Non profit

Checklist for Required Clauses in a Constitution for an Organization Applying for NPO Registration

The same requirements are applicable for the DEEDS OF TRUST of a NONPROFIT TRUST and the MEMORANDUM AND ARTICLES OF ASSOCIATION of a NONPROFIT COMPANY

Section 12 (2) of the NONPROFIT ORGANISATIONS ACT 71 OF 1997 REQUIRES THE FOLLOWING PROVISIONS IN THE CONSTITUTION OF AN ORGANISATION THAT APPLIES FOR NPO REGISTRATION.

• State the Name of the Organisation;
• State the organisation’s main and ancillary objectives;
• Make provision for the organisation’s income and property are not distributable to its members or office-bearers, except as reasonable compensation for services rendered;
• Make provision for the organisation to be a body corporate and have an identity and existence distinct from its members or office-bearers;
• Make provision for the organisation’s continued existence notwithstanding changes in the composition of its membership or office-bearers;
• Ensure that the members or office-bearers have no rights in the property or other assets of the organisation solely by virtue of their being members or office-bearers;
• Specify the powers of the organisation;
• Specify the organisational structures and mechanisms for its governance;
• Set out the rules for convening and conducting meetings, including quorums required for and the minutes to be kept of those meetings;
• Determine the manner in which decisions are to be made;
• Provide that the organisation’s financial transactions must be conducted by means of a banking account;
• Determine a date for the end of the organisation’s financial year;
• Set out a procedure for changing the constitution;
• Set out a procedure by which the organisation may be wound up or dissolved; and
• Provide that, when the organisation is being wound up or dissolved, any asset remaining after all its liabilities have been met, must be transferred to another Nonprofit Organisations having similar objectives.

Other recommendable relevant clauses that would be include in a constitution are:

• Specify qualifications for and admission to membership of the organisation;
• Determine the circumstances in which a member will no longer be entitled to the benefits of membership;
• Provide for termination of membership;
• Provide for appeals against loss of the benefits of membership or against termination of membership and specify the procedure for those appeals and determine the body to which those appeals may be made;
• Provide for membership fees and matters determining membership fees and other payments by members;
• Provide that members or office-bearers do not become liable for any of the obligations and liabilities of the organisation solely by virtue of their status as members or office-bearers of the organisation;
• Provide for the appointment of office-bearers and define their respective functions;
• Set out a procedure for nominating, electing or appointing office-bearers;
• Determine the circumstances and manner in which office-bearers may be removed from office and provide for appeals against such removal and specify procedures for those appeals and determine a body to which those appeals can be made;
• Provide that its office-bearers are not personally liable for any loss suffered by any person as a result of an act or omission which occurs in good faith while the office-bearer is performing functions for or on behalf of the organisation;
• Provide for making investments;
• Determine the purposes for which the funds of the organisation may be used; and
• Provide for acquiring and controlling assets.

Here is a Model Constitution for reference.

For Profit

Memorandum of Incorporation – South Africa

Below we discuss the merits of a Memorandum of Incorporation. A Memorandum of Incorporation is one of the key documents that needs to be decided on and agreed upon when setting up a business in South Africa.

The importance of the MOI or Memorandum of Incorporation The Memorandum of Incorporation was introduced in 2008 and has replaced previous legislation that was under the Companies Act, No 61 of 1973 (‘the old Act’). Under this old act there were two documents known as the M&A:

1. The Memorandum of Association which was the founding document of a company.
2. The Articles of Association which dealt with the internal arrangements relating to control, administration and any other matters of considerable substance.

The Companies Act, No 71 of 2008, as amended, (‘the Act’) has since replaced the Memorandum and Articles of Association (‘M&A’) with a single Memorandum of Incorporation (MOI).

What is included in a MOI? The Act defines the Memorandum of Incorporation (MOI) as a document that sets out the rights, duties and responsibilities of shareholders, directors and others within and in relation to a company and by which a company is incorporated under the Act (or by which a pre-existing company was structured and governed).

The Memorandum of Incorporation (MOI) therefore has priority over the Companies Act as long as it does not conflict with the Act. It represents a set of rules that companies may accept, change or supplement to suit the particular needs of the company, with a proviso that all provisions of the Memorandum of Incorporation (MOI) must be consistent with the provisions of the Act.

Pre-existing companies

A Memorandum of Incorporation (MOI) is required in order to register any company under the Act. For pre-existing companies any existing Memorandum of Association and Articles of Association are deemed to be replaced by the Memorandum of Incorporation (MOI).

However, pre-existing companies must formally replace their M&A with a Memorandum of Incorporation (MOI) in order to bring the company in line with the Act. This is done by registering their new Memorandum of Incorporation (MOI) with the Companies and Intellectual Property Commission.

Legal enforcement

An important change relates to the legal force of the Memorandum of Incorporation (MOI). In terms of the old Act, the M&A were binding between the company and its members, and between and amongst the members, but the Act further binds prescribed officers and members of any board committees (including the audit committee). The Memorandum of Incorporation (MOI) is essentially the shareholders control document which defines the company’s authority levels and the respective roles and rights of shareholders and directors. It is also the company’s internal code of corporate governance and confirms to third parties whether the company has any restrictive conditions (RF or ring-fenced companies). In essence, the Memorandum of Incorporation (MOI) is considered to be the practical implementation of the Act.

Memorandum and articles of association vs. Memorandum of Incorporation (MOI)

It is important to note that for pre-existing companies which have not yet replaced their M&A with a compliant Memorandum of Incorporation (MOI), the M&A no longer has any priority over the Act and hence all the provisions and contents of the M&A will be subject to the Act. Any Shareholders Agreements, transactions, agreements or resolutions which are in operation but conflict with the Act become null and void.

Standard Memorandum of Incorporation

The Companies and Intellectual Property Commission has made certain standard Memorandums of Incorporation (MOIs) available here. It should be noted that these do not include some significant clauses, such as voting percentages required for passing resolutions, restrictions on transferability of shares in private companies and finances and distributions.

Customised Memorandum of Incorporation

It is always worth discussing the advantages of a customised Memorandum of Incorporation (MOI). With a customised Memorandum of Incorporation (MOI) you compile a tailor-made Memorandum of Incorporation (MOI) which meets the needs and preferences of your company, its shareholders, directors and stakeholders, thereby decreasing the commercial and legal risk of directors.

Sources

• Republic of South Africa Department of Social Development Checklist for NPO Consitutions
• Memorandum of Incorporation
• Companies and Intellectual Property Commission … Memorandum of Incorporation (MoI).