What is covered in this guide?
This
guide gives an introduction to constitutions for non-governmental organisations
(NGOs) and community-based organisations (CBOs). It is written for
organisations that aim to make a contribution to society and organisations that
are not set up to make a profit (non-profit organisations).
This guide has the following
sections:
a. Constitutions are long-term
decisions
b. Using constitutions
c. Different kinds of organisations are
covered by different laws
a. What is a non-profit organisation
b. What is a non-governmental
organisation
c. The Non-profit Organisations Act
d. Different types of non-profit
organisations
e. Registration if the three types of
NPOs
f. Decisions to be made before drawing
up a constitution or founding document
There
are three other guides in our Community Organisers Toolbox that will give you
more details on the legal requirements for non-profit organisations. They were
written and produced by the Legal resources Centre [LRC]. Click below to go to
them:
You
will find details about LRC and how you can contact them in these guides
The Education and Training Unit would like to thank LRC for making their material available.
The Education and Training Unit would like to thank LRC for making their material available.
A
constitution is the foundation for building an organisation. It should contain
all the key agreements made by members on how the organisation will work. In
law it is called the "founding document" and it is legally binding on
the executive and members of the organisation. It should tell you the
following:
1. Why the organisation exists, its
purpose and objectives;
2. Who the organisation's key constituency
and stakeholders are, who should benefit from its work; and
3. How the organisation intends to work,
its broad principles and the basic structures for decision making and getting
the work done as well dealing with the finances and assets of the organisation.
The
constitution or founding documents should be clear and simple so that members
understand their rights and responsibilities, leaders understand their mandate
and how to be accountable and members of the public understand why the
organisation exists and how it operates. See the LRC guides for more details on
the legal requirements for different types of NPOs. The constitution or
founding documents will usually have detailed and clear sections on:
·
The
purpose of your
organisation: why the organisations exists, who should benefit from your work
and how they should benefit.
·
The
objectives of your
organisation: what it intends to achieve.
·
The
type of organisation
you are: for example not-for profit voluntary association.
·
The
membership of your
organisation: Who may become a member and the duties and rights of members. How
you join and how members can resign or be expelled.
·
The
structures and main procedures of decision-making in your organisation:
o annual general meetings and other
meetings,
o elections and appointments for the
different structures of the organisation
o their powers and functions,
o who makes what decisions,
o how the organisation is governed and
how decisions are made
o how it is organised to get the work
done.
·
The
roles, rights and responsibilities of people holding specific positions and of the different
structures: what different individuals or structures are responsible for, to
whom they account.
·
How
the finances and assets of the organisation are controlled so that no money or resources that
belong to the organisation can be abused or misused.
·
Financial
year and audit process
that tell you when your annual financial account will be finalised and audited
and who the report will go to
·
Closing
down the organisation:
what process must be followed and what will happen to the money and assets of
the organisation.
See the guide on Legal Structures commonly used by NPOs and A model constitution for a voluntary association for more details on each of these sections and an example of a constitution.
See the guide on Legal Structures commonly used by NPOs and A model constitution for a voluntary association for more details on each of these sections and an example of a constitution.
a. Constitutions are long-term
decisions
Constitutions
should be written so that they will not need to be changed throughout the life
of an organisation. They should not need to be changed often, although they can
be changed [amended] if members feel the need to make new agreements about the
basic principles of the organisation. It is a major decision to change a
constitution and the existing constitution should say when and how it may be
done. Any changes should be publicised to members and the public [if relevant]
and if you have registered your organisation, you will have to inform the
bodies with whom you registered.
Constitutions
should not be too detailed. They should record only those agreements that will
remain true throughout the life of the organisation or until some major change
happens. They should only record basic and long-term facts about the
organisation that you will not need to change often. They should not, for
example, include specific objectives that are only relevant for a short part of
the organisation's life span. The objectives you include should be relevant to
the long-term goal and purpose of the organisation. The description of
structures also should not be too detailed. It should not contain names or
other specific details that will change as the organisation develops. Only the
main structures and their functions should be covered, as you may want to
change parts of the structure from time to time. For example you may say "
A Chairperson, secretary, treasurer and at least three additional members will
be elected as an executive at the AGM" This allows you to change the
number and the portfolios on the executive as your needs change, without having
to amend your constitution.
b. Using constitutions
The
constitution is the key founding document of an organisation. It is a record of
agreements on the basic principles of the organisation and is legally binding
on all members. Constitutions are not like plans. They should not change
regularly. The Constitution records all those agreements that will be important
for the whole life of the organisation. Constitutions play a key role at
different times in the organisation's life:
·
When
you start an organisation, the process of developing a constitution helps
members to develop clear agreements about the purpose of the organisation and
how it will work.
·
When
members have developed the constitution, they can use it to register as a
non-profit organisation. Registration gives the organisation rights, duties and
privileges in relation to accountability, fundraising and tax. It also helps
make sure everyone understands the responsibilities and obligations that go
with being a non-profit organisation.
·
When
the organisation is up and running, the constitution is used by people inside
and outside the organisation who want to understand the organisation's purpose,
how it is governed and their responsibilities and rights.
·
When
there is tension or conflict in the organisation, the constitution guides
members about how it should be dealt with in relation to key matters like
accountability and finances. It also helps ensure solutions are appropriate to
the purpose of the organisation.
·
When
an organisation is going to close, for whatever reason, the constitution
indicates how this should be done and what should happen to the resources of
the organisation.
c. Different types of organisations are
covered by different laws and need different founding documents
The
legal word for constitutions is "founding document". In South Africa
different types of organisations need to have different types of constitutions
or founding documents.
your
constitution will depend on what type of legal structure your organisation has
and what law it falls under. Some kinds of organisations must have written
constitutions or founding documents that are legally registered. Others do not
have to register their constitutions, although they may, if they wish to do so.
If you need to register you organisation, the laws will tell you what kind of
founding documents you will need in order to register the organisation.
The
three main types of non-profit organisations are:
·
Voluntary
associations
·
Trusts
·
Section
21 Companies
See
the LRC guide on Legal structures commonly used by
non-profit organisations for guidelines on the differences
between these types of non-profit organisations and on what their founding
documents should cover.
The
type of founding document you must have and what it should cover according to
the law will be affected by:
1. Whether your organisation is a
non-profit organisation or not.
2. If your organisation is a non-profit
organisation, what type of non-profit organisation it is.
a. What is a non-profit organisation
Non-profit organisations (NPOs) do not exist to make a profit from the work of the
organisation for the owners or members of the organisation. They exist to serve
some public purpose rather than just serving the personal interests of the
owners or members of the organisation. They exist for the benefit of the
general public or specific sections of the public. If members receive payment
or benefits, it is only in the form of a reasonable salary and benefits in
return for the work that is done as an employee of the organisation. Any profit
that is produced is used by the organisation to make a greater impact in terms
of their public purpose.
The
main purpose of for-profit organisations is to make money for members or
owners.
The
definition of non-profit organisation (NPO) covers all organisations that do
not exist to make profits for owners or members. It does not cover private
companies or even co-operatives or income generating projects that exist solely
to produce benefits for members. The law regards these as for-profit
organisations. Organisations that exist to help communities develop
income-generating projects would, however, usually be NPOs.
Most
NPOs have to rely on grants and donations from fundraising because NPOs usually
serve sections of the community that could not afford to pay the full cost of
the service. NPOs do not usually choose their target groups according to who
can pay for the service, but according to who needs the service most.
b. What is a non-governmental
organisation [NGO]
Non-governmental organisations (NGOs) are organisations that are
not part of government. This is a wide group of organisations, from large
charitable NGOs like Child Welfare to small community organisations like sports
clubs or civics. This could, technically, cover private companies but, in
practice, when we refer to NGOs in South Africa, we mean only those
non-governmental organisations that are non-profit as well.
This
guide on Constitutions is only relevant to organisations that are both
non-profit and non-governmental. If your organisation is formed as a
co-operative or income-generating project, you should contact the Legal
Resources Centre (details provided below) for advice on where you can go for
help.
c. The Non-Profit Organisations Act
71/1997
In
South Africa the Non-Profit Organisations Act (NPO Act) covers non-profit
organisations and the legal steps for registering them.
For
a full explanation of what a non-profit organisation is and what different
structures can be used, see the LRC guide on Legal structures commonly used by
non-profit organisations
The
NPO Act and the steps for registering an organisation are dealt with in detail
in the LRC guide to the Non-profit Organisations Act.
Co-operatives
(co-ops) are not NPOs and do not fall under the NPO Act. The Legal Resources
Centre defines a co-op as "a group of people, who are the members, who
together own and control an enterprise for the profit and benefit of themselves.
A co-op has the potential to operate democratically in that the members may
work for themselves and decide together how to run the co-op and how to share
the profits fairly." Co-ops are usually formed so that people can either
work together to buy goods (in bulk, for example), market and sell goods
produced, trade in goods or jointly produce goods. Because co-ops are formed to
produce profits for the members, they do not fall under the NPO Act. Co-ops
register with the Registrar of Co-operatives at the Department of Agriculture
using a number of founding documents that are required. This guide will not be
relevant to co-ops.
d. Different types of Non-Profit
Organisations
This
Guide is intended only for those organisations that fall under the Non-Profit
Organisations Act (NPO Act). There are, however, different types of NPOs.
All
organisations that fall under the Non-Profit Organisations Act (NPO Act) may
choose whether to register with the Non-Profit Organisation (NPO) Directorate
of the Department of Social Development. But, some types of non-profit
organisations must register under other laws, whether or not they register with
the Department. These laws tell you what must be coved by the founding document
of your organisation.
The
three most basic types of non-profit organisations are:
·
Voluntary
Associations
·
Trusts
·
Section
21 Companies
The
LRC guide on Legal structures commonly used by
non-profit organisations will help you to understand
·
The
difference between non-profit and for-profit organisations;
·
The
basic issues of the Non-Profit Organisations Act and the benefits of
registering under the Act;
·
Each
type of non-profit organisation, what kinds of organisations each type of legal
structure is most useful for and the advantages and disadvantages of each type;
·
What
structures and laws apply to each type;
·
How
to form an organisation of each type;
·
What
the founding document must cover.
Contact
the Legal Resources Centre Office nearest to you for advice if you need it.
e. How does the law affect founding
documents and registration of the three different types of NPOs?
·
All
three types of NPOs
that fall under the NPO Act may decide whether or not they wish to register
with the Department of Social Development -registration with the Department is
voluntary;
·
Voluntary
Associations that
fall under the NPO Act and the Common Law do not have to register anywhere,
but, like the other two kinds of organisations, they may register with the
Department of Social Development under the NPO Act. Their founding documents
are called constitutions.
·
Trusts
MUST register with the Master of the Supreme Court under the Trust Property Control
Act, but may also voluntarily register under the NPO Act if they are NPOs.
Their founding documents are called Trust Deeds.
·
Section
21 Companies MUST register with the Registrar of Companies under the Companies Act, but may
also voluntarily register under the NPO Act if they are NPOs. Their founding
documents are called the Memorandum and Articles of Association.
·
Organisations
that do not fit the definition of a Non-Profit Organisation in the NPO Act are
not allowed to register under the Act. Most organisations that exist to make a
profit must register as a private company or as a co-operative under other
laws.
f. Decisions to be made before drawing
up a constitution or other founding document
Before
an organisation draws up a constitution, the members must make decisions about
the following things:
·
What
kind of organisation is it?
Is it a non-profit organisation (NPO) or is it intended to make a profit for
its members in some way? If it is intended to make money for its members, the
detailed advice on developing a constitution in the next section will not be
relevant to you.
·
If
it is a non-profit organisation, what type of non-profit organisation should it
be - a Voluntary Association, a Trust or a Section 21 Company? If it is either a Trust or a
Section 21 Company, it will have to be registered with the relevant authorities
as explained in the LRC guide on Legal structures commonly used by non-profit
organisations.
·
If
it is a non-profit organisation, do you want to register the organisation with the
Department of Social Development under the NPO Act?
Your
decisions in each of these three areas will affect what kind of constitution
you need. The detailed guide developed by the LRC on constitutions on Legal structures commonly used by non-profit
organisations will be very relevant to those who wish to
register their organisation as a non-profit organisation - that is either a
Voluntary Association, a Trust or a Section 21 Company. The guide is also
useful for NGOs and community organisations that do not wish to register but would
like a constitution that is clear and useful to members.
a. Legal Resources Centre (LRC)
The
majority of the information provided in the guidelines on Constitutions above
comes from the Legal Resources Centre (LRC). It would be advisable to check
with them whether the information provided in these guidelines is still up to
date and correct because the laws and regulations applying to NPOs could
change. The Legal Resources Centre's Non-Profit Organisations Legal Support
Project provides the following services:
·
Advice
to NPOs on the type of organisation they should establish to achieve their aims
and objectives.
·
Assistance
to NPOs to establish a Voluntary Association, Trust or Section 21 Company.
·
Assistance
to NPOs to register with other public offices, such as the Receiver of Revenue
for tax or VAT purposes.
·
Help
for NPOs to sort out problems related to legal and administrative frameworks.
·
Lobbying,
together with the South African NGO Coalition (SANGOCO) and other
organisations, for a more favourable tax situation for NGOs.
·
Training
for attorneys and candidate attorneys in non-profit institutional and legal
issues to ensure informed assistance is available to NGOs.
·
Providing
an information service to NPOs on good governance, legal and administrative
policy and practice issues.
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