Advice appreciated!!!

**cjl123** · 07-Apr-09, 07:51 AM

Good morning

I am in the process of setting up a non-profit organisation, and are torn between which legal structure to use: a section 21 company or a trading trust.

The problem I have with a section 21 is regarding settling loans (i.e. seed funding). Am I correct? Any other short-comings?

What are the pitfalls regarding a trading trust? And, what documentation is needed in order to set up a trust deed, and to register with the Master of the High Court?

**Dave A** · 07-Apr-09, 08:42 AM

Originally Posted by cjl123

The problem I have with a section 21 is regarding settling loans (i.e. seed funding). Am I correct? Any other short-comings?

The audit fee and the strict rules of compliance. Of course, in the eyes of donors those are positives that ensure sound governance.

Why is a non-profit organisation starting out with loan accounts?
It should be started out with donors, subscribers etc. If the loan accounts are in any way connected to the people starting the NPO, it raises big questions around their motive in starting the NPO.

**Debbiedle** · 07-Apr-09, 01:59 PM

Don't know much about this but I believe some banks give no cash deposit fees for NPO's this is a huge plus when doing charity drives!

**cjl123** · 09-Apr-09, 07:17 AM

Why is a non-profit organisation starting out with loan accounts?
It should be started out with donors, subscribers etc. If the loan accounts are in any way connected to the people starting the NPO, it raises big questions around their motive in starting the NPO.Without sounding overly offensive. . . You have stated the obvious. I can assure you that my intent of starting an NPO is one of goodwill and NOT to engulf myself monetary as it is done elsewhere.

I have developed a concept that would impact the development sector in an enormous way, although it is rather difficult to start with nothing. . .

The question regarding the best option between a section 21 and a trading trust is based as follows:

Sometimes a newly established NPO receives a "loan" (seed funding), from another organisation, at a fixed nominal rate which has to be settled within a specified time. The banking sector has no role in this!

NOW, a section 21 non-profit company is obliged to assign 75% of its income to the company itself, and not to its staff or BOD. 25% is used to settle overheads. The 75% may not be used to settle any sort of seed funding, only to improve the company itself either by expanding the area of operation, hiring more staff, buying more equipment, etc. Another concern is investments. I understand that it is not possible to invest funds in order to ensure the sustainability of the company, as 75% of the funds have to be allocated to the company itself.

A trading trust allows you to do everything mentioned above. Yes, there are strict rules, but this ensures tranceparency. When the rules and regulations are a problem, AND THIS IS NOT, then there could be questions regarding the motives of starting an NPO.

I still need to know what the paperwork are for the MASTER OF THE HIGH COURT to establish a trading trust.

**Dave A** · 09-Apr-09, 08:03 AM

That makes more sense now, thanks.

Originally Posted by cjl123

NOW, a section 21 non-profit company is obliged to assign 75% of its income to the company itself, and not to its staff or BOD. 25% is used to settle overheads. The 75% may not be used to settle any sort of seed funding, only to improve the company itself either by expanding the area of operation, hiring more staff, buying more equipment, etc. Another concern is investments. I understand that it is not possible to invest funds in order to ensure the sustainability of the company, as 75% of the funds have to be allocated to the company itself.

The line between admin costs and operational costs can be quite fuzzy.