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Constitutions for Non-Profit Organisations

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:

1. 2.
What do you use Constitutions for? Important things to know about Constitutions a. b. c. laws Constitutions are long-term decisions Using constitutions Different kinds of organisations are covered by different

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Important things to know about non-profit organisations. 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:

1. 2. 3.

Legal structures commonly used by non-profit organisations The Non-profit Organisations Act A model constitution for a voluntary association with explanatory guidelines 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.

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Contact details of those who can offer further assistance

1. What do you use constitutions for?

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. 2.

Why the organisation exists, its purpose and objectives; 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.

2. Important things to know about constitutions

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.

3. Important things to know about non-profit organisations

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 nongovernmental. 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.

4. Contact details for those who can offer further assistance

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. The LRC is bound by the policies of the Law Society that specify that they may only offer their services to organisations that could not otherwise afford such legal services. Organisations that can afford to pay for legal assistance from income or donations can contact LRC to find out which legal practitioners in their area are familiar with the legal environment of non-profit organisations. LRC's Non-Profit Organisations Legal Support Project is based in the Cape Town office but advice and assistance can also be requested at the LRC's Pretoria, Johannesburg, Grahamstown and Durban Offices. Details of how to contact each of these offices are provided at the end of the LRC guide on Legal structures commonly used by non-profit organisations. b. Department of Social Development, Directorate of NPOs

Applications to register under the NPO Act must be sent to the Directorate of NPOs at the Department of Social Development: Directorate of NPOs Tel: (012) 312 7676 Department of Social Development Private Bag X901

Pretoria 0001 c. The South African NGO Coalition (SANGOCO)

SANGOCO has produced an introductory guide on how to set up a non-profit organisation. This also contains advice specific to the different types of NPOs. The guide is called The NGO Starter Pack. National Office Penny Dlamini Tel: 011 403 7746 Fax: 011 403 8703 Eastern Cape Sarah Hugow Tel: 043 743 7725 Fax: 043 743 2656 Northern Province Vonani wa ka Bila Tel: 015 295 3542 Fax: 015 295 3541 Gauteng Lungi Mathole Tel: 012 429 6040 Fax: 012 429 2316 North West Kopano Molefe Tel: 018 381 4901 Fax: 018 381 6258 d. Western Cape Jessica Fortuin Tel: 021 706 2050 Fax: 021 706 0765 Northern Cape Marci Manong Tel 027 712 3011 Fax: 027 712 1212 Free State Baba Michael Jordaan Tel: 056 215 2316 Fax: 056 215 2316 KwaZulu Natal Hlengiwe Gasa Tel: 031 307 1061 Fax: 031 306 2261 Mpumalanga Meshack Nkabinde Tel: 017 683 0974 Fax: 017 683 0135 Assistance for income generating projects and co-ops

These organisations are regarded as for-profit type organisations and will not fall under the NPO Act. The following are some organisations that may be able to help these kinds of organisations with assistance and advice: Centre for Small Business Promotion Tel: 08000 37 007 (free help line of the Department of Trade and Industry Ntsika Tel: 0800 11 38 57 (free help line) Self-Employed Women's Union Tel: (031) 304 3042
Index Meeting skills | Inputs and verbal reports | Executive portfolios | Conflict management Planning | Understanding your constituency | Recruiting members | Guide to Constitutions Guide to the Nonprofit Organisations Act | Legal structures commonly used Education & Training guide

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