By Rupin Chopra and Apalka Bareja
More and more people are connecting to the NGO’s and social sector work to voice their opinion, create awareness and support causes that are often less talked about or ignored. Non-Governmental Organization (NGO) are typically independent of government and voluntarily operated by citizens to take initiatives in the field of education, environment, human rights and public policy, etc. However, are often funded and supported by government as well as many international organisations. The aim of NGOs is to support the underprivileged section of the society and give back to the community to bring about a change in the society.
Indians who have a growing entrepreneurial spirit and a drive to fight against social inequality are the reason for a significant growth of NGOs. Rather than being cogs in a wheel in corporate firms they want to explore their entrepreneurial side in social sector where people find more meaning. With more and more wealth being generated in the country there are a lot more funds available for the non-profits. As wealth increases, the need for charity increases.
NGO Incorporation in India
Getting an NGO incorporated gives it a separate legal entity in the eyes of law and makes it more credible.
In India an NGO can get itself registered under three laws;
- Trust registration, regulated under The Indian trusts Act, 1882
- Society registration supervised under Societies Registration Act, 1860
- Section 8 Company registration governed under Companies Act, 2013
A number of factors play a vital role in selecting the type of NGO model. The vision of the NGO, the scale of its operations, structure of the organization, for instance, if the contributors are and actual management are different then Section 8 Company is a better option and the compliance requirements to be followed under different Act are taken into account before incorporating an NGO under any act.
Societies Registration Act, 1860
Under Societies Registration Act, 1860 a society is formed for the promotion of non-commercial activities in the field of science, arts, commerce, etc. in order to get an NGO incorporated under this act all the relevant documents are to be submitted with the Registrar of the Societies of the State Government. After evaluation of the documents Certificate of Incorporation is issued along with an NGO Registration Number.
The Indian Trusts Act, 1882
Under The Indian trusts Act, 1882 trusts are divided into private and public limited trusts. Private limited trusts are for the benefit of family members and closed ones. Public limited trusts are for the benefit of the public at large established for religious, charitable or educational purpose. To incorporate under this act an NGO must provide with two trustees and a clear definition of who is going to be the beneficiary. Memorandum of Association (MOA) must be drafted with relevant by-laws. A proper trust deed must be executed on a stamp paper and registered with Local Registrar of the area in which the registered office of the NGO is located.
Section 8 Company Registration
A company can be registered as a private limited company under Section 8 of the Companies Act,2013. However, their aim cannot be profit making. A company who has in its objects to promote education, arts, science, environment, craft, etc. These companies cannot declare any dividend and all the revenues earned by the company have to be reinvested for its development.
For an NGO registration in India there must be two directors. For a private limited company minimum of two members are required. However, there is no so limit for a public limited company. Moreover, there is no requirement of minimum paid up capital while registering an Ngo under Companies Act,2013.
Important Forms for Registration of NGO under Companies Act, 2013
- Form INC – 1
This form is filed for reservation of proposed company’s name. The name must not be similar to already existing companies. To avoid similarity search facility available on MCA portal can be used. Names can be given in order of preference.
- Form INC-12
This formed is for the grant of a license to incorporate as a company. It is filed along with the Memorandum of association and Articles of Association (MOA and AOA). MOA is to be filed in a prescribed format as per Form INC 13. The MOA and AOA is to be signed by each subscriber in the presence of at least one witness along with their name, address, description, and occupation.
Form INC 12 is filed with the following attachments :
- 1. Memorandum of Association (INC 13)
- 2. Articles of Association
- 3. INC-15 to declare by each subscriber that MOA and AOA have been drawn up in conformity with the provisions of Section 8.
- 4. Estimated statement of Income & Expenditure for the next three years
- 5. List of proposed Promoters and Directors of the Company
- Form INC 7
INC 7 is the application for the incorporation of the company. The following documents must be attached along with Form INC 7:
- 1. Memorandum and articles of the company duly signed by all the subscribers
- 2. Form INC 9 to be filed as an affidavit by each subscribers and first directors that they are not guilty of any offence or misfeasance.
- 3. Form INC 8 with the declaration that Declaration all the requirements of the Companies Act have complied with office’s address of correspondence till registered office is fixed.
- 4. All the subscribers to MOA and first directors must furnish their Address and Identity proofs
- Form INC 22
This form is filed for the situation of the registered office of the company. It can be filed with Form INC 7 or within 30 days from the incorporation of the company.
- Form DIR 12
This form is for the appointment of the directors of the company to be filed within 30 days from the date of the appointment of the directors.
Procedure for Registration of NGO
1.Application of DSC & DPIN :
The partners must apply for the Digital signature and Designated Partner Identification Number (DPIN). A digital signature is an online signature used for filing which guarantees that the contents of a message have not been altered on their way and DPIN refers to the Directors PIN issued by Ministry of Corporate Affairs (MCA)
2.Name approval :
Name with which the NGO is to be known must be provided to MCA with three choice out of which one will be selected. The name must be unique, not similar to other companies and should be suggestive of the company business.
3. Approval of other authorities :
An approval is to be furnished regarding the work to be done by the NGO to the Registrar of Companies from any regulatory body or Ministry under the Centre or State government.
Obtaining Section 8 Company License:
Section 8 company license is to be applied for from the MCA. It is to be filed after the company’s name is approved. A notice is published in the newspaper for any objections from the public. The Registrar has discretionary power to grant the license with or without conditions.
5. MOA & AOA submission :
MOA and AOA must be drafted once the license is obtained. The object as outlined in the draft must be for charitable purpose. Both the drafts are to be submitted with the MCA with the statement of subscription.
6. Get Section 8 Company incorporation certificate :
After two-three weeks the certificate of incorporation is issued to form a Section 8 company. The certificate gives a legal authority to the company and is a proof that it exists. Along with the certificate, Company Incorporation Number (CIN) is issued. The registrar might wait for 30 days for any objection by the public against the registration of the NGO and may also consult any other regulatory body. Then the Registrar at its discretion may grant the license with or without conditions.
7. Apply for PAN, TAN, and Bank account :
At last the company needs to apply for a Permanent Account Number (PAN) and Tax Deduction Account Number (TAN). Once the PAN and TAN are issued the company can submit them with MOA, AOA with the bank for online filing or bank account. .
Why should an NGO be incorporated under Companies Act, 2013?
There are a number of benefits which an NGO incorporated under Companies Act, 2013 enjoys.
- The NGO can avail various tax benefits and deductions and the money saved on taxes can be invested in future projects of the NGO for the betterment of society.
- NGOs get exemption from tax duty under Income Tax Act 2013 when incorporated under Companies Act,2013.
- Under the Act the companies need a minimum share capital to form a company and function. However, NGOs are directly funded with donations made to them and such they do not need to have a higher share capital.
- NGOs under the Income Tax Return Act of 1961 can transfer their ownership or interests claims when registered under Companies Act, 2013. However, the same benefit is not provided to other companies.
All these benefits help NGOs to function smoothly, increase their productivity and invest the taxes saved in fulfilling their motto.
NGOs have played an important role in helping the needy and distressed and raising the standard of living and elevating the socio-economic status of many Indians. Anyone who wishes to work for the welfare of the society without anticipating any profit will not find it difficult to set up an NGO in India. Moreover, the process of registration of NGO is an uncomplicated process provided complete documents are available as legally required. The running of an NGO is as simple as running a company. One has to be fully committed and motivated to work in social sector and ensure full transparency in the operations of the organisation in order to uplift the weaker and under-represented sections of the society.