How to change a NPC to a Pty company

You formed a NPC thinking that it would never accumulate profits, but now it sits with Retained Earnings and you can't declare dividends. Can you convert it to a Pty?

The straight answer is No. This conversion is not allowed in terms of the Companies Act of 2008. So what must you do?

There are two issues

  1. How to extract the Retained Earnings and
  2. How to restart as a (Pty) Ltd company

These can be dealt with in the following way -

  1. All Directors and employees of a NPC are entitled to reasonable salaries or earnings. You can’t take out dividends, but you can take out income for services provided, rental of premises, interest on loans etc. You will pay Income Tax on those earnings and, presuming that the NPC was registered as an Exempt Institution at SARS, there will be no tax saving in the company.
  2. Form a new Pty Ltd company and simply do the trade through that company. You may need to keep the NPC alive if it has registrations that are required for that kind of operation. You simply need to decide where to slice its former activities between it and the Pty Ltd company.

So, all though it is technically not possible to convert a NPC to a Pty Ltd company, the above work around has the same effect.

 


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