The difference between a Non-Profit Company, Non-Profit Organisation and a Public Benefit Organsiation
- simonne92
- Jul 28
- 8 min read
The conversation often comes up where different entity forms are discussed and the word “Non-Profit” is thrown around as a proposition. What people don’t always realize is that there are several steps and requirements to fulfill before qualifying as or operating a non-profit entity.
The first discussion I would have with you would be to understand what your goal & mission with the non-profit entity is. Sometimes, we have a business idea and our intentions are to help a group of people or create something for ourselves where other people could also benefit from, but this doesn’t necessarily mean that the solution would be to do it in a non-profit entity. The business idea might be great and we can proceed to convert this idea of yours into a reality, but a different entity form might be required.
The first distinguishing factor for your foundation is in the name: NON-PROFIT. Very few business ideas are created to not make a profit. A non-profit entity should have a mission to raise money which will be used for the benefit of less fortunate individuals or creatures. The business plan can not include the success of the directors or any strategy where the owners also benefits financially or in any other way.
So why would one register a Non-Profit Entity? Let’s go through the different categories of qualifying non-profit activities:
- Welfare and humanitarian
- Health care
- Land and housing
- Education and development
- Religion, belief or philosophy
- Cultural
- Conservation, Environment and Animal Welfare
- Research and Consumer Rights
- Sport
- Providing Funds, Assets or Other Resources
The difference between a Non-Profit Company, Non-Profit Organisation & a Public Benefit Organisation:
1. Non-Profit Company
Your first step to starting a non-profit entity would be to register a Non-Profit Company (NPC) with The Companies and Intellectual Property Commission (CIPC). A common misconception is that once the NPC is registered, the company doesn’t pay any tax on the profits that the NPC makes. This is not true – An NPC is a registered company and is obligated to compile Annual Financial Statements and submit Annual Income Tax Returns to SARS on which it pays the standard 27% income tax on the profit.
1. Non-Profit Organisation
Once the NPC is registered, you can either proceed to register the company as a Non-Profit Organisation or a Public Benefit Organisation. It is not necessary to register for both – It will depend on what the mission for the business is.
The registration of a Non-Profit Organisation is done with The Department of Social Development (SDS). Once you are successfully registered as a NPO and received your NPO registration number, you may apply for Government Funding or Government Grants with the SDS. The priority focus areas of these grants are social services, vulnerable groups and public health and welfare. The government will often provide service-level agreements with the NPO’s where they pay the NPO to deliver a specific community service on their behalf, or provide funds tied to specific departmental projects.
The grants received from the government are only exempt from tax if the NPO is registered with SARS as a Public Benefit Organisation (PBO). This means that without PBO status, the profit of the NPO will still be liable for company tax at 27%.
1. Public Benefit Organisation
The PBO application is done through The South African Revenue Service (SARS). There are a variety of application forms and supporting documents to be submitted to the SARS Tax Exemption Unit who then either declines/approves the application, depending on the reason for application and the completeness of the documents provided.
Once the PBO status is approved, the company gets issued with a PBO approval letter containing the PBO registration number. While core funding like donations, grants & passive receipts are exempt from tax, income from commercial trading or business activities that is not 100% in line with the goal of the PBO may still be subject to tax.
As an example: If you provide educational development to less privileged children and receive donations from the public to pay for teachers, stationary, books, etc., but you also run a tuck shop and sell second-hand clothes out of the same business, then the income from the tuckshop and clothing store will still be liable for income tax as it does not directly relate to providing educational development to learners.
Section 18A Donations:
On the application form to apply for PBO status there are two parts to the Ninth Schedule of the Income Tax Act under which you can qualify. It is important to note that only Part II can allow you to qualify for Section 18A and not Part I.
Section 18A allows you to provide donation certificates to your donors which they can use to deduct from their taxable income for the specific year in which the donation was made. Donations made to any person or organization are only deductible for tax if you have a Section 18A Donations Certificate.
Here are the categories under which you can register for Section 18A approval:
- Welfare and Humanitarian
a. The care or counseling of, or the provision of education programmes relating to, abandoned, abused, neglected, orphaned or homeless children.
b. The care or counseling of poor and needy persons where more than 90 percent of those persons to whom the care or counseling are provided are over the age of 60.
c. The care or counseling of, or the provision of education programmes relating to, physically or mentally abused and traumatized persons
d. The provision of disaster relief.
e. The rescue or care of persons in distress.
f. The provision of poverty relief.
g. Rehabilitative care or counseling or education of prisoners, former prisoners and convicted offenders and persons awaiting trial.
h. The rehabilitation, care or counseling of persons addicted to a dependence-forming substance or the provision of preventative and education programmes regarding addiction to dependence-forming substances.
i. Conflict resolution, the promotion of reconciliation, mutual respect and tolerance between the various peoples of South Africa
j. The promotion or advocacy of human rights and democracy.
k. The protection of the safety of the general public.
l. The promotion or protection of family stability.
m. The provision of legal services for poor and needy persons.
n. The provision of facilities for the protection and care of children under school-going age of poor and needy parents
o. The promotion or protection of the rights and interests of, and the care of, asylum seekers and refugees.
p. Community development for poor and needy persons and anti-poverty initiatives, including
i. the promotion of community-based projects relating to self-help, empowerment, capacity building, skills development or anti-poverty
ii. the provision of training, support or assistance to community-based projects contemplated in item (i); or
iii. the provision of training, support or assistance to emerging micro enterprises to improve capacity to start and manage businesses, which may include the granting of loans on such conditions as may be prescribed by the Minister by way of regulation.
q. The promotion of access to media and a free press
- Health Care
a. The provision of health care services to poor and needy persons.
b. The care or counseling of terminally ill persons or persons with a severe physical or mental disability, and the counseling of their families in this regard.
c. The prevention of HIV infection, the provision of preventative and education programmes relating to HIV/AIDS.
d. The care, counseling or treatment of persons afflicted with HIV/AIDS, including the care or counseling of their families and dependants in this regard.
e. The provision of blood transfusion, organ donor or similar services.
f. The provision of primary health care education, sex education or family planning.
- Education and Development
a. The provision of education by a “school” as defined in the South African Schools Act, 1996, (Act No. 84 of 1996).
b. The provision of “higher education” by a “higher education institution” as defined in terms of the Higher Education Act, 1997, (Act No. 101 of 1997).
c. “Adult education and training”, as defined in the Adult Education and Training Act, 2000, (Act No. 52 of 2000), including literacy and numeracy education.
d. “Continuing education and training” provided by a “public college” or “private college” as defined in the Continuing Education and Training Colleges Act, 2006 (Act No. 16 of 2006), which is registered in terms of that Act
e. Training for unemployed persons with the purpose of enabling them to obtain employment.
f. The training or education of persons with a severe physical or mental disability.
g. The provision of bridging courses to enable educationally disadvantaged persons to enter a higher education institution as envisaged in subparagraph (b).
h. The provision of educare or early childhood development services for pre-school children.
i. The provision of school buildings or equipment for public schools and educational institutions engaged in public benefit activities contemplated in subparagraphs (a) to (h).
j. Programmes addressing needs in education provision, learning, teaching, training, curriculum support, governance, whole school development, safety and security at schools, pre-schools or educational institutions as envisaged in subparagraphs (a) to (b).
k. Educational enrichment, academic support, supplementary tuition or outreach programmes for the poor and needy.
l. Training of persons employed in the national, provincial and local spheres of government, for purposes of capacity building in those spheres of government.
m. Career guidance and counseling services provided to persons attending any school or higher education institution as envisaged in subparagraphs (a) and (b).
n. The provision of hostel accommodation to students of a public benefit organisation contemplated in section 30 or an institution, board or body contemplated in section 10(1)(cA)(i), carrying on activities envisaged in subparagraphs (a) to (g).
o. The provision of scholarships, bursaries, awards and loans for study, research and teaching on such conditions as may be prescribed by the Minister by way of regulation in the Gazette.
p. The provision or promotion of educational programmes with respect to financial services and products, carried on under the auspices of a public entity listed under Schedule 3A of the Public Finance Management Act.
- Conservation, Environment and Animal Welfare
a. Engaging in the conservation, rehabilitation or protection of the natural environment, including flora, fauna or the biosphere
b. The care of animals, including the rehabilitation, or prevention of the ill-treatment of animals
c. The promotion of, and education and training programmes relating to, environmental awareness, greening, clean-up or sustainable development projects.
d. The establishment and management of a transfrontier area, involving two or more countries, which—
i. is or will fall under a unified or coordinated system of management without compromising national sovereignty; and
ii. has been established with the explicit purpose of supporting the conservation of biological diversity, job creation, free movement of animals and tourists across the international boundaries within the peace park, and the building of peace and understanding between the nations concerned
- Land and Housing
a. The development, construction, upgrading, conversion or procurement of housing units for the benefit of persons whose monthly household income is equal to or less than R15 000.00 or any greater amount determined by the Minister of Finance by notice in the Gazette after consultation with the Minister of Housing.
b. The development, servicing, upgrading or procurement of stands, or the provision of building materials, for purposes of the activities contemplated in subparagraph (a).
c. Building and equipping of clinics or crèches for the benefit of the poor and needy
d. The protection, enforcement or improvement of the rights of poor and needy tenants, labour tenants or occupiers, to use or occupy land or housing
e. The promotion, facilitation and support of access to land and use of land, housing and infrastructural development for promoting official land reform programmes
Feel free to reach out should you have any enquiries or might need assistance with any of the above registrations.
Best regards,
Comments