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NGO Registration

Section 8 company

A section 8 Company is a company which is incorporated for the promotion of commerce, art, science, education, research, sports, charity, social welfare, religion, protection of environment or any such other object. It intends to apply all its profits, income, or other earnings, in promoting these objects. It pays no income or dividend to its members.

The process and requirements of a Section 8 Company are exactly the same as laid down for a limited company. Including all the rights and obligations that come with such a limited company. The only aspect where they differ is that a Section 8 Company cannot use the words “Section 8” or “Limited” in its name.

The process of registering a Section 8 Company is the same as incorporating an NGO, Trust or Co-operative Society under the Companies Act 2013.An additional requirement is there of seeking a license from the central government under Section 8 of the Companies Act, 2013.

The license, essentially, permits them to delete Private/Public Limited from their name. With this license, the company becomes eligible for certain exemptions from provisions of law and have concessions in the fee.

If the proposed Section 8 Company has been registered as a private limited then a minimum of 2 promoters are required. But if it is a public limited Section 8 Company then a minimum of 7 promoters must be there.

Benefits of Section 8 Company Registration

Being an NPO or Non-profit Organization does not mean that the Company cannot make a profit or income. It only signifies that the Company can earn income but the promoters are not to benefit from those profits. The profits cannot be distributed among the promoters. All incomes must be applied to promoting the object.

Still, certain exemptions and benefits have been provided for NGO or NPO u/s 8 of Companies Act 2013. Numerous Tax exemptions are also there for such companies. Even the donors contributing towards Section 8 Company are eligible to claim the Tax Exemption against these donations.

Advantages are:

Distinct Legal Identity: Section 8 Company has a separate legal entity. Different from its members. Its legal standing is different from its members. The Company has a perpetual existence. Along with having organized operations and greater flexibility.

Zero Stamp Duty: A Section 8 Company is exempt from the requirement of paying stamp duty on the MoA and AoA of the private or public limited company. Which is applicable for registration of other kinds of company structures.

No Minimum Capital Requirement: No minimum capital limit has been mentioned for a Section 8 Company in India and the capital structure may be altered at any stage as per the growth requirements of the company. This implies that it can be formed without any share capital. The funds necessary for carrying the business operations can be brought, later, in the form of donations and/or subscriptions from members and the general public.

Name: Section 8 Company does not need to suffix Limited or Private Limited, next to its legal name. It can be registered with names that have words like Association, Society, Council, Club, Charities, Foundation, Academy, Institute, Organisation, and Federation.

CARO: Requirements of Companies Auditor’s Report Order or CARO do not apply to this type of company.

Tax Benefits: For Section 8 Companies in India, many tax benefits are granted.

Credibility: Section 8 Companies are more reliable than all other forms of charitable organizations. They are governed by the Companies Act and are regulated strictly. Such as the requirement of a mandatory annual audit, or the MOA and AOA cannot be altered at any stage or situation. The rules on managing the profits and losses of the company make these companies trustworthy.

Exemption to the donors: Those donating to a Section 8 Company are eligible for tax exemptions u/s 12A and 80G of the Income Tax Act.

Membership: A registered partnership firm can become a member in its individual capacity and obtain Directorship.

Eligibility to Apply for Section 8 Company

  • An individual or an association of individuals are eligible to be registered as Section 8 Company if it holds below-mentioned intentions or objectives. The objectives have to be confirmed to the satisfaction of the Central Government.
  • When the company intends to promote science, commerce, education, art, sports, research, religion, charity, social welfare, protection of the environment or alike other objectives;
  • When the company holds an intention to invest all the profits (if any) or any other income generated after incorporation in the promotion of such objects only;
  • When the company does not intend to pay any dividend to its members.

Steps in Section 8 Company Registration 

DSC

First, obtain the Digital Signature Certificate (DSC) of all the Directors and Promoters of the Company in case they don’t have the same. To obtain DSC, an Application is made to the certifying authority.

DIN

Obtain the Directors Identification Number (DIN) for all the Directors in the Company.

Name Approval

For name approval, an Application will be filed in Form INC-1 to the Registrar of the Company. Maximum six names can be provided for the name approval by the applicant. An approved name is valid for 60 days. It is required for Section 8 Company to include the words such as foundation, association, forum, council, chambers etc. in accordance with the Company as per incorporation rules 2014.

Draft MOA & AOA

After name approval, the next step is to draft MOA & AOA and now the time comes to file it to ROC in Form INC 12 with other documents for the License under Section 8 of the Companies Act, 2013. The MOA & AOA must be signed by the subscribers of the memorandum.

Application for License

Form INC 12 is filed with the ROC for the issuance of a License to the Section 8 Company under Companies Act, 2013.

With the following attachments:

  • INC 13 (Memorandum of Association).
  • Article of Association.
  • INC 15 (Declaration by subscribers of the MOA).
  • Statement of Income & Expenditure.
  • List of Directors of the Company.
  • Subscriber page of MOA & AOA should be handwritten by subscriber and witness.
  • After approval of the Form, the License is issued in Form INC 16.

Incorporation Application

Incorporation Application is filed in Form INC 7 along with the following attachments:

  • Memorandum of Association.
  • Article of Association.
  • Declaration by professional in Form INC 8.
  • Affidavit by each subscriber of the Memorandum in Form INC 9.
  • Address proof of the subscribers.
  • Identity proof of subscribers.
  • Specimen signature in Form INC 10.
  • PAN card.
  • NOC, if there is any change in the name of Promoters after name approval.
  • Board Resolution authorizing to subscribe to MOA.
  • Any other attachments, if any.

Documents Requirement for the Registration of Section 8 Company

  • Digital Signature Certificate
  • Memorandum of Association
  • Articles of Association
  • Passport Size Photographs
  • Members’ Id Proof such as Aadhar Card, Passport, Voter Id
  • Details of Director (When the Members Are Other Companies/LLPs)
  • Address Evidence
  • Director Identification Number

Annual Compliance

  • Maintenance of Books of Accounts
  • Maintenance of Statutory Registers
  • Convene Statutory Meetings
  • Preparation of Financial Statements
  • Income Tax Returns
  • Financial Statement Returns Filing (AOC-4)
  • Annual Return Filing (MGT-7 -ROC Annual Returns)

Tax compliance

  • A Section 8 company needs to pay corporate tax as recommended by the Income Tax Act. But, certain income can be claimed by it to be excluded while calculating the total income which is taxable to income tax. Following compliances must be filed for claiming an exemption:
  • Section 8 companies needs to be registered under Section 12A of Income Tax Act with the Principal Commissioner by using form 10A
  • It must follow the conditions mentioned under Section 11 to qualify for such exemption
  • The company is required to be approved under Section 80G through Form 10B

Penalty Provisions

In case Company makes any default in complying with the provisions of this section, the Company shall be punishable with the fine which shall not be less than ten lakh rupees but which can be extended to rupees one crore. Moreover, the Directors and Officer in default shall be punishable with the imprisonment for a term which may extend to three years or fine which shall not be less than twenty-five thousand rupees and can be extended to twenty-five lakh rupees or both.

Exemptions under Section 8 companies

  • No need to have minimum paid up share capital and appointment of company secretary is not essential
  • No limit regarding maximum number of Directors
  • No necessity of Independent Director
  • Directorship in Section 8 Company is not considered for the maximum number of Directorship of a Director
  • No need to form Nomination & Remuneration Committee and Stakeholder Relationship Committee

Trust

Public Trust is the most convenient way of starting a non-governmental organization or NGO. A trust functions on the objective of eradication poverty, providing education to the underprivileged and offering medical relief apart from generalized aim of promoting arts, science and literature. It is to be noted that trusts are irrevocable which means they cannot be amended or terminated without the permission of the court.

In India, there are no specific laws to govern the public trust, however, some states like Maharastra and Tamilnadu have their own public trust Act. 

A trust is a fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary. Trusts are established to provide legal protection for the trustor’s assets, to make sure those assets are distributed according to the wishes of the trustor, and to save time, reduce paperwork and, in some cases, avoid or reduce inheritance or estate taxes. In finance, a trust can also be a type of closed end fund built as a public limited company.

Key points

A trust is a fiduciary relationship in which a trustor gives another party, known as the trustee, the right to hold title to property or assets for the benefit of a third party.

While they are generally associated with the idle rich, trusts are highly versatile instruments which can be used for a wide variety of purposes to achieve specific goals.

Trust falls into six broad categories – living or testamentary, funded or unfunded, revocable or irrevocable.

Why to register a trust?

  • As per the Public Trust Act of all states, registration of Trust is mandatory if it involves charitable purpose or when there is a transfer of immovable property in the name of the trust.
  • Only registered trust is eligible for tax exemptions provided under Section 12 A and 80G of the Income Tax Act.
  • Registering a trust adds more credibility to the same as it involves public money in the form of donations.

Trust Compliances

A trust shall after its registration shall do the following

  • Obtain PAN card
  • Book Keeping and Accounts
  • Annual IT filings
  • Shops and Establishment License – in case of employment
  • Professional Tax Registration – if applicable
  • GST Registration – if applicable

Documents requirement for Trust Registration in India

  • Registered Office address Proof ( Own property – Sales Deed/Lease Deed/POA & NOC from Owner)
  • Registered Office address Proof (Rented premises – Rent Agreement with One Utility Bill and NOC from Owner on Rs 10/- stamp paper)
  • Members/Trustee’s ID and Address Proof ( PAN Card Copy with Aadhar/Voter ID/Driving License/Passport)
  • Trust Deed
  • Photograph of all Members
  • Affidavit ( if applicable)
  • List of Body Members with fathers name, detail address, Occupation, Mobile number, Email ID, Signature

Trust Registration Process in India :

  • Decide the name of the Trust 
  • Draft Trust Deed
  • File Application with Documents
  • Pay fee and Stamp duty
  • Registration Certificate

The Major elements of the Trust is summarised below

Author or Settler: One who forms the trust and transfers under irrevocable arrangement the property and its future benefits to the trust.

Trustee: A body of Individuals who undertake the management and safekeeping of Trust and its property.

Beneficiary: People who will benefit from the trust.

Asset or property: of the Trust

Objective: of the Trust

Trust Deed: Defining all relationships, responsibilities, rights, terms and conditions.

Applicability of tax exemption

There is a general notion that trust need not have to pay tax as they work towards the welfare of the public at large. But this is not true. A trust, like any other legal entity, is liable to pay tax. In order to be exempted from tax, trust is required to obtain certification for the said exemptions such as Section 12 A, 80G etc. from the Income Tax authorities.

80G Registration with Income Tax  for a Charitable Trust

Donations made to a Charitable Trust registered under section 80G are permissible for 50% deduction from the taxable income of the donation made for such a person or an organisation making the donation.

e.g. If a Person makes a donation of Rs. 10000 to an organization with 80G registration then the person can avail Rs. 5000 as deduction from his/her taxable income. Which encourages people to make more donation with 80G registered Organisation. 80G is a onetime registration with lifetime validity.

How to Register for 80G

  • The application in form 10G is to be made along with required documents to the Income Tax commissioner who has jurisdiction over such an organization.
  •  Income Tax Officer verify and do inspection before grant. 
  • Trust Deed and Its major Elements
  • A Trust Deed is an essential instrument of a Trust. Though it is non mandatory but desirable as it is enforceable by law. A Trust Deed become must when there is a property involved, so as to provide a prima facie evidence of the existence of the trust  
  • The Trust Deed shall be prepared on a stamp paper whose value should be of certain percentage of the total value of Trust’s property. This percentage varies from state to state, for example, in Delhi this value is 8%.

 12A Registration with Income Tax  for a Charitable Trust 

Section 11 and 12 of the Income- Tax Act 1961 are the most important sections of Income tax for Religious and Charitable trusts. The taxation of trusts formed with the objective of providing relief to the underprivileged, work for environment, general public benefit, religious purpose, etc fall under this section. The section defines what part of Income of such trust is taxable and what is exempt. The Income can be derived from capital gain from the assets of the Trust, its activities, or from donations.

Section 12AA of the new Income Tax act defines how a trust can register under these sections. An application is to be made using form 10A along with relevant documents to the Income Tax Commissioner. This is one time registration and to avail Tax exemption, NGO needs to register under section 12A.

How to Register for 12A:-

  • The application in form 10A is to be made along with required documents to the Income Tax commissioner who has jurisdiction over such an organization.
  • Income Tax Officer verify and do inspection before grant.
  • Trust Deed and Its major Elements
  • A Trust Deed is an essential instrument of a Trust. Though it is non mandatory but desirable as it is enforceable by law. A Trust Deed become must when there is a property involved, so as to provide a prima facie evidence of the existence of the trust  
  • The Trust Deed shall be prepared on a stamp paper whose value should be of certain percentage of the total value of Trust’s property. This percentage varies from state to state, for example, in Delhi this value is 8%.

The elements of that Trust deed which should be present in it are:- 

  • Name and address of the Settler/ Author of the Trust.
  • Names and addresses of the other trustees.
  • Name of the trust.
  • Minimum and maximum number of trustees. Minimum number is two while there is no limit for Maximum. But you must determine the maximum number your Trust can have. All the trustees together collectively govern the trust and are called Board of Trustees.
  • Address of the registered office of the trust.
  • Purpose behind formation of the Trust.
  • Objectives of the trust.
  • Rules and Regulations of the trust.
  • Information about the intended Bank account: which bank and branch you shall open a bank account with.
  • Tenure of the Trustees must be specified in the deed. It is not necessary to involve Electoral process in the appointment of trustees.
  • Board of Trustees can also have various designations for trustees like Chairperson and Managing Trustee.
  • Determine these posts and the responsibilities of each of these in the Trust deed.
  • Though Trustees cannot draw any remuneration from the trust fund but they are eligible to receive compensation for the professional services they provide to the Trust. Determine this in the Trust deed.
  • Date of execution of the Trust Deed.
  • Details of the Trust Fund thus set up by the Settler and the movable immovable property included in the Trust Fund. Also contains information about the sources and activities through which income shall be earned and deposited in the Trust fund.
  • Ways and plan in which the income shall be dispersed among beneficiaries or used in executing programs/ projects for their welfare.
  • In case of any changes in Trust Deed, includes chances of registered office, trustees, objects, a new deed is need to be prepared and register in the Registrar Office within the time limit of such changes taken place.

Society

A society is a group of people involved with each other through persistent relations, or a large social grouping which voluntarily joins together. The Society Registration Act, 1860 regulates and administers the societies. A society is the Non Governmental Organization in India which can be registered on state level or national level for educational, charitable, religious, welfare or for promotion of art, music, culture and many more. In a society at least seven people is required and such person adopt a memorandum of association and bylaws for the functioning of the society. Minimum of seven people must come together with a common purpose of being formed into society. However in the case of national level society, the members must represent seven different states. The process of registering NGO as society differs from state to state.

After the introduction of CSR (Corporate Social Responsibility) provisions in Company Act, 2013 number of societies desirous to get registration has increased with great pace. Society Registration overview is giving on the basis of procedure adopted in Delhi which may slightly vary from State to State.

A not for profit organization can be registered in any of the 3 ways which are as follows

  • As a trust
  • As a society
  • As a non-profit company (Section 8 of the Companies Act, 2013)

Purposes for which the societies can be formed are as follows:

  • For the promotion in the creative field or science, literature and fine arts.
  • To spread instructions, rules and specific knowledge like in the political field
  • For charitable purposes, military relief, or orphanages
  • To set up libraries for reading purposes for the general public, or to set up museums and galleries for keeping paintings of various talented to provide them a platform to exhibit their talent.
  • To set up community halls for various events for the public like weddings and processions. (Section 20 of the Society Registration Act, 1870 includes all these purposes for the incorporation of the society)
  • According to the act in a society there must be a minimum of seven members, and there is no restriction on the maximum number of members a society can have.

Benefits of registering as a society

Usually, the incorporation of society is not so essential, but it is usually recommended that to maintain a separate legal existence it is better to get itself registered or incorporated as it provides many benefits and advantages to the society and moreover it allows the society to maintain an individual existence.

  • One of an essential benefit that is offered is tax benefits
  • Non-profit ventures are eligible for income tax benefits if they are set up for the charitable purposes and satisfy all the requirements of the Income Tax Act,1961.

Some of the more benefits are:

  • An incorporated society can lease, rent, buy and sell property, borrow money and enter contracts in its own name.  No member of the society can have personal rights or interests in any of the assets of the society.
  • An incorporated society will continue as a separate entity even though its membership changes.

List of Documents required for Registration of a Society under the Societies Registration Act, 1860. 

  • Covering request letter addressed to the Registrar of Societies for registration under the Societies Registration Act, 1860.
  • Memorandum of Association (MOA) of the proposed society – 02 Copies 
  • Rules & Regulations of the proposed society – 02 Copies 
  • Affidavit in prescribed format by the President / Secretary / General Secretary on Rs. 10/- Non-Judicial Stamp Paper regarding the relationship between the subscribers (desirous persons) to the Memorandum and that the name of the society will be changed/rescinded if the said name already found registered (this affidavit is required to be attested by an Oath Commissioner, Notary Public with Rs. 5/- Notarial stamp affixed thereon or Magistrate 1st Class) – One Copy in original.
  • NOC-cum-Affidavit in prescribed format by the owner/GPA holder of premises shown as registered office of the proposed Society on Rs. 10/- Non-Judicial Stamp Paper (in original) supported with duly attested Proof of Address i.e., Electricity Bill / Water Bill/ Property House Tax Receipt etc. (in the name of owner/GPA holder) – One copy 
  • Attested copy of documentary proof in the shape of Sale deed / Lease deed / General Power of Attorney in r/o premises shown as registered office of the society. 
  • Residential address proof like the copy of Aadhaar Card/Passport/Voter ID of all desirous persons which may be self attested or attested by a Gazetted Officer/Notary Public/Oath Commissioner. Note:-
  • All the signatures of the desirous persons/subscribers of the Memorandum must be witnessed by an Oath Commissioner, Notary Public (Notarial stamp affixed), Gazetted officer or Magistrate 1st Class with their official rubber stamp. 
  • Signatures of minimum 03 office bearers are required on each and every page of the Memorandum and Rules & Regulations of the Society. 
  • The names of the persons mentioned in the Governing Body of the Memorandum must necessarily be included in the list of desirous persons/subscribers to the Memorandum. In other words the members of the Governing Body cannot be outside from the list of desirous persons/subscribers to the Memorandum. 
  • In case management of or reference to a particular existing places of worship like Mandir, Gurudwara, Masjid, Church or Budh Vihar etc. is involved sufficient documentary proof is required that the society is legally competent for the same. 
  • To have working area as DELHI, minimum 07 (seven) desirous persons should be from Delhi; and to have working area as All INDIA, the desirous persons should be from 07 (seven) different States of India including one from DELHI.

Procedure to incorporate a society :

  • Any seven or more persons associated for any scientific, literary or charitable purposes can apply for registration of society. No limit on a maximum number of persons is prescribed under the Society Registration Act. 
  • People, companies and other registered societies which are not based in India or are in a foreign location can subscribe to the Memorandum of a society in India.
  • Societies can be registered or unregistered. However, only registered Societies can be legally protected and can take advantage of benefit given by the government.
  • Societies which propose to operate on all India bases should have one member each from at least seven states of the Union of India.
  • The Emblems Act, 1950 prohibits the use of any name, emblems, official seal etc. as specified in the Act without previous permission of competent authority. The Societies intending to seek registration are advised to consult this Act also before proposing the name etc. for registration
  • Registration of society is undertaken by a basic document of Memorandum of understanding and Articles of Association with the specified rules and regulations. Such document consists of Name, occupation and address of all members and with the rights, power, duties and responsibilities of each member of the governing body.
  • The Memorandum of Association must mention the following items:
  • Name of the society
  • Address of the registered officer
  • Name, addresses, designations, and occupations of the members of the society.
  • Objective of the society.
  • Societies are registered by the association of at least 7 members. Each designated person will be elected by-election for 3 years at once or as specified by the society document.
  • The objects and rules of the society are formed as per the Societies Act, and one shall contact the society of registrar to have more details towards the creation of bye-law (Memorandum of understanding and articles of association). Also, one can ask the Auditor, Chartered Accountant, Lawyers, Attorney to help in the bye-law creation.
  • No stamp paper is required for society registration. The governing body manages the society. As per the Societies Act, the Governing body meeting and Annual general meeting should be conducted. Even a foreigner can be a member of a society in India.
  • The purpose and object of the society shall be literary, scientific or charitable purpose.

After registration of society, one shall apply for PAN Card if required. each year the Accounts have to be submitted to the registrar of societies. Will fully providing false information or return or refusing or neglecting to send audited income and expenditure statement and information are offenses which can lead to fines or penalties. It should be noted that name of our society should not be kept identical to any other society’s name according to the Society Registration Act.

Rules and regulations of the society : The rules and regulations once more ought to address the subsequent questions:

  • How is membership and subscription to be obtained to the society?
  • What rules and laws govern the society and its members?
  • Are conferences to be organized (their frequency, line of work for the meeting and then on)?
  • How can the committee or administration be formed?
  • When can auditors be appointed?
  • How can legal matters be settled?
  • What are the explanations for dissolution?

The rules and laws, once developed, ought to be signed and licensed by 3 office bearers of the society (usually the Chairman, President and Vice-president or secretary and also the president, as applicable).

Both these documents should then be signed by every of the foundation members, witnessed by a notary public or accountant with their official stamp and address.

Mandatory Compliance’s after Registration

A common problem has been observed after Society registration, is that, they does not follow the mandatory compliance’s after registrations, which may attract penalty to Society and its members along with Society registration may liable to cancellation. Every society has to work within the framework mentioned in MOA and rules/ regulation as described at time of Registration. Some of common non compliances are as follows:

  • Non Conduct of Board Meetings & General Meetings
  • Non Maintenance of Accounts Records
  • Non Audit of Books of Accounts on Annual Basis
  • No records of Minutes, if Board Meeting/ General Meetings Held
  • Using of Society fund for Personal Use
  • Non Intimation of Governing Body List on Annual Basis/ Change of Governing Body to Registrar of Societies
  • Non Filing of ITR (Income Tax Return)

In above points, I have tried to elaborate some common errors which may attracts penalty. So, please take care of all rules and regulation as mentioned in Society MOA and Rules/ Regulation Chart.

Annual Compliance :

Broadly, the annual compliances by NGOs, whether these be Trusts, Societies, or Section-8 companies, are to be made with few or all of the following regulatory bodies/offices:

  • The Income Tax Department
  • The Office of the concerned Registrar of Societies/Charity Commissioner/Registrar of Companies
  • The Offices of the directly concerned Legal Authorities relating to the Labour and Employment Law, Shops and Establishments Act, Pollution Control, etc.
  • FCRA Division, the Ministry of Home Affairs, Govt of India

Again, in general, the annual compliances by NGOs comprise few or all of the following documentary tasks or activities:

  • Annual Report and the updated List of the members of Governing Body
  • Financial Statements
  • Income Tax Returns
  • Compliance under the FCRA, 2010
  • Important Resolutions
  • And, Compliances under the above-mentioned legal authorities applicable.

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