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NGO Incorporation

About This Plan

Non-Governmental Organizations were originated from Article 71 of the United Nations Act in 1945.
An NGO can be any kind of an organization provided that it is independent of government influence and is not-for-profit.
 

In the Indian economic system, an NGO structure has been fairly divided into three different categories namely: Trusts, Societies & Section 8 Companies.


Salient features of all three categories have been mentioned below:
 

TRUST

  1. Governed by the Indian Trust Act, 1982 except for the states Gujrat & Maharashtra; A Trust can be incorporated in India by any person, AOP, HUF, Company, etc provided there are at least 2 persons who can lay the foundation of trust by signing a Trust Deed.
     
  2. Trusts in India are incorporated into 2 sub-categories namely:
    • A Private Trust, which is created for a closed group i.e, its beneficiaries can be identified. Eg: A trust created for the relatives, friends, sister concerns of the author.
       
    • A Public Trust, which is created for a large group, i.e. for the general public wherein individual beneficiaries cannot be ascertained in specific.
       
  3. A trust can simply be incorporated by registering the Trust deed with the Jurisdictional registrar and is valid to operate PAN India.
     
  4. What makes a Trust different from a society and a section 8 company? 
    A trust is an agreement between parties, whereby one party holds the ownership of a property for the benefit of another party, and the legal title of the property vests in hands of the Trustees.
     

SOCIETY

  1. Governed by The Societies Registration Act, 1860 uniformly across India. A society can be incorporated by several individuals having a mutual will to participate, govern, and control an entity for a communal purpose such as the development of fine arts, science, or literature or for other charitable purposes.
     
  2. Minimum 7 members are required to Incorporate and run a society.
     
  3. Any Individual, AOP, HUF, or company, other registered societies, as well as foreigners can register for the Memorandum of association of the society and become its members.
     
  4. A society in India can be either unregistered or registered. However, only the registered societies will be able to withstand consigned properties and/or have an ensemble filed against or by the society.
     
  5. Society registration is maintained by state governments. Hence, the application for society registration must be made with the Registrar or Deputy Registrar of Societies of the state where the registered office of the society is situated.
     
  6. What makes a Society different from a Trust and a section 8 company?
    A society is a collection of persons, who come together for initiating any literary, scientific, or charitable purpose, and the legal title of the properties of society vests in the name of the society only.

SECTION 8 COMPANY

  1. Governed by the Companies Act, 2013, a Section 8 company can be Incorporated for the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other object.
     
  2. If the proposed Section 8 Company has been registered as a private limited then a minimum of 2 directors are required. But if it is a “public limited Section 8 Company” then a minimum of 3 directors shall be appointed.
     
  3. A Section 8 Company can be registered with MCA following a normal company incorporation procedure wherein basic KYC documents are filled along with Memorandum & Articles of association.
     
  4. What makes a Section 8 Company different from a Trust and a society?
    As per the Companies Act, 2013, A Section 8 company can purse the above objects subject to the condition that it “intends to apply its profits, if any, or other income in promoting its objects” and “intends to prohibit the payment of any dividend to its members”.  
    In simple words, a section 8 company can get involved in commercial transactions to promote its charitable activities; Provided the proceeds/ profits made from such commercial transactions are used for the furtherance of its charitable activities only.
    Dividends or any other transactions that may benefit the shareholders/ directors are prohibited.

 

How can SSI help, if you want to register a Trust/ Society/ Section 8 Company?

A team of experts at SSI first understands the scope of activities that you want to carry out in your NGO, and then on the basis of a diligent conclusion suggests you the correct organizational structure amongst Trust, society or a section 8 company.
 

For example: If a group of individuals wants to set-up an online store for selling the merchandise of dogs to the general public; and in turn aim to use the profits earned, in such commercial selling, for the welfare of stray dogs only. Then the correct organizational structure is Incorporation of a Section 8 Company.
However, if a company/HUF/AOP/LLP wants to constitute an entity for the welfare of surrounding areas and upkeep of shelter homes, and aim to do so without getting involved in any other commercial activity be related or unrelated to their core business; Then the correct organizational structure is Incorporation of a Trust.
Similarly, if a group of authors want to constitute an entity for teaching underprivileged children, distribution of books, organizing public plays and shows to spread awareness on the importance of education in rural areas with the help of several volunteers, and aim to do so for a longer period of time, under a brand name; Then the correct organizational structure is Incorporation of a Society.
 

How It's Done

  • Assessment of the organisational structure that suits your scope of activities

  • Finalization of Name and checking the availability of it

  • Registering/ Filing the Deed/ application with MCA/ Registrar, as applicable

  • Receipt of Authorized Deed/ Registration certificate

  • Application for PAN, TAN

  • Application for 80G, 12A wherever applicable

Information Guide

Documents required for Incorporation:

 

For Trusts:

  1. PAN Card of all the Trustees of the proposed Trust

  2. Identity Proof of all the Trustees of the proposed Trust

  3. Residence Proof of all the Trustees of the proposed Trust

  4. Passport size photographs of all the Trustees of the proposed Trust

  5. Trust Deed on a Stamp Paper

  6. NOC from the owner of the premise where Trust is to be registered

For Societies:

  1. PAN Card of all the members of the proposed society

  2. Residence Proof of all the members of the proposed society

  3. A covering letter mentioning the objective or the purpose for which the society is being incorporated

  4. Memorandum of Association of the society

  5. Rules & Regulations of the Society

  6. Governing rules and regulations of the society and the maintenance of day to day activities

 

For Section 8 Companies:

  1. Registered office proof for the Company along with NOC from the owner allowing the use of it as a registered office

  2. Recent 2-month utility bill for the registered address showing the same ownership as on the NOC.

  3. DSC of the proposed directors and shareholders

  4. Address Proof of the proposed Directors

  5. Identity Proof of the proposed Directors

  6. PAN of the proposed Directors

FAQs

Can a LLP/ Partnership firm be converted in to a Section 8 Company?
Yes,

Section 8(1) of the Companies Act, 2013 allows persons or associations of persons to be registered as a Section 8 Company on the fulfilment of certain conditions and procedures as prescribed therein.

Accordingly, a Limited Liability Partnership/ Partnership firm is a person.
Therefore, eligible to be registered/ converted to a Section 8 Company.
What are the projects/ schemes eligible for notification under 35AC?
a) Construction and maintenance of drinking water projects in rural areas and in urban slums, including
installation of pump-sets, digging of wells, tube wells and laying of pipes for supply of drinking water.

b) Construction of dwelling units for the economically weaker sections.

c) Construction of school buildings primarily for children belonging to the economically weaker sections of the society.

d) Establishment and running of non-conventional and renewable sources of energy systems.

e) Construction and maintenance of bridges, public highways and other roads.

f) Any other programme for the upliftment of the rural poor or the urban slum dwellers, as the National Committee may consider fit for support, like Promotion of sports, Pollution control etc.

g) Establishment and running of educational institutions in rural areas, exclusively for women and children up to 12 years of age;

h) Establishment and running of hospitals and medical facilities in rural areas, exclusively for women and children up to 12 years of age;

I) Establishment and running of crèches and school for the children of workers employed in factories or at building sites;

j) Encouraging the production of bacteria-induced fertilizers;

k) Any programme that promotes road safety, prevention of accidents and traffic awareness;

l) Construction of hostel accommodation for women or handicapped individuals or individuals who are of the age of sixty-five years or more;

m) Establishment and running of institutions for vocational education and training in rural areas or towns which consist of a population of fewer than 5 lakhs.

n) Establishment and running of institutions imparting education in the field of engineering and medicine in rural areas or towns which consist of a population of fewer than 5 lakhs.

o) Plantation of softwood on degraded non-forest land.

p) Any programme of conservation of natural resources or of a forestation.
What all activities are included in the heading "Charitable Activities"?
Charitable Activities as per the Income Tax Act, 1961 includes
(a) relief of the poor
(b) education
(c) medical relief
(d) preservation of the environment
(including watersheds, forests and wildlife)
(e) preservation of monuments or places or objects of artistic or historic interest, and
(f) advancement of any other object of general public utility
(as distinguished from the benefit of individuals or narrowly defined interest groups)
What all receipts are considered as Income for a charitable institution?
In the case of a charitable trust or an institution, donations received are included in income.
All these amounts will, in the first instance, be included in the income of the charitable trust or institution, and, thereafter, the exemption can be claimed subject to fulfilment of prescribed conditions
Are Trusts/ Societies/ Section 8 Companies entitled to claim tax exemption?
Yes,

Income Tax exemption is available to public charitable trusts, universities or other educational institutions, hospitals or other institutions for treatment of persons, research associations, a company formed under Section 8 of the Companies Act, 2013.

However, the Grant of exemption in each case is subject to fulfilment of specified conditions respectively.
What are the mandatory rules to be followed while deciding a name of Section 8 Company?
It is mandatory for a Section 8 company to include words like

a) Foundation
b) Forum
c) Association
d) Federation, etc in its name.
What is the procedure for an NGO to apply for registration under 12A of Income Tax Act, 1961?
For registration under 12A;

An application has to be made by an NGO to the Director of Exemption, Income Tax in the prescribed form (10A).

Documents required for making the aforesaid application are:

a) MOA/ AOA of the Section 8 Company /Trust Deed /Society Registration Certificate.

b) Rent Agreement/ NOC from the premises owner allowing the use of such address as registered office of the NGO

c) PAN card of NGO

d) Visual & Documented Evidence of welfare activities carried out since incorporation of the NGO

e) Balance Sheet & Income Tax returns, since incorporation or last 3 years, whichever period is more.

f) List of existing donors along with their KYC documents

g) List of Governing Body/ Board of Trustees /Board of Directors & their KYC documents

The Income Tax Department on being satisfied with the charitable nature of the NGO will grant or deny registration u/s 12A of the Act.

The registration so granted is valid for an indefinite period until unless it is revoked by the Issuing Authority.
Can co-operative societies, HUFs, LLPs, companies can be shareholders of a Section 8 Company?
As per section 8, any person or an association of persons intending to register a limited liability company for objects specified in section 8(1)(a), subject to the restrictions provided in section 8(1)(b) and (c), can opt to apply for registration of Section 8 Company.

“Person” has not been defined in the Companies Act, 2013.

However, Section 2(41) of the General Clauses Act, 1897 provides that “person” shall include any company or association or body of individuals, whether incorporated or not. Section 11 of the Indian Contract Act, 1872 provides that every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is sound mind and is not disqualified from contracting by any law to which he is subject.

Therefore a Co-operative society, HUFs, LLPs, companies can be regarded as a Person and are eligible to become a subscriber/ shareholder of a Section 8 Company.
What is Section 35AC of the Income Tax Act, 1961 and how can a NGO be notified under the said?
Section 35AC of the Income Tax Act, 1961 grants tax benefit to both the donor and the donee.
The NGOs notified u/s 35AC of the Act are eligible for 100% tax exemption on its income u/s 10(21) of the Act, and simultaneously the donee also receives 100% rebate of Income Tax on the donated amount to a 35AC notified NGO.

How can an NGO apply to be notified under 35AC?

Central Government has constituted a National Committee to identify projects and schemes to be notified under section 35AC.
All NGOs are eligible to apply to the National Committee to get their projects/ schemes approved.
The application for approval can be made to the Secretary, National Committee for Promotion of Social & Economic Welfare, Dept. of Revenue, Govt. of India along with necessary prescribed documents.

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