A discussion on NGOs
NGOs or Non-Governmental Organisations are set up by ordinary citizens coming together for serving, helping or benefitting society or a section of society. They are also referred to as Non-Profit Organisations as the motive is not to earn profit but working for a good cause. NGOs can be set up for a number of purposes, which must be legal. Though, it is not set up by government but government at times supports such NGOs financially by providing funds and by introducing provisions in tax laws to enable and encourage the cause for which they work.
This is a highly diversified organisation with a large range of activities and may take different forms in different parts of the world. In India, we have following forms for making of an NGO:
- Non-Profit Company
Here we shall discuss how forms of NGO come into being and how different is each form from the other.
NGOs as Trust
- Types: A Trust can be Public or Private. While, Private Trusts are governed by Indian Trust Act,1882 (and is subject to the provisions of Indian Succession Act,1925); Public Charitable or Religious Trusts are governed by general law.
Requirements for formation: Following are the general requirements for creating a Trust:
- The author or settler, at whose instance the Trust comes into existence
- A trustee, who holds /administers / manages property or assets of another for the benefit of a third party
- Beneficiaries, for whose benefit the trust is formed (which may be ascertained/ determinable/ public at large)
- Trust Property, which is the subject matter of Trust
- Statement of Objects of Trust
- Trust Deed, defining all relationships, responsibilities, rights, terms and conditions.
- Registration: Only Private Trusts, whose Trust Property is immovable are required, under Indian Trust Act, 1882, to be registered. However, other Trusts are recommended to get themselves registered to claim tax exemption in accordance with the provisions of Income Tax act, 1961.
- Taxation: Income of Private Trusts is liable to Income Tax, while Public Trusts enjoy certain exemptions and benefits. Please See .Taxation of NGOs
NGOs as Society
- Preliminary: The Societies Registration Act, 1860 specifies general requirements, rights, responsibilities and conditions as to the formation of Society in India. However, actual registration requirements vary from State to State in accordance with their respective laws.
Requirement: General requirements related to Formation of Society are:
- A minimum of 7 members
- A proper name
- Memorandum of Association & Rules and Regulations/ By-laws in the specified manner
- Initial members/ subscribers to be member of a Governing Body
- Resolution passed for the registration of Society
- Minutes of aforesaid meeting
- Address proof of location of Society
- Identity and Address proof of all members.
- Registration: The authorized person(s) is/are required to apply to Registrar along with the above documents either through a covering letter or any form, if specified under any state act.
- Taxation: Registered Societies having charitable/ charitable and religious purpose (but not only religious purpose) also enjoy certain exemptions and benefits. Please See Taxation of NGOs
NGOs as Company
- Charging Section: As per Section 8 of Companies Act, 2013, a person or an association of persons may form company with objects of promotion of commerce, art, science, sports, education, research, protection of environment etc. Such company shall apply its income, if any, in promotion of its objects and shall also not pay any dividends to its members.
- A minimum of two trustees (members)
- MOA (in Form INC 13) and AOA of the company
- Declaration in Form INC.14 by an Advocate, CA, CWA or CS in practice that MOA and AOA have been drafted as per provisions of Sec.8 and rules made there under.
- Estimate of future income for next three years along with description of sources of income and objects of the expenditure.
- Declaration by each of the persons in Form INC.15
- Registration with ROC:Such persons or association of persons intending to incorporate company without addition of word ‘limited’ or ‘Private Limited’ shall make application in Form INC.12, along with the prescribed fees and documents stated above, to the RoC for a license under Sec.8(1)
- Taxation: Such Companies enjoy exemptions and benefits in respect of their income. Please See Taxation of NGOs
Choice of form for starting an NGO:
One form differs from the other in respect of ease of formation, flexibility of operation that can be carried, purpose of the NGO etc. Hence, the choice ultimately depends upon the requirements and factors associated with the purpose. Below gives you the fair idea about the conventions followed for making of an NGO:
- Trust: A Trust is basically dependent upon the “Trust Property”, which is the subject matter of Trust. When a person/persons have a Property that can be used for the benefit of certain group of people, then the Trust comes into existence.
- Society: A Society is the prevalent from of NGO that we can find in India. The “objective” is the basic foundation of a Society which can be anything from spreading awareness to opposing hypocrisy or crimes. It performs variety of functions like organising campaigns, approaching authorities for change etc. It is also an easy form in respect of formalities associated with it.
- Company: The basic agenda for forming a Company is its “well organised structure and management”, which may be an important factor for NGOs performing at national or international levels. It also provide a smooth mechanism for keeping up to its objectives as there is proper accountability.
Thus, one need to consider all the factors that contribute in making up of an NGO. Proper Consultation in this regard is recommended with a professional.
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