Last year was like the one described by Charles Dickens in the classic novel, A tale of Two cities: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness”….
• The Springboks won the Rugby World Cup in 2007 but a cantankerous debate about the Springbok vs Protea emblem as a national symbol ensued;
• The ratification of the UN Convention on the Rights of Persons with Disabilities was a milestone in the restoration of the dignity of Persons with Disabilities;
• The reduction of benefits for motor vehicle victims by the amended Road Accident Fund was, unfortunately, short-sighted and unreasonable;
• Hope of a strong democracy was supported by a change of leadership without bloodshed and angry appeals to our highest courts;
• The formation of SADA marked the beginning of the restoration of dignity for Persons with Disabilities;
• The economic downturn affected poverty reduction. Organisations are going to be challenged as funding gets tired and less available.
The economic decline poses a threat to non-government organizations and charity work will be under sever strain. Organisations of persons with disabilities will require new thinking and creativity for raising funds. The old charity campaigns based on pity and emotional appeal strategies will have to be discarded. Organisations must become professional and well managed.
We cannot afford to operate like Mickey Mouse entities.
If we are to continue to attract funding we must stop mediocre management and archaic charity styles and transform ourselves into efficient and effective organisations. There is excellence out there, just look at Epilepsy SA’s in-your-face, high-impact and brilliant advertising campaign using icons and sporting celebrities.
And yet, the status of NGOs and NPOs appears to be weak and old fashioned. The challenging economic downturn needs a drastic response if the Disability sector, and its organizations, are going to survive. My proposed solution is that NGO’s follow a better business model based on a company structure, and register as Section 21 companies.
A Section 21 company is set up for a benevolent purpose such as education, art, charity, sport or culture. It is called “an association incorporated not for gain” and has no share capital. Section 21 companies are prohibited from acquiring profi t for the benefit of members and directors cannot own shares nor make profit as they serve the objectives and causes of their members.
In legalese terms it is said to be “limited by guarantee” which means that directors are liable to creditors, in the event of the company failing financially, according to what they agreed upon in the founding document. They undertake to pay a nominal amount (usually not more than R100) in the event of the company failing or being placed in liquidation. The company is required to pay its creditors before disposing of any assets to a similar company or institution. Donors get the assurance that their donations are not going to be distributed amongst directors when the organization ceases to exist.
Section 21 companies are treated like a public company in terms of Section 19 of the Companies Act because they meet certain requirements.
The Section 21 company:
• Must be formed for lawful purposes.
• Must have the main objective of promoting religion, arts, science, education, charity, recreation, or any other cultural or social activity or community or group interest.
• Must intend to apply its profits or other income to promoting that main objective
• May not pay a dividend to its members; and provides in the memorandum that the income or property of the association, wherever derived, shall be applied solely towards the promotion of its main objective.
• Shall give, or transfer, any remaining assets to an association or institution of similar objectives upon its winding-up or dissolution (after the satisfaction of all liabilities).
With certain exceptions (the principal one being the prohibition against distribution of profits) a Section 21 company has the same wide powers to carry out its main objective and purposes as any other company. These powers include the power to purchase movable and immovable property, to invest company funds in any way, to borrow money, to open and operate banking accounts, and to employ staff.
The downside to this is that the annual reporting requirements for companies are complex and extensive and not always suitable for small, community-based organisations. You will also need professional assistance to set up the company and since professional assistance is costly this is obviously disadvantageous to people with financial constraints.
It is better to choose to be a Section 21 Company if you are already a large organisation with a well developed legal structure as methods of operation will already be similar to those of the business world. The business world is also more likely to trust the corporate governance of a larger Section 21 company.
(In our next issue Jerry will explain some of the technical and legal requirements of a Section 21 Company)