NGO

Want to Open an NGO? Look at the Forms of NGO Registration

calendar11 Mar, 2024
timeReading Time: 6 Minutes
Forms of NGO

An NGO, Trust, or Charitable Organization is a privately owned or government-affiliated entity that is set up and aims to promote social activities, such as social welfare, women empowerment, employment generation, education for underprivileged children, healthcare, and other charitable purposes, rather than making financial gains. An NGO or Trust can be formed by an individual, group, individuals, community, volunteers, activists, or social workers. NGOs are not funded or controlled by the government and instead have a separate legal status under the various statutory laws. Based on the regulating statute, law or regulatory authority, types of NGO and charitable organizations in India can be subdivided into several categories, such as – Registered Societies, Trusts, Cooperatives, Nidhi Companies, Section 8 Companies, Self-Regulatory Bodies, etc. Various Forms of NGOs can also be formed as charitable trusts in India, which are governed by the Trusts Act of 1882. Trusts are privately held financial entities that are usually meant for the benefit of a particular individual, organization, or cause.

These not-for-profit organizations enjoy several monetary and policy-based benefits provided by the governments and are eligible for tax rebates and concessions on contributions, investments, and donations, making them a lucrative business choice for several entities and big corporations looking to maximize tax planning and avail tax exemption in NGO businesses. 

Things to do before NGO Registration

In order to open an NGO or Non-Profit Organization, the applicant must set out a clear roadmap for the NGO to follow. Before deliberating upon various Forms of NGO, let us look at several key considerations to take care of-

1. Define the Objective of the NGO

You should clearly define the objective and long-term goals of the NGO and ascertain the specific causes and issues that the organization seeks to address and work up in a manner that can be impactful and beneficial to society.

2. Select Legal Structure

Selecting the right business structure for your NGO is very important as it reflects the long-term goals and objectives of the organization. The most commonly used forms of NGO registration are Section 8 companies, charitable trusts, societies, and cooperative societies.

3. Necessary regulatory Approvals

An NGO must seek necessary approvals from the relevant government departments and statutory authorities concerning their line of work. For example, various types of NGOs that enjoy tax exemption from the government are required to make disclosures before the Tax Authorities.

4. Registration of NGO

After constructing a basic structure of the NGO, you must get it registered with the statutory authorities. This involves submitting the charter and incorporation documents of the Ngo, along with details of the members, necessary licenses and permits, and registration fees.

5. Forming a board of Governance

A Board of Directors is necessary for any type of NGO since it provides the necessary leadership guidance required to run the NGO effectively. The board would bring expertise, skills, and knowledge to the organizations and help in crucial decision-making and strategizing courses of action.

6. Develop Funding Strategies

Since an NGO or non-profit organization operates on grants and donations received by the government as well as private individuals, it is crucial to formulate an effective strategy that would help the NGO secure funds and grants both nationally and from international donors.

Forms of NGO Based on Legal Structure

Based on the Legal structure, there are various types of NGOs that can be formed as per applicable laws.

Section 8 Company

Section 8 of the Companies Act 2013 provides for the incorporation of a company for the purpose of promotion of art, science, culture, sports, commerce, religion, or environmental protection. These companies do not have a profit motive and cannot issue dividends to the members. These companies are 100% exempted from paying taxes if their funds are re-utilized for charitable purposes. Apart from that, Section 8 companies enjoy several other benefits, such as corporate structure, better controls, the ability to own property and assets in the company’s name, and easier regulatory and compliance procedures.

Trust

Trusts are privately made and owned entities that are registered and governed by the Trusts Act of 1882. Based on ownership, they can be public or private in nature. Trusts are meant to benefit a particular person or entity and, hence, are a very suitable legal structure for NGO registration. In order to avail tax exemptions, a trust must be registered under sction12A or 80G of the Income Tax Act,1961. Trust can be set up and wound up easily and also has fewer members as compared to companies; therefore, control and management become easier. Further, lesser regulatory compliance requires trust to be the preferred legal structure to open an NGO.

Societies 

Societies are collective bodies made up of individuals, professionals, or people who form for a common cause. Societies are formed and registered as per the Societies Registration Act of 1860. Societies have a committee with a board of directors that oversees the function of the organization. The Societies are exempted from various taxes under sections 80G and 12A of the Income Tax Act of 1961. Societies can be formed with a minimum of 7 people. A Memorandum of Understanding (MOU) is required to be prepared and filed, along with the consent letter of all members of the managing committee, a declaration, and an affidavit by the president of the society. These documents are required to be filed with the Registrar of Societies.

Benefits of NGO Registration under Various Forms

Tax Saving

NGO registration under the Companies Act or Trusts Act enables saving taxes and avails several tax benefits. NGOs are exempted from several taxes and cesses that allow the organizations to utilize the funds of the NGO to utilize in development and welfare projects.

Legal Entity

NGO registration provides legal recognition to the entity. Forms of NGO that are available for registration are LLP, Company, Trust and Societies. NGO registration gives legal recognition and status to the social endeavour and makes an official presence in the eyes of the law, which makes it easier for the entity to avail statutory benefits.

Ease of accepting contributions and donations

Registration under different Forms of NGO makes it easier for the entity to accept contributions and donations from private as well as government institutes. Registration under Different Forms of NGO, such as section 8 companies or LLP, makes it easier for the entity to raise funds or accept donations or contributions from Indian as well as foreign investors. Also, for the purpose of registrations under the Foreign Contribution (Regulation) Act,2010, NGO registration in the form of Section 8 Company, Trust, or Society is preferred by the regulatory authorities.

Perpetual Succession

Perpetual succession implies that the company, trust, or LLP has perpetual succession and does not end or wind up in the event of the death or exit of the trustee/director or members. The legal entity can only cease to exist if it has been formally wound up or closed through the legal procedure.

Difference between various types of NGOs

Forms of NGOCompanyTrustSociety
Governing LawSection 8 Companies are covered by the Companies Act,2013Trusts can be public or private in nature and are governed by the Indian Trusts Act of 1882. There are several state laws for trusts as well.Societies Registration Act, of 1860 governs the setting up and registration of Societies.
Legal StructureTheir purpose is to promote art, science, culture, sports, commerce, religion, or environmental protection. Furthermore, these companies do not have a profit motive and cannot issue dividends to the members.Trusts are privately made and owned entities wherein one party agrees to hold ownership of property or asset for the benefit of some other person.Societies are collective bodies made up of individuals, professionals, or people who form for a common cause or purpose. It can be formed for various other purposes as well.
Minimum Membership RequiredA company can be formed with a minimum of 2 members/shareholders and two directors who can be members in a dual capacity as well.There is a requirement for at least two trustees to be named in the Trust deed to incorporate public trust.In order to incorporate a society, there should be at leasta minimum of 7 members.
Compliance RequirementsThe company is required to file annual records, accounts and minutes of board meetings in requits forms with the Registrar of Companies.There are no mandatory annual compliances required to be filed by a trustThe society must file the name and details of the member of the managing committee tothe Registrar of Societies annually.
Tax exemption and subsidies from the governmentSection 8 companies enjoy tax exemptions as well as subsidies and sizeable benefits from the government.Trusts enjoy tax exemptions under sections 12A and 80G of the Income Tax Act of 1961. Private trusts, however, do not enjoy benefits or subsidies from the governmentTrusts enjoy tax exemptions under sections 12A and 80G of the Income Tax Act of 1961.

Conclusion

There are various forms of NGOs available in India for entities to set up their charitable organizations. Section 8 Company, Trust Society, LLP, and Partnerships are various forms of business structures that can be used to set upan NGO or Not-for-profit organization. Strategizing a correct roadmap for NGO registration involves planning, drafting documents, obtaining regulatory approvals and licenses, applying for 80G and 12A Registration for tax exemption, and annual filings with the Registrar.

We at Corpbiz are a professionally seasoned compliance and incorporation advisory, having vast expertise in setting up NGOs, Companies, Trusts, charitable organizations and welfare funds. With our dedicated and cost-effective services, you can rely on us to make your NGO registration process hassle-free.

Frequently Asked Questions

  1. What is a Non-Government Organization (NGO)?

    An NGO, NPO, or Charitable Organization is a privately owned or government-affiliated entity that is set up and aims to promote social activities, such as social welfare, women empowerment, employment generation, education for underprivileged children, healthcare, and other charitable purposes, rather than making financial gains.

  2. What are the most common forms of NGO in India?

    The most common legal forms of NGOs in India are Section 8 Company, Trust, and Societies.

  3. Can NGOs Avail Tax Exemption under the Income Tax Act?

    Yes, as per Sections 12A and 80G of the Income Tax Act,1961, NGOs can avail of tax exemptions provided the funds and assets of the NGO are utilized for charitable purposes only. Further, registration under sections 80G and 12A is mandatory in order to avail government funding.

  4. What are the governing laws for various Forms of NGOs?

    Section 8 Companies are Governed by the Companies Act of 2013,Trusts are Governed by the Trusts Act of 1882, and societies are governed by the Securities Registration Act of 1860.

  5. What are the benefits of NGO Registration?

    NGO registration enables the entity to save taxes, give legal status to an entity, ensure perpetual succession, make it easier to accept financial contributions and donations and ensure compliance with various regulations.

  6. Are individual owners liable for the liabilities of a Company?

    No, members, shareholders, and directors of the entity are not personally liable for the losses, legal implications, and other liabilities of the company since it is a separate legal entity.

  7. Can a private trust qualify for a section 12A registration for exemption from income tax?

    No, only those trusts that are formed for charitable purposes as defined in the Income Tax Act are eligible to avail tax exemption under sections 11 and 12 and hence qualify for registration under sections 12A and 80G.

  8. What documents are required for NGO registration?

    For Companies and Societies, MOA and AOA are required, whereas, for trust, a Trust Deed is the required charter document of the entity.

  9. Can NGO pursue its activities for Profit Motive as well?

    No, NPOs and Charitable Organizations are only formed for charitable and welfare purposes and are not allowed to undertake activities for profit or monetary purposes.

  10. How can Corpbiz help me in the NGO Registration process?

    Corpbiz can help you select the perfect entity out of the various forms of NGOs available for incorporation. We can help you with documentation, application, and licensing processes as well as strategically selecting the right roadmap to ensure your organization is able to effectively avail statutory benefits entitled to NGOs and charitable organizations.

Read Our Article: 10 Reasons To Register An NGO

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