NPC Advice: What is a 'unique MOI' and do we need one?

Nicole Copley | NGO Law

Many NPCs which are registered in a hurry or without any understanding of the importance of the Memorandum of Incorporation (MOI) of an NPC are often established with the CIPC standard form MOI as their founding document.

At ngoLAW we only register with a standard CIPC MOI as a short-term emergency measure when the NPC needs to be registered fast and it is felt that there is not sufficient time for the board to engage with the process of drafting a “unique” MOI. (“Unique” is what the Companies Act calls all MOIs which are registered and which are not in one of the standard formats available online at CIPC).

There are sound legal and governance reasons for using a unique MOI:

In terms of the new Companies Act, the registered MOI is always the ruling document (the previous Companies Act was different in this respect). This has made board charters (and-for PTYs- shareholders agreements) much less useful as they cannot override the provisions of the registered MOI. Under the previous Companies Act it was standard practice to use a standard-form Memorandum and Articles of Association and then just adopt a Board Charter or other set of rules which usually began with something like:

“In the case of any contradiction between what is in this document and what is in the registered Memo and Articles, the provisions of this document will apply.”

This is no longer possible or useful, as, in the case of any contradiction, the new Companies Act specifically says that provisions of the registered MOI will apply. So, in the case of any dispute about rules or governance processes, the board may be following the internal governance document to the letter but, if they act in contradiction to what is in the registered MOI, then they will be in breach of the actual rules.

In our view, it is far simpler and safer to have a unique MOI properly drafted to reflect the actual ‘ground rules’ of the NPC, than to be continually referring back and forth or righting a contradiction between the MOI and document adopted by the board.

Where it is felt that a board charter is still useful to articulate details of governance structures or processes which are more fluid and will not be entrenched in the MOI, then the MOI needs to be the constant reference point for the Charter, to be sure that they do not contradict each other.

The standard-form NPC MOIs do not comply with Income Tax Act provisions required to be reflected in the founding documents of tax-exempt organisations. SARS is permitted to and will grant PBO status to an NPC which has a standard form MOI, but (and look at your exempting letter to verify this) the status will be conditional upon the MOI being amended within a certain period (which has, by the time you read this, probably expired. Don’t panic, the exempt status remains in place until SARS tells you otherwise. But you do need a new MOI, and, while you are complying with SARS, we strongly suggest that you have a document crafted which is a useful, readable rule book for governance and which correctly reflects the structures and processes in the organisation.)

The standard form MOI, as the ruling document of the company, is not a useful guide or reference point for governance of an NPC. It jumps back and forth between topics, is hard to comprehend and follow as a whole, and relies on references to sections of the Companies Act, instead of spelling things out plainly. As we have already advised, a plain language, concise but thorough and appropriate, specially crafted MOI will make everything clearer and easier.


 

Nicole Copley | NGO Law

Nicole has consulted to the NGO sector since 1993. She is an admitted attorney (non-practising), has her Masters in the tax exemption laws and is a Master Tax Practitioner. Nicole developed her drafting skills while working as a business lawyer, and she has a pragmatic problem-solving approach to all the work she does. Her depth and breadth of experience over many years and her work with government and a wide range of clients, give her useful perspective and insight. Nicole also lectures and trains on various topics of importance to the NGO sector. She is author of ‘NGO Matters: A practical legal guide to starting up’, and publisher of the series of NGO Matters handbooks. https://ngolawsa.co.za/

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