[Question] NPO or (PTY) LTD

[Sthembisoy]

Hi everyone,

I am still new in this forum but I would also like to ask for some advice. I have a very good business idea which I believe will help many South African unemployed graduates.

My problem is that I do not have any funds to run this business, so I was thinking of running it as an Non-Profit Organisation (NPO). What I would like to know is it possible to change an non profit business to profit making business?
If No, what advice can you give me.

Your response will be highly appreciated. Thank you very much

[Andromeda]

Hi, why would you want it to be a NPO? How do you reckon having no funds is easier if its an NPO?

[HR Solutions]

Yep don't understand the NPO bit. Is it because you have no funds ?

[Sthembisoy]

Hi again,

The reason I want it to be an NPO is because of these following reasons:

1. I do not have funds and I believe that I will be able to get funding from government institutes and big companies if I run it as an NPO.
2. I am not yet experienced and I still want to gain experience so if it is an NPO I can hand it over to someone else once I secure a job.

In as much as I want to make money but at the moment I just want to build my profile and I believe that starting an NPO which will help other youth in a similar situation as mine (unemployed) will open many doors for me.

[HR Solutions]

I think you are confused. An NPO is not for people who don't have money - it is setup for people to make money for charities etc etc and to help other people - it is non profit organisation.

[Sthembisoy]

I think you are confused. An NPO is not for people who don't have money - it is setup for people to make money for charities etc etc and to help other people - it is non profit organisation.

But where exactly did I say it was for people with no money? I know exactly what a non-profit organisation is. I've done my research. My only question was, can a non-profit organisation be changed to a profit organisation at a later stage.

[Sthembisoy]

Hi, why would you want it to be a NPO? How do you reckon having no funds is easier if its an NPO?

Hi Andromeda,

I personally feel that since this organisation I'm planning to start will be helping unemployed youth it will be easier to source funding from the government and other big companies. If I have to I can share my idea with you and maybe you can give me any advice which you might have.

[HR Solutions]

Ok if you know then you don't need advice

[Greig Whitton]

My only question was, can a non-profit organisation be changed to a profit organisation at a later stage.

Since no-one else has bothered to answer you: no, you can not convert a NPO into a for-profit business (this is prohibited by Section 2(a) of Schedule 1 of the Companies Act).

With that out of the way ...

I personally feel that since this organisation I'm planning to start will be helping unemployed youth it will be easier to source funding from the government and other big companies.

This is an understandable assumption but, in my experience, also a flawed one. There are thousands of NPOs, NGOs, charities, community projects, etc. competing for government funding and private donations. Furthermore, the process for applying for government funding is often long, frustrating, and administratively complex. Even if you are successful, registering and managing a NPO is highly regulated and administratively complex.

Honestly, it would probably be easier to start a for-profit business (a lack of funding and experience need not be restrictive if you apply lean startup fundamentals).

[Andromeda]

Hi Andromeda,

I personally feel that since this organisation I'm planning to start will be helping unemployed youth it will be easier to source funding from the government and other big companies. If I have to I can share my idea with you and maybe you can give me any advice which you might have.

Changing from an NPC to a profit company is such a fundamental change that I sincerely doubt that you can. At the outset, a change in a MOI requires a Special Resolution for every change, so it's just not feasible because the MOI is totally different.

To do what you want to do you will need to register as an NPO at SARS. There is a dedicated unit in Pretoria. I assume you will have a more certain outcome if your company is a NPC rather than a profit company. You may already understand the concept but in case you don't, an NPO is actually an undertaking registered as one at SARS, whereas an NPC is a CIPC registered non-profit company registered in terms of the companies act.

Sorry Greig, I din't see your post about the prohibition on conversion. Makes total sense

[Heidivf]

Just to correct something what Andromeda said. SARS registers qualifying NPO's as a PBO (Public Benefit Organization). Depending under which section you qualify as a PBO, you can get income tax exemption. This is the unit that Andromeda speaks of, which is in Pretoria. NPO's fall under Department of Social Development. A NPO can have one of three forms a)NPC; b)Trust or c) Association. So if you really want to have lots of numbers: A NPC will have a company registeration number from CIPC and then can register as NPO with Dept of Social Development and get a NPO number and then lastly register as a PBO and get a PBO number. Being a NPC does not automatically mean get a NPO or PBO number.