NGO (Non-Government Organisation) is an organization that works for non-profit/ charitable purposes. An NGO established as Section 8 company under the Companies Act, 2013 (‘Act’) is governed by the Ministry of Corporate Affairs (‘MCA’) whereas the NGO registered as a trust or society is governed by the registrar of state under the State Government.
Section 8 company registration has more benefits in comparison to trust and society. This type of company has more credibility among government departments, donors, and other stakeholders. In this article, we will explain how to register as an NGO in the form of Section 8 Company, under the Companies Act, 2013.
Laws in India applicable to an NGO
- Trust under Indian Trusts Act, 1882
- Society under Societies Registration Act, 1860
- Section 8 of Companies Act, 2013
Section 8 Company Benefits
There are many advantages of registering an NGO under Section 8 of the Companies Act, 2013, which are as follows:
No minimum capital: There is no minimum capital requirement for a Section 8 company incorporation and the capital structure of Section 8 can be altered at any time as per the growth requirement of the company. Thus, the funds required for carrying the business operations can be brought in later, through donations and subscriptions from members and the general public.
Tax Benefits: The Company Auditor’s Report Order (CARO) does not apply to the Section 8 company. A Section 8 company enjoys tax benefits under 80G of the Income Tax Act, 1961.
No Stamp Duty: There is no stamp duty imposed for Section 8 company incorporation in India. The Section 8 company need not pay the stamp duty imposed on the Memorandum of Association (MOA) or Articles of Association (AOA) of a private or public limited company.
Separate Legal Identity: Section 8 Company registration acquires a distinct legal identity from its members. A registered partnership firm can also become a member in its individual capacity and obtain Directorship of Section 8 company. It has perpetual existence and thus, the entry or exit of any member will not affect the operation of the Section 8 company.
Limited liability: The members of the Section 8 company have limited liability as per their share subscribed. They are not personally liable for the losses of the company.
Credibility: Section 8 companies are more credible and reliable than any other form of a charitable organisation. It is regulated under the provisions of the Act, thus they need to have mandatory audits every year and the Memorandum of Association cannot be altered relating to the non-profits objectives of the company.
Exemption to the donors: The tax exemption is granted to the donations received by the section 8 company under Section 12A and 80G of the Income Tax Act, 1961.
Section 8 Company Incorporation Requirement
Directors – A minimum of two directors is required if the Section 8 company is to be incorporated as a private limited company, and a minimum of three directors in case of incorporation as a public limited company. The maximum number of members is 200 in the case of a private limited company, whereas for a public limited company, there is no such limit.
Capital Requirement and Name- There is no requirement of minimum paid-up capital in the case of a Section 8 company incorporation. NGOs established as a Section 8 company need not use the words ‘Limited’ or ‘Private Limited’ in their name.
Charitable Objects– Section 8 companies are incorporated with non-profit objectives. The MOA and AOA must mention the non-profit objective or purpose for which it is established. Any profits earned by the section 8 company is utilised for the furtherance of its main objectives, i.e. charitable purposes or reinvested in the company. The profits will not be distributed among its members.
Management- Section 8 company is managed by the Board of Directors as per the MOA and AOA of the company, unlike other trusts that are managed by the Trustees as per the Trust Deed.
Regulation under Various Acts- A Section 8 company needs to follow the rules and regulations prescribed under the Companies Act, 2013. It needs to maintain books of account, and file returns with the Registrar of Companies. Section 8 company cannot make any changes to the provisions of MoA and AoA without the prior approval of the Central Government. It also needs to follow the provisions of the Income Tax Act and GST Law.
Section 8 Company Registration Eligibility
- An Individual, HUF is eligible to start a Section 8 company in India.
- Two or more persons who will act as Directors or shareholders should fulfil all the compliances and requirements of the Section 8 company incorporation under the Act.
- There must be at least one director who should be a resident of India in the Section 8 company.
- The objective must be one or more of the following – promotion of sports, social welfare, the advancement of science and art, education and financial assistance to lower-income groups.
- Founders, directors, members directors of the company cannot draw any remuneration in any form of cash or kind.
- No profit should be distributed among the members and directors of the company directly or indirectly.
NGO registration process for a Society
- Choosing a name for Society- While selecting a name for the Society, it is essential to keep in mind that as per the Societies Act, 1860, the name should be unique and non-identical. Further, the name proposed by the applicant must not suggest patronage of the Government of India or any State Government or attract the provisions of Emblem and Names Act, 1950.
- Preparing the Memorandum of a Society- While registering the society, an applicant shall prepare the Memorandum of Society. The Memorandum of the Society along with the Rules and Regulations of the Society must then be signed by each of the founding members, witnessed by:
- An Oath Commissioner;
- Notary Public;
- Gazetted Officer;
- Advocate;
- Chartered Accountant; or
- Magistrate 1st Class with their official stamp and complete address.
- Prepare documents- An applicant shall prepare the below-mentioned documents required for Society registration. The documents shall be duly signed.
- Name of the society
- Address proof of the working space
- Identity proof of all the members
- 2 copies of the Memorandum of Association and by-laws of the Society
- Filing of application- An applicant shall file the signed Memorandum and Rules and Regulations with the concerned Registrar of Societies in the State with the prescribed fee.
- Get Society certification- Once the documents are submitted and the Registrar is satisfied with application for Society Registration, they would certify to deem the Society to be registered.
Benefits of registering as a Society
Exemption from income tax: Society registration is a kind of NGO registration where the firm is saved from paying income taxes.
Separate legal identity: An NGO is a separate legal entity in the eyes of the law. A separate legal entity is a The entity has its own legal rights and obligations, separate to those running and/or owning the entity.
Limited liability: Since the Society is a separate legal entity from its members, the liability of its members is limited to their share only. This means that under no circumstances can the members’ assets be utilized to pay the organization’s liabilities. Also, each member of the Society is accountable for their own individual actions only. In other words, members of a Society are responsible only for the activity undertaken by them and not by other members.
Legal protection: You will be provided with legal protection once you have registered your society under the Society Registration Act, 1860. It indicates that no other company or persons can use your organization’s name, your assets, etc.; they will be subject to punishment if found liable for any violation.
NGO registration procedure for a Trust
The procedure for Trust registration involves the below steps:
- Select an appropriate name
- Drafting of Trust deed
- Selecting settlers and trustees of the Trust
- Preparing Memorandum of Association
- Paying the requisite fees
- Collection of a copy of Trust deed
- Submission of the Trust deed with the Registrar
- Obtain the registration certificate
Benefits of registering as a Trust
- Trusts can get land from the government
- There is no federal law that governs public charitable trusts in India. However, it is important to note that some Indian states, such as Madhya Pradesh, Maharashtra, Gujarat, and Rajasthan do have a Public Trusts Act.
- An NGO registered under the Trusts Act can bring into practice the word “Govt. Regd.” or ‘Regd.’
- Avail tax benefits.
- 80G certificate advantage under the Income Tax Act.
- Trusts can get white capital – money or other assets owned by a person or organization or used for starting a company or investing for building construction.
FAQs
What is organization registration?
Organization registration refers to the legal process of formally establishing an entity, such as a non-profit organization, corporation, trust, or society, with a recognized legal status and structure.
Why is organization registration necessary?
Organization registration is necessary to establish legal recognition, governance structure, and operational legitimacy for an entity. It enables the organization to enter into contracts, own property, and enjoy certain rights and privileges under the law.
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