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A2Z of starting a non-profit organization

Before you take the biggest leap of your life, there are few things that you should know.

A2Z of starting a non-profit organization

Wednesday April 26, 2017,

9 min Read

3.1 Million NGOs in India and counting more! The Non-Profit Organizations is a much big sample space than you think. This article is streamlined towards breaking all myths about Non-Profit Organizations and to help you find a solution that you as an entrepreneur always sought for.

A checklist for entrepreneurs planning to start an Non Profit Organization in India like NGO, Trust, Society

A checklist for entrepreneurs planning to start an Non Profit Organization in India like NGO, Trust, Society

In India, you can register a Non-profit organisation in three ways:

1. Trust Registration

2. Society Registration

3. Section 8 Company Registration (NGO)

The type of registration you will need depends on the purpose you want to achieve. So, you should choose a model that suits to your specific purpose.

Please note that Society and Trust registration in India is different from business registration, reason being societies, trusts, and NGOS have charitable objectives. On the other hand, a business works only for profit. Therefore, separate laws govern Society and Trust registration. The only exception is a Section 8 company which is governed by the Companies Act, 2013. These entities receive some special tax exemptions and benefits and these benefits are not available to commercial business set ups.

1. Procedure for Registration of Trust

A trust is a form of interest created in a property. This interest is created by one person for the benefit of another person. The interest in the property relates to its ownership. For instance, a father wants his daughter to enjoy the benefits of his property. Now he can either become a trustee himself and can also appoint his friend as one. Now the trustee will manage the property and look after it. The daughter will be the beneficiary. She will receive all benefits arising from the property.

1.1 Trust Registration

Trust registration procedure in India depends upon the type of trust. There are two types of trust:

• Public trust

• Private trust

Both are governed by separate laws. Registration of Private Trusts takes place under the Indian Trusts Act, 1882. But, there is no separate act for public trusts and they are governed by their respective state laws. These state laws usually appoint a commissioner who administers and carries all trust activities in that state. One example of such state laws is Rajasthan Public Trusts Act, 1959. It appoints a Devasthan Commissioner for administering trust activities in Rajasthan.

1.2 Difference between a Public Trust and Private Trust

• Public trust is formed to benefit the public at large. Private trust is created for the benefit of one or more specific persons.

• Creating a public trust does not call for a formal deed or any other document in respect of immovable property. However, private trusts do require the same.

• Public trusts accept donations from the general public, but private trusts do not.

• Private trusts do not receive the tax benefits that public trusts receive.

1.3 Validity of a Trust

Before proceeding to trust registration, you should know whether your trust is a valid trust. The state public trust laws do not state any essential ingredients of a valid trust. However, the Indian Trusts Act, 1882 which governs private trust states that a valid trust must:

• Have a lawful purpose.

• Be for a beneficiary.

• Contain a property as its subject-matter.

• Such property must be transferable to the beneficiary.

• Be the creation of a person who is competent to contract.

• Have a written and signed document for immovable property.

• Appoint at least two trustees.

• Have one settler.

• Be for an object (religious or charitable).

• Have two witnesses.

1.4 Documents Required for Trust Registration

Following are the list of documents you need for trust registration:

• Trust deed on a stamp paper. The value of stamp paper varies from one state to another.

• Passport size photographs of the settler, the witnesses, and the trustees.

• ID proofs of the settler, the witnesses, and the trustees.

• Proof of registered office. A document such as electricity bill, water bill, or house tax receipt.

1.5 Fees for Trust Registration

Trust registration fee depends upon the value of the property which is the subject-matter of trust. It is 1 % percent of the value of the property.

Please note that you need to pay stamp duty as well as the registration fee for registration of your trust.

1.6 Timeline for Trust Registration

On an average, trust registration takes anywhere between 3-6 months.

2. Procedure for Society Registration

Society registration in India takes place under The Societies Registration Act, 1860. A society is an entity that works for promoting any of the below-mentioned activities or purposes.

• Science

• Art

• Literature

• Education

• Charity

• Public museums

• Libraries

• Creating military orphan funds

2.1 Difference between Society and Trust

Societies work in a manner similar to trusts. That is why these two terms are often used interchangeably. However, both entities are different from each other. The Societies Registration Act, 1860 governs societies in India. On the other hand, private trusts come under the purview of Indian Trust Act, 1882. Apart from the governing acts, here are some more key differences between the two.

• Society needs a minimum of seven members, trust needs two.

• Trusts don't need a separate all-India registration, societies do.

• Voting system governs a society, but one person can control a trust.

• Amendments are easy in case of trusts, not so in the case of societies.

• Trust may be revoked with ease, but it is more difficult in the case of societies.

• A trust can have general objectives, but a society cannot. It needs to have specific objectives.

• It is possible to make a family member the trustee. But, it is usually not possible in case of societies.

• A trust works as per the trust deed. A society works as per its MoA and regulations.

Moreover, the society may have any other purpose if the state law allows it.

2.3 Registering a Society

State governments manage society registration. Therefore, an application for society registration is sent to the appropriate state government. Appropriate state government means the government of state where the registered office of the society is located. To register a society, you need to take the below steps.

• First, agree on a name with the consent of founding members.

• Then prepare a MoA and regulations of the society.

• Next, obtain signatures of founding members on the MoA.

• Finally, get the MoA witnessed by an officer such as an advocate, CA, or notary public.

2.4 Documents for Society Registration

• To complete the registration process smoothly, keep the following documents ready.

• Cover letter that requests society registration. All members must sign this letter.

• MoA of the society. You need three copies of the MoA. One certified copy and two ordinary copies.

• Two copies of Rules and Regulations of the society. Founding members must sign both copies.

• An Affidavit by the president or secretary. It must state the relationship between subscribers.

• Address proof for the registered office.

• No objection certificate from the landlord.

2.5 Timeline for Society Registration

Society registration can take anywhere between 30-60 days.

3. Procedure for Registration of Section 8 Company

A Section 8 company is a company with charitable objects and Section 8 of the Companies Act, 2013 governs its registration. This is why it is known as section 8 company. However, earlier section 25 of the Companies Act, 1956 governed the same. Therefore, it is still commonly known as Section 25 company.

3.1 Who Can Form a Section 8 Company

Anyone who is either:

• A person (including a partnership firm)

• An association of persons

• Any existing company

may form a section 8 company.

3.2 Conditions for a Section 8

A section 8 company should make sure that:

Its aim is to promote a certain cause. This cause relates to:

a. Commerce

b. Art

c. Science,

d. Sports

e. Education

f. Research

g. Social welfare

h. Religion

i. Charity

j. Protection of environment or

k. Any other such object which is like above objects.

l. It uses profits and other incomes only for promoting the above cause.

m. Does not pay a dividend to its members.

If the company fulfills all these conditions, the Central government will issue it the license to carry business. Moreover, along with the license, it will also receive the benefit of not having to add private limited or limited after its name.

3.3 Features of a Section 8 Company

• It gets all the benefits of a limited company.

• But, all the limitations of a limited company also apply to it.

• It cannot make changes to its MOA or AOA without taking government's permission first.

• It can convert into any other form of the company but only if it meets the necessary conditions.

• The central government can cancel its license if it either does not fulfill its aims or fails to meet other necessary conditions.

• It can merge with another company only if the other company has a similar object.

• It does not need any minimum capital.

• There must be at least two directors.

• At least one director must be an Indian resident.

3.4 Documents for Registration of Section 8 Company

Before registering your company as a section 8/section 25 company, keep the below documents and details ready.

• Memorandum of Association in Form INC 13.

• Articles of Association.

• Details of directors as well as promoters.

• A declaration by a professional such as a Chartered Accountant in Form INC 14.

• Declaration by subscribers in form INC 15.

• Application form in Form INC 12.

• A statement which lists the grounds of the application.

• A statement of annual income and expenditure of the company for next 3 years, as well as the sources of income.

• Digital Signature Certificate (DSC) of the director, manager, or the secretary.

• Director Identification Number (DIN) of the directors.

• Proof of address such as electricity bill or phone bill, NOC from the landlord, rent receipts etc.

• Copy of PAN card.

• Passport, in case any of the directors is a foreign national.

• Proof of ownership. However, you will need this only if the director or promoter also owns the business premises.

Moreover, an existing company also needs some extra documents such as:

• Board reports and auditor's reports.

• True copy of the resolution approving its registration as a section 8/section 25 company.

• A statement of its assets as well as liabilities.

• A notice in Form INC 26.

• Approval from the relevant authority.

3.5 Timeline for Registering a Section 8 Company

It usually takes around 20-30 days to register a section 8. But, this time period depends on the government processing time and therefore may vary further because of it.

A detailed blog on this topic is covered on