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 Master will require all of the trustees to agree; and
  • For a no-members NPC, the directors (and any other stakeholders who may be given powers to vote on this decision) will have to vote, and usually also 75% in favour is required.
The practicalities of voting and signing are one current impediment, and will be dealt with in the next newsletter but a really important question is how soon is the decision effective, ie, how soon can the organisation start doing the new/added work?
  Nature of change When is it effective? Note: Reporting requirements
Voluntary association The constitution of a voluntary association is a contract between the members of the VA. Changes are made by agreement, in terms of the rules set out in the document (notice period, quorum, votes required). The change will take effect from the date that the agreement is reached, or from any other agreed date. (Where an organisation may, by agreement of members, already have embarked upon the new work and now are following up with the formalities, the resolution to amend the objects clause could record the date upon which the members actually but informally consented to the change as the actual date of the change, if necessary) If the organisation has tax exempt status, a copy of the minutes/resolution and of the amended document must be sent to SARS Tax Exemption Unit (TEU). If the voluntary association is a registered NPO, then a copy of the amended constitution must also be lodged with the NPO Directorate along with proof of how it was validly adopted.
Trust The trust deed is an agreement between trustees and named beneficiaries who have vested (enforceable) rights. Most charitable trusts do not name individual beneficiaries or, if they do, do not give that beneficiary an ongoing enforceable right to benefits. Therefore the trust deed is usually amended by the unanimous agreement of the trustees. It should be noted that, even where trust deeds record that a lower percentage of trustees may agree to changes, the Master still enforces the law on this and requires 100% vote in favour. Although the amendment to the deed must be registered with the Master, it is effective from the date agreed by the Trustees and, as with the voluntary association, that resolution could record a past date upon which consensus was actually reached and which is the effective date of the change. All trustees must sign an original amended deed and an original deed of amendment (resolution to amend) and these must be lodged with the Master of the High Court. Once the Master has confirmed that the amended deed is on record, a copy of that letter, the amended deed and the resolution should be sent to SARS TEU and to the NPO Directorate.
NPC The Memorandum of Incorporation (MOI) of an NPC is a statutory document which is governed by the Companies Act. Any change to the MOI must be made in accordance with the procedures set out in the Act as well as any permitted variations from the Act which are contained in the existing MOI of the Company. The change is adopted by special resolution. The amended MOI is effective from the date that the amended document and supporting forms and documents are lodged with CIPC. Amendments to the MOI must be lodged with CIPC. It usually takes about a week or so for the amendments to be noted and registered. This notice from CIPC, the amended MOI and supporting documents should be lodged with SARS TEU and the NPO Directorate.