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Can PBOs buy shares in companies to get dividends?

We are often approached by organisations which are approved by SARS as public benefit organisations (PBOs) which have been invited to participate in, or have themselves put together share ownership structures where the PBO is going to be buying shares in a for-profit company. These are generally to generate an alternate source of revenue for the PBO and sometimes these arrangements are part of a B-BBEE ownership structure, and the PBO, as a Specialised Enterprise with a nice B-BBEE rating, is included partly because they bring that to the table.
The question we are asked is if the PBO can use its funds (saved up or, often, loaned to it) to purchase these shares. Usually there is an anticipation of dividends being declared, generating funding for the work of the non-profit.

To answer these questions, we need first to look at the primary principle around use of funds is in section 30(3)(b)(ii) which states that a PBO is:
“prohibited from directly or indirectly distributing any of its funds to any person (otherwise
than in the course of undertaking any public benefit activity) and is required to utilise its funds solely for the object for which it has been established (my emphasis)


  1. no transaction can be a disguised prohibited distribution; AND
  2. any transaction must be in (ultimate) pursuit of the objects of the organisation.

As long as the directors are happy that the proposed investment serves the object of the NPC, then that test is satisfied.  If it is a ‘neutral’ investment and is entered into because it will generate funds better than your average investment, then it passes the test, as would any fundraising activity. If the share ownership structure is in a company or group of companies which is also pulling in the same direction as the NGO (building schools, creating employment opportunities, providing training etc), then even better to satisfy this test.
Sometimes when we are looking at business-like transactions for PBOs, I have someone pointing to the provisions of part (b) of the definition of ‘public benefit organisation’ which reads:
“ (b) of which the sole or principal object is carrying on one or more public benefit activities, where—
(i) all such activities are carried on in a non- profit manner and with an altruistic or philanthropic intent;
(ii) no such activity is intended to directly or indirectly promote the economic self-interest of any fiduciary or employee of the organisation, otherwise than by way of reasonable remuneration payable to that fiduciary or employee;”
Now, first we need to note that ‘altruistic or philanthropic intent’ is a really fuzzy concept and hard to pin down.
Leaving that to one side, the important thing to note is that the ‘such activities’ in (b)(i) refers to the ‘public benefit activities’ in the previous line, which means that it is only the public benefit activities of the organisation which need to be carried out ‘in a non-profit manner and with altruistic or philanthropic intent’.
This makes room for the organisation to invest for a return, sell goods and services etc, as long as they all circle back to ultimately being in support of the objects of the organisation.
Trading, investing etc is not prohibited. And dividends received by PBOs are exempt from dividends tax in terms of section 64F(1)(c) of the Income Tax Act. 
The Board will need to make certain, before it invests that:

  • The ultimate aim of the investment is to support of the work of the organisation; and
  • The investment is prudent and will not expose the organisation to undue risk (including reputational risk).

Nicole Copley

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.

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