April 25, 2011

NGO Registration

NGO Registration in India

Non government organization (NGO) can be formed in India by 3 methods, 1. Trust, 2. Society 3. Non-profit Company.
1. Formation of an NGO as a Trust:
A public charitable trust is usually floated when there is property involved, especially in terms of land and building.
Laws: Different states in India have different Trusts Acts in force, which govern the trusts in the state; in the absence of a Trusts Act in any particular state or territory the general principles of the Indian Trusts Act 1882 are applied.
Requirements/Instruments: 1. Formation of a Trust deed. 2. Minimum of two trustees. 3. Application to officials (regional officer or superintendent of the regional office of the charity commissioner or a notary). 4. Affidavit and consent letter. 5.Personal attendance is required, while registration.
Advantages: 1. A trust is the easiest to get started with as the minimum strength required to form a trust is just two—the author and the trustee. And the author could also be the trustee. So, in case to start in a smaller way, where only few people who share same vision or objectives. 2. A trust offers more democracy and transparency than any other form of registration.
Disadvantages: 1. All the trustees are equally empowered and one dissenting partner can be the cause of the trust to become non-productive. 2. A trust is like a partnership—one for all, all for one, so decision making process takes usually longer.

2. Formation of an NGO as a society:
Section 20 of the Societies Registration Act, 1860, states that following societies can be registered under society Act, I,e military orphan funds or societies established at the several presidencies of India, societies established for the promotion of science, literature, or the fine arts, for instruction, the diffusion of useful knowledge, the diffusion of political education, the foundation or maintenance of libraries or reading rooms for general use among the members or open to the public, or public museums and galleries of paintings and other works of art, collection of natural history, mechanical and philosophical inventions, instruments or designs.
Laws: Registered under the Societies Registration Act, 1860.
Requirements/instruments: 1. the main instrument of any society is the memorandum of association and rules and regulations. 2. A Society needs a minimum of seven managing committee members. 3. Consent letters of all the members of the managing committee. 4. An affidavit sworn by the president or secretary. 5.
Procedure: Registration can be done either at the state level (i.e., in the office of the Registrar of Societies) or at the district level (in the office of the District Magistrate or the local office of the Registrar of Societies).
Advantages: 1. society is similar to sole proprietorship—one person makes all the decisions and the work is fast as compared to Trust.

Disadvantages: 1. if a judgment shall be recovered against the person or officer named on behalf of the society, such judgment shall not be put in force against the property or against the body of such person or officer, but against the property of the society. 2. can be formed only for societies prescribed.


3. Formation of an NGO as a Non-profit company:
According to section 25(1)(a) and (b) of the Indian Companies Act, 1956, a section-25 company can be established ‘for promoting commerce, art, science, religion, charity or any other useful object’, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members. Other wise called as section 25 companies.
Law: Indian Companies Act. 1956.
Requirements/instruments: 1. Minimum of three trustees. 2. A declaration by an advocate or a chartered accountant that the memorandum and articles of association 3. memorandum and articles of association 4. A statement showing in detail the assets (with the estimated values thereof) and the liabilities of the association
Advantages: 1. Gets benefit of being a company. 2. Gets a legal character as, An NGO under the Companies Act for all practical purposes is a company, a distinct legal entity and will be sued as such. 3. Easier to bring in professional management.

Disadvantages: 1. Winding up a company is a fairly time consuming and laborious process. 2. The cost of compliance of running a Section 25 is higher than it would be for a trust or society.

Requirement of Special Licensing
In addition to registration, a non-profit engaged in certain activities might also require special license/permission.
1. To open an office and employ people, the NGO should be registered under the Shop and Establishment Act.
2. A place of work in a restricted area (like a tribal area or a border area requires a special permit – the Inner Line Permit – usually issues either by the Ministry of Home Affairs or by the relevant local authority (i.e., district magistrate).

                           Comparison between Trust/Society/Non-Profit Company

Trust
Society
Section-25 Comapny
Statute/Legislation
Relevant State Trust Act or Indian Trusts Act 1882
Societies Registration Act, 1860
Indian Companies Act, 1956
Jurisdiction
Deputy Registrar/Charity commissioner
Registrar of societies (charity commissioner).
Registrar of companies
Registration
As trust
As Society
In Maharashtra, both as a society and as a trust
As a company u/s 25 of the Indian Companies Act.
Registration Document
Trust deed
Memorandum of association and rules and regulations
Memorandum and articles of association. and regulations
Stamp Duty
Trust deed to be executed on non-judicial stamp paper, vary from state to state
No stamp paper required for memorandum of association and rules and regulations.
No stamp paper required for memorandum and articles of association.
Members Required
Minimum – two trustees. No upper limit.
Minimum – seven managing committee members. No upper limit.
Minimum three trustees. No upper limit.
Board of Management
Trustees / Board of Trustees
Governing body or council/managing or executive committee
Board of directors/ Managing committee
Mode of Succession on Board of Management
Appointment or Election
Appointment or Election by members of the general body
Election by members of the general body

General comments:
There are merits and demerits attached to different Acts. It is difficult to pick any one and say that this is the best form to get an NGO registered. It all depends on the requirements of the person or the organization seeking registration.
The fee for registering NGOs is very nominal under all the Acts; it varies from Rs 3 to Rs 50
Traditionally, there have been very few NGOs registered under the Companies Act. It has always been more of a choice between a trust and a society, irrespective of the size of the organization. But the scenario is changing. …
NGOs, registered under any of the Acts, should have an experience of 2 years for receiving foreign aid.

Section 2(15) of the Income Tax Act – Defines ‘charitable purpose’ to include ‘relief of the poor, education, medical relief and the advancement of any other object of general public utility’. A public charitable purpose has to benefit a sufficiently large section of the public as distinguished from specified individuals.

Income Tax exemptions: Whether a trust, society or a non-profit company, the Income Tax Act gives all categories equal treatment, in terms of exempting their income and granting 80G certificates, whereby donors to non-profit organizations may claim a rebate against donations made.

No comments: