling is that the charitable trust registrations and updates will not be seen as essential and that work on them will cease for the duration of the lockdown. Sadly, a 21-day delay will not have a huge impact on the already terrifically slow turnaround time of the various offices of the Master. We will continue to draft the documents needed for trust and trustee changes, and will liaise with our agents in the various centres about when they may be lodged. Email lize@ngolawsa.co.za   Time to catch up The next three weeks may be the gap you needed to get your admin, governance, standard agreements and overdue updates done. This is the stuff we are best at, so let us know how we can help. ngoLAW services continue. From Friday 27 March we will all be working from home. The easiest way to get in touch is email, and we will also be available on zoom/skype/cell phone (the landline will only be answered intermittently).   Useful resources: Recommended reading: Joan Garry’s blog post on virtual meetings– how they should be designed and led (hint: not just as rushed versions of in-person meetings!)  is useful and includes a free download of guidelines for a valuable virtual gathering https://blog.joangarry.com/virtual/ new from Marcus: https://www.marcuscoetzee.co.za/wp-content/uploads/2020/03/Social-Enterprise-Glossary-4th-edition.pdf  this glossary is designed to help non-profits and social enterprises think clearly about strategies and business models. More than just a list of definitions, it explains key concepts and enables meaningful conversations Please share this newsletter freely (and subscribe to it, if it has been forwarded to you), let us know what you think of it and send us any ‘ask NGOLAW’ questions you have. (To unsubscribe, click the button at the end).

ngoLAW Update November 2019

The times are uncertain, the going is tough and financial realities are biting. The non-profit sector is hard hit but undaunted and we at NGOLAW feel lucky to serve and assist so many who remain positive and who are taking action, day by day, to improve lives, increase opportunity, protect and serve, expose truth and build a better society. This newsletter contains one of our ‘agony aunt’ responses, in which we answer a FAQ. To submit your own questions, visit our website  https://ngolawsa.co.za/, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided. We end with some quick governance definitions, and connections to articles and resources you may find useful. A Luta Continua! Nicole, Lize, Bandile, Janice, Lisa and Dorothy Ask NGOlaw: Dear ngoLAW can my brother-in-law/mother/husband serve on the same non-profit board as me?  NGOs quite often begin as family affairs, in which some family members call on other (family) they know and trust, get some good stuff done, and then come to us to set up a legal structure to house, manage and fundraise for the work. Sustainable and credible NGOs cannot continue to be dominated by one family, however. Not only do they face the risks that family businesses do (when everything is going right it works well, but when things go south, family fallouts can be catastrophic for operations) but there is also a major issue with credibility with donors: donors will suspect that a family-led NGO is set up to feather the nest of the family members, and will be reluctant to donate. Then there are the legal restrictions: For tax exempt status, the Income Tax Act requires that a board has at least three people on it who are not “connected persons”. “Connected” includes relatives by marriage as well as blood (and adoption) and you are ‘connected’ if there are three or fewer people between you and another person, thus your adopted child’s wife’s brother is ‘connected’ to you. The Income Tax Act does not prohibit any family members from serving on a board together, but you have to make sure that there are at least three of you who are not related to any of the others. Therefore, if there are three of you are on a board and one resigns and the organisation wants to replace them with a family member of yours on the board, you can do this, but you would need to add another unrelated board member, to keep satisfying the SARS requirement. In case you thought that you could then have any number of family members on the board, as long as there are also at least three who are not related to any of you, we now turn to the requirements of the NPO Directorate: The NPO Directorate will not accept more than a total of two board members who are related to each other. So, in summary: SARS requires that at least three of the board are NOT related to each other; NPO requires that no more than two are related to one another; and Donors don’t like boards to be dominated by a family. Our advice is that if you have good reason to include related people on a board, make sure that you don’t go over the maximum of two, and that the majority of the board are not related to one another. Governance concepts: some quick definitions-types of board members We find that our clients are often confused by these terms- hopefully this brings clarity: Executive Those (on the board or not) who have management authority and responsibilities. The Managing Director, “Executive Director”, Chief Executive Officer, CFO, COO, etc are all executives. Non-Executive Those who serve on the board or any other structure of the organisation (advisory council, committees) who do not have any managerial responsibility for day to day running of the organisation Independent A non-executive board member who is not remunerated by the organisation for any services provided to the organisation (other than board fees, if applicable) and who has no personal connection to or financial interest in the organisation.(For contemplation: King IV states that once a board member has served for nine years, they are no longer truly independent anymore, in that they will have got too comfortable and familiar to be able to wield the sharp edge of independent perspective required) Ex Officio Those who are on the board automatically because of some other position they hold, either in the organisation or in another organisation. Useful resources: Recommended reading: https://www.marcuscoetzee.co.za/constructing-a-philosophy-vision-and-mission-for-your-organization/  Marcus’ advice on  why and how every organisation needs to be clear on (and go public with) its ‘why’ and ‘how’ will inspire and equip you to do this exciting and necessary work. Joan Garry’s Leadership Lab has a min-series on “how to build a thriving nonprofit without the typical burnout” https://nonprofitleadershiplab.com/ The Averile Ryder NPO Salary Survey has a new report out, and is looking for participants in their next survey http://www.rewardspecialist.co.za/ Please share this newsletter freely (and subscribe to it, if it has been forwarded to you), let us know what you think of it and send us any other ‘ask NGOLAW’ questions you have. (To unsubscribe, click the button at the end). Is it too late to wish you all Happy Spring? We hope it sprung happily for you!

Lotteries Commission: The Beast Awakens

The panic: ngoLAW has received a number of queries from non-profit clients concerned about notices received from the National Lotteries Commission (NLC) letting them know that their fundraising raffles or competitions are unlawful/unauthorised. The under-resourced non-profit sector tends to feel aggrieved at any ‘new’ requirements imposed on them, as compliance is already burdensome, and we have had to point out that the law being highlighted by these notices is not new, but has been around since 1997. It seems, though, that the National Lotteries Commission (NLC) has awoken from some sort of slumber, and is staking its territory. The law The Lotteries Act defines a lottery as: “…any game, scheme, arrangement, system, plan, promotional competition or device for distributing prizes by lot or chance…” The Lotteries Act then goes on to specify in what circumstances a ‘lottery’ as defined may be conducted. All lotteries which do not comply with the Act are prohibited as unlawful and those who conduct them are guilty of an offence. Non-profits who wish to maintain their reputation and credibility and to avoid risk must take note of these requirements and ensure that they comply with them. There are two types of lotteries which non-profit organisations may run without first having to register with the NLC: those which are ‘incidental to exempt entertainment’ (which we will call “Exempt Entertainment lotteries”) and “Private Lotteries”. The options: Please have a careful look at the identifying features of each of the options, so that you may check whether the fundraiser you want to run qualifies as one of these. Lotteries that are incidental to exempt entertainment or which are private lotteries are essentially self-regulated. Organisers do not need to register with the National Lotteries Commission or report to the commission. But they do need to observe the rules to stay within the law. If, however, the competition/raffle you are planning does not satisfy ALL of the requirements of either an Entertainment or a Private Lottery, then you may have to look at making an application to the NLC to register a “Society Lottery”. 1. Exempt Entertainment Lottery: To qualify as an ‘Exempt Entertainment’ lottery, your fundraiser must abide by ALL of the following: EXEMPT ENTERTAINMENT LOTTERY: The lottery must be conducted as part of some event or ‘entertainment’ ( a bazaar, sale, fête, dinner, dance, sporting event or other entertainment of a similar character); All proceeds of the entertainment, including the lottery, must be used “for the benefit of any deserving section of the public”. Expenses that may be deducted before using the money for a deserving cause are restricted to: The expenses of the entertainment, including those related to the lottery; The expenses of printing lottery tickets and advertising the lottery; and The cost of purchasing lottery prizes. None of the prizes in the lottery may be a money prize; The total value of the prizes may not exceed R5 000,00; The total value of tickets sold may not exceed R10 000,00; and The price of a single ticket may not exceed R10,00. 2. Private Lotteries: This sort of lottery is not likely to be conducted by a non-profit to raise funds, as it is one in which a closed group of people participates and benefits, but the requirements for this are: PRIVATE LOTTERY: Participants and beneficiaries are all part of the same closed group: social/sporting club, co-workers, residents on same premises If it’s a private lottery run at a sporting or social club, the governing body of the club must authorise the lottery in writing. The price of a single ticket may not exceed R10,00 The total value of all tickets available in a single lottery may not exceed R10 000,00. The total value of prizes may not exceed R10 000,00. No written notice or advertisement of the lottery may be displayed except: on the club premises; on the property where participants work or reside; on the lottery tickets; and no ticket may be sent through the post. The organiser of the lottery must be a member or the club or society and authorised in writing by the governing body to run the lottery. No management fee or expense allowance may be deducted from lottery proceeds. The only deductions allowed from the amount raised are for printing, stationery and notices. The income from the lottery must be used entirely for prizes or divided between prizes and the club fund. The maximum number of lotteries run by any club, workplace or residential entity is 12 a year. IF YOUR FUNDRAISER IS NOT ONE OF THESE: OPTION 3:REGISTER AS A SOCIETY LOTTERY: Society lotteries are competitions organised to raise funds from the public for various non-profit organisations. A short summary and explanation of what the Act says about this: SOCIETY LOTTERY: The lottery must be conducted entirely within South Africa; The organisation benefitting from the lottery must be registered under the NPO Act; The organisation benefitting from the lottery must not be connected with lotteries, gambling or betting; The lottery must be conducted in accordance with a “scheme” – or plan – that has been approved both by the organisation and the National Lottery Commission; The maximum value of tickets to be sold in a single society lottery is R2 million; The total value of prizes may not exceed R1 million per year per organisation; The total proceeds, after deduction of permissible expenses (up to 15% of proceeds where proceeds are under R1 million, and up to 10% of proceeds where these exceed R1 million) and the cost of prizes, must be used solely for:  the charitable purposes for which the organisation is authorised to collect funds; support of sport or cultural activities for which the organisation is authorised to collect money; or other non-commercial or not-for-gain purposes approved by the National Lotteries Commission; Tickets for the lottery can only be advertised, marketed, promoted or sold in a prescribed area; The lottery may not be advertised, marketed or promoted jointly with any other society lottery, nor may funds for prizes be combined with any other lottery; and The lottery must be conducted strictly in

ngoLAW Update April 2019

Welcome to our first newsletter. These updates aim to deliver useful insights and information on legal, governance and compliance matters relevant to the NGO sector, and to connect you with resources and events. This first issue introduces some new (and newish) team members and contains the first in our NGO Agony Aunties series: “Ask ngoLAW”. Please let us know what you think of it, and feel free to send it to others who may benefit. [siteorigin_widget class=”SiteOrigin_Widget_Image_Widget”][/siteorigin_widget] ngoLAW meets the new year with some new team members: Lisa D’Eramo (second from right) joined us in March 2018, so is not that new- Lisa is the engine room of our efficient CIPC department. Lize Vermeulen and Bandile Khwela (far left and second from left) joined us at the end of 2018, and are young attorneys with a focus on serving the non-profit sector. [siteorigin_widget class=”SiteOrigin_Widget_Image_Widget”][/siteorigin_widget] Dear ngoLAW : Why do we need PBO (tax exempt) status? Question: I hope that registration as a non-profit company will meet any funders’ requirements. From your experience is it necessary to register as a PBO as well? ngoLAW answer: NPC registration (or trust/voluntary association founding) is only the first step to meeting the requirements of funders and stakeholders as a non-profit. Potential donors will require that your organisation also has PBO status (tax exemption), and you will want to have PBO status in place for a number of reasons including the following: Donors which are themselves tax-exempt are only permitted to donate to tax-exempt entities; If you are not tax-exempt, then donations tax at 20% can be levied by SARS on donations made to your organisation; Tax exempt (PBO) status is a standard requirement of donors, just for the credibility it confers- donors know that you have jumped through the SARS hoops, and are complying with their requirements; Tax exemption brings with it not only exemption from tax to be paid on earned income, but other advantages, like potential skills development levy exemption, exemption from estate duty for those who leave you money in their wills, exemption from transfer duty if the organisation ever buys a property, etc; and Depending on the sort of work done by your organisation, it may also be able to obtain 18A status, which gives your local donors a tax deduction, which can be a useful way of incentivising giving. In each newsletter we will answer a question commonly asked by our clients. If you have any puzzling issues, please click on the button to email your question to us. Past questions and answers  will also be available on our website. [siteorigin_widget class=”SiteOrigin_Widget_Button_Widget”][/siteorigin_widget] DID YOU KNOW? Defined: Fiduciary Duty This is the general duty of trust which rests on anyone acting not for themselves but for another. Directors, trustees, committee members and employees of organisations are required to act with the level of care and diligence which could reasonably be expected of someone taking care of the affairs/money/property of another. This duty is owed to the organisation and also to its beneficiaries.

Thinking about income generation and profit in a non-profit world

by Marcus Coetzee Non-profit organizations and social enterprises that wish to design sustainability strategies need to have clarity around the concepts of income generation and profit, and how to achieve them. This article aims to debunk some misconceptions around income generation, equity investments, loan finance, and the profits or surpluses that these organizations may generate or receive. In previous articles, I have focused on legal structures, business models and common confusions. In this article, I propose that non-profit organizations and social enterprises can change the way they cost proposals and transact with their customers (i.e. the people and organizations they are getting money from). I believe this will increase the opportunity to generate income and the profit or surplus that may result. It is hoped this article will help you to better harness your organization’s potential while still delivering on its social goals. The first issue is the myth that “income generation” and “donations” are separate and utterly different. Non-profit organizations are skilled at fundraising and know how to submit proposals to donors. This is their comfort zone. In contrast, “income generation” is seen as something different, new, “business-like” and sometimes “dirty” – something that should be separated into another legal entity. This split thinking discourages organizations from exploring easy opportunities to earn income. For example, a national rehabilitation organization recently introduced a differential pricing strategy where certain services are free for poorer beneficiaries but charged to others who could afford the services. This opportunity was in its reach and did not require the establishment of side businesses, additional legal entities etc. Another recent example is a non-profit organization in the Cape Town townships that wanted to use its extra land to establish various businesses. However, when we explored these opportunities, none turned out to be viable. Instead the organization decided to make better use of its reputation and buildings, and become a “social services hub”. This meant upgrading the value they provided to tenants and bringing in new tenants at more profitable rates. Ultimately, this decision aligned better with the organization’s core values. It also promises to generate a surplus and expand the organization’s social impact. The second issue is the confusion between “income generated” and “equity investment” or “loan finance”. Income generated is money that is earned or raised and therefore is recorded in the income statement. This income includes many forms such as donations, grants, dividends and the sale of goods or services. “Active income” is income an organization needs to invest effort to earn, whereas “passive income” is money that an organization receives with minimal effort, such as through rental income, dividends or interest. In contrast, capital investment or “loan finance” is not income, but is equity or liabilities respectively which must be recorded as such in the statement of financial position (former balance sheet). Loan finance must be recorded as a liability as it is money that is owed by the organization. Equity investments occur when someone seeks to earn a return on their investment and usually involves buying shares of a private company (that you or your organization may own) with the hope of future income (dividends) from the investment and/or capital growth. Remember loan finance can never be treated as income, as the amounts ultimately will need to be paid back. Poor understanding of loan finance often results in organizations being unable to pay back creditors and quickly becoming insolvent. Income from receiving equity investment should not be used to cover day-to-day expenses, but should rather go into reserves, be used to purchase assets (e.g. property for your office), or be used strategically to build/expand stream of income. It is important for an organization to be clear on what it is aiming to achieve and to pursue appropriate sources of funding. It may not be appropriate to pursue equity investment or loan finance when the organization should be focusing its efforts on generating the income it needs to cover its on-going costs. The third issue relates to earning a “profit” or “surplus”, which arises when income earned from activities is greater than the true and full cost of these activities. These surpluses or profits can help organizations to build reserves, fund strategic activities, expand operations and manage risk. However, some leaders are uncomfortable with non-profit organizations earning a profit. Surprisingly, some donors, businesses and government departments also expect non-profit organizations to work at discounted rates without any surplus being generated. I believe that it depends on how the profit was generated and how it is applied. It is essential that beneficiaries are not undermined, neglected or misused in the process, and that profits and surpluses are reinvested so that they can further the mission of the organization. The term “non-profit” means that no profits should be distributed in any form to investors, donors, staff or board members in the form of hefty salaries or bonuses, or other stakeholders. It is vitally important that non-profit organizations cost projects fully in order to match the costs to the income stream. Organizations could, at times think that they’re making a profit from their income-generating activities, but they may not be. If the income does not cover the full costs of implementation, including a share of the overheads, it would result in them cross subsidizing these initiatives through other income sources. Organizations that do this are far more likely to run into cash flow problems as they may use their reserves, other income sources or advance payments to fund current activities. They may also choose to reduce their overheads to accommodate their donors, but this may have negative consequences for their ability to deliver and for their futures. For example, it may leave them unable to pay market-related salaries to their staff. Rooted within this constraint is a narrow set of budgeting skills. Non-profit organizations tend to present donors with a budget that represents a vertical slice of their income statements – a portion of all their actual costs, including overheads and direct project costs. Too often this is followed by arguments with

Dear ngoLAW: No-members NPC

Back when we were operating under the old Companies Act we used to be required to have members and once a year we would have an annual general meeting. It was a bit silly in that we would just close the normal board meeting and then open the AGM with the same participants, do the required things and close the meeting. Now that we are operating under the new Companies Act and have chosen not to have members, we have not been having a separate AGM. I’m fairly sure I was told that was correct. But as we have been working on funding applications there is often mention or a question on when we have our AGM. Do we legally still need to have an AGM? If not and we chose to have one anyway, just to help us in our applications, is there anything we need to be aware of and would you suggest that we do something similar to what we did before where we would just close a normal board meeting and then open the AGM for the formality of having one? Would the annual financial statements typically be signed at an AGM, as well as auditors appointed? No-members NPC Dear No-members NPC You are correct- without members, there is no legal requirement for an AGM to be held, in fact, it is legally not possible to do so, since an AGM is a meeting of members/shareholders.  In fact, the new Companies Act defines an AGM as ‘the meeting of a public company required by section 61(7)’. As an NPC is not a public company, this section and definition do not apply. My suggestion is that, when funding applications ask for details of your AGM you fill in ‘not applicable’. If there is a narrative description of the meeting and what occurs to be completed, you could say something like: The non-profit company has no members and only a board of directors, and therefore it is not necessary or possible to hold an AGM. However, the Board does set aside a meeting in each year at which the typical agenda items for an AGM, are dealt with. Thus, at the meeting of the Board on …., the financial statements as presented by the auditors were considered and adopted, the appointment of auditors was confirmed, the Board considered and accepted the report by the CEO of the activities for the past financial year, and the Board dealt with any director resignations/appointments which were required.

The NPO regulatory framework in SA – Choppy Waters or Plain Sailing?

For those embarking on their maiden voyage in the non-profit sector, and for seasoned sailors, the regulatory framework for nonprofit organisations can be intimidating and confusing. Our message, as consultants to the sector, is that there is no need to batten the hatches and put on life-vests. Yes, it can seem confusing, but none of what you have to navigate is horribly difficult to understand. The most important thing is that you take the time to consider your options, and chart a proper course, one which will steer your organisation safely through the storms it will face. This brief article cannot deal with every aspect that you need to consider, but aims to keep you off some of the rocks, giving you some helpful ‘beacons’ to steer by; NPO registration- what is it for? Acronyms abound in the non-profit sector. “NPO” (not to be confused with “NPC”) stands for NonProfit Organisation and refers to the voluntary and additional registration which organisations can apply for. This application is made to the Department of Social Development, under the NonProfit Organisations Act, 1994. While registration under the Act is voluntary, organisations seeking funding from the Department of Social Development or other government departments will find that registration as an NPO is a pre-requisite. Other donors, too, may require NPO registration, as they feel it provides a level of comfort and assurance about the governance and compliance of the organisation. It is important to note that non-profit organisations can and do exist as legal entities and can function as such, even if they are not registered with the Department of Social Development in terms of the NPO Act. Who can apply to be registered as an NPO? An organisation that is already legitimately set up as a separate legal entity in one of three ways: In terms of the Companies Act 71 of 2008, a Non Profit Company (NPC) is registered at CIPC with a Memorandum of Incorporation (MOI) as its founding document (previously called Section 21 Companies). In terms of the Trust Property Control Act 57 of 1988, a charitable Trust is registered with the Master of the High Court with a Trust Deed.  Under common law, members can form a Voluntary Association (VA) with a Constitution.  A voluntary association requires no formal registration to exist as a legal entity provided its Constitution includes the necessary clauses for existence apart from its members. Registration as an NPO under the NPO Act is open to all three types of legal entity. So, an “NPO” is not something that your organisation is, but it is an additional status that your organisation has. (Many believe that an organisation is either a NPO or a NPC. As you can see, it is possible and perfectly acceptable for a single entity to be a registered NPC (company) which then also applies for and is given NPO status) So, what do we need to comply with? All organisations of whatever form are required to register as a taxpayer with SARS (this is even if they apply for and are granted exemption from tax or PBO status- all organisations need to be given a taxpayer reference number before SARS will consider their exemption applications). All organisations, whether they are tax-exempt or not, need to file annual tax returns with SARS. Voluntary associations have no ‘external’ or ongoing registration requirements. They need to follow the rules in their constitution each year- meetings, voting for committee members, etc. For charitable Trusts there are no annual reporting requirements to the Master, but any changes in trustees, trustee details or accountant/auditor details must be reported to the Master. For an NPC, there is the annual obligation to file a ‘return’ with CIPC, which amounts to a small ‘registration’ fee, based on turnover (excluding donations, so R100 if you have only donor funding). If you do not pay this fee, your NPC will be deregistered by CIPC. As with a trust, all changes to directors, addresses and accountants/auditors must be reported to the CIPC. CIPC reporting processes are now online/via email, so are not nearly as onerous or delayed as they used to be. Director changes may be processed in under a week, if all documents are correct. All registered NPOs (whether an NPC, Trust or Voluntary Association) must submit a narrative report (in the prescribed format) and annual financial statements (signed by an accounting officer or auditor) annually within 9 months of the financial year end to the NPO Directorate. They must also report any changes of address, office bearers and founding document. We hope that this very brief introduction is useful to you, and provides some light to steer by.   There are other regulatory requirements which will need to be met, depending on the nature and scope of your work, particularly if you employ staff and/or work with children, the elderly, abused women, or with drug addicts etc.   Our advice is- firstly: consider your options, and secondly: don’t steer your ship alone, there is help available from experienced sailors. Cathy Masters B Com (Hons) CA (SA) and Nicole Copley (BA LLB LLM-tax) (Non practicing attorney)