WHAT DOES IT MEAN TO BE A NON-PROFIT?
The meaning of non-profit organisation is easily discernible from the phrase itself. Otherwise known as non-for-profit, non-business.
A non-profit is a legal entity organised and operated for a collective, public or social benefit, as opposed to an entity that operates as a business aiming to generate a profit for its owners.
The status of ‘non-profit’ is one which is defined legally and not morally, socially or by intuition. Not even by nomenclature. The status of a non profit organisation is acquired, maintained and terminated by the law of the land. The Companies and Allied Matters Act is the enabling framework for the operation of business entities and non-profits in Nigeria. It is the law that guides the registration and administration of companies, businesses and associations. The Companies and Allied Matters Act, 2020 (popularly known as CAMA) was introduced as an executive bill in the National Assembly in December 2019, was passed in record time by the 9th Senate on 10 March 2020 and the House of Representatives on 5 March 2020.
According to a description by Wikipedia, a wide array of organisations are nonprofit, including most political organisations, schools, business associations, churches, social clubs, and consumer cooperatives.
Different jurisdictions have different kinds and classification of companies or corporate bodies. In Nigeria, which is the focal point, apart from the public and private company dichotomy, companies are divided into three:
a. Company Limited by shares
b. Company Limited by Guarantee
c. Unlimited Company
While a and c are not crucial to this article, (b) is the crux of this topic. Some Non-profits and non business entities are classified under companies limited by guarantee. Some others are registered as incorporated trustees. Other not-for-profit organisations, such as unincorporated associations, charitable trusts, cooperatives, friendly societies, political parties, and trade unions also exist in Nigeria. According to an article by Olusola Jegede on Mondaq.com, Companies limited by guarantee are those in which the financial liability of its members (known as guarantors), in the event of it being wound up or insolvent, is limited up to the amount guaranteed to be contributed to the assets of the company, which cannot be less than N100,000. Further describing such companies, Olusola states that they require the consent of the Attorney General of the Federation for registration and are not formed to make profits to be distributed to the members but for the promotion of commerce, art, science, religion, sports, culture, education, research, charity or other similar objects i.e. they do not distribute their profits to their members but rather apply them solely for the promotion of its objects or use them for some other charitable purpose.
This category of companies is suitable for;
. Promotion of commerce, art, science, sports, religion and charitable objects.
· As a subsidiary company set up to render Corporate Social Responsibility obligations for the parent company.
· For need to form an organization with a formal structure holding statutorily AGM’s and keeping accounting records.
It was mentioned earlier in this article that some other non-profit organisations are registered as incorporated trustees, quite especially the low profile ones. An association of persons, which appoints one or more trustees and registers under Part F. of the Companies and Allied Matters Act (CAMA) 2020, is called an association with incorporated trustees.
According to cof.org, there are two forms of associations with incorporated trustees. For the first form, the trustees are appointed by any community of persons bound together by customs, religion, kinship or nationality. For the second form, the trustees are appointed by any person or association of persons established for any religious, educational, literary, scientific, social, development, cultural, sporting, or charitable purpose (CAMA Section 823).
Individuals not qualified to be appointed as trustees include infants, persons of unsound mind, those who have undischarged bankruptcies and persons convicted of any offence involving dishonesty within a period of five years of the proposed appointment (CAMA Section 826).
In our subsequent articles, we’ll be talking deeply about registration and the effect of same.