A brief overview of a Section 21 Company in terms of the 1973 Companies Act

A Section 21 Company is a company limited by guarantee and requires at least 7 (seven) persons associated for a lawful purpose;

– must have at least 2 (two) directors;

– members are not owners / shareholders as no-one owns a Section 21 Company,
it is controlled by the members and managed by the directors;

– does not have a share capital but the liability of its members is limited by the memorandum to the amount which the members undertake to contribute in the event that the company being wound up;

– must comply with the following:

its main object is that of promoting religion, arts, sciences, education, charity, recreation, or any other cultural or social activity or communal or group interests;
it intends to apply its profits (if any) or other income in promoting its main object;
it prohibits the payment of dividends to its members; and
it provides in its memorandum that:
– the income and property of the association whensoever derived shall be applied solely towards the promotion of its main objective, and no portion thereof shall be paid or transferred, directly or indirectly, to the members of the association or to its holding company or subsidiary;

– upon its winding-up, deregistration or dissolution, the remaining assets of the association shall be transferred to some other association or institution having objects similar to its main object, to be deemed by the members of the association or, if they fail to do so, by the court.

There is no annual return fee payable to CIPRO provided that the legal department at CIPRO has been contacted before hand and informed of the fact that the company is not operating for gain.

A Section 21 Company affords no automatic income tax advantages and such company will have to apply to the Commissioner for the South African Revenue Service for exemption on any of the grounds set out in section 10 of the Income Tax Act No 58 of 1962, especially those set out in section 10(1) (e), if applicable.

01 December 2010