Do you want to do something constructive for society but cannot find anything worthwhile? Would you like do make a difference by yourself instead of joining another NGO? If your answer to both these questions is a ‘yes’, starting a nonprofit organization might be the best option for you. Here is a look at how you can start an NGO in India. Indolegal can offer valuable advice with regards to the legal formalities involved in starting a non profit organization. Download all the necessary contracts and agreements from Indolegal.com.
Overview of a Nonprofit Organization
As the name suggests, a nonprofit organization is a company that does not function for providing profit to the shareholders. The aim of a nonprofit organization is to assist in improving the quality of life in the country by tackling relevant issues. The similarity between a nonprofit and profit company is that they both need to have a specific goal to work towards. For a nonprofit organization, this goal can be related to improvement in sports, religion, healthcare, charities, education, arts, environment and social issues. Any money made by the organization is put completely to meet this goal, and not for distribution among members.
Definition of Starting an NGO
A nonprofit organization can be legally registered as a trust, society or private limited nonprofit company. In all cases, a nonprofit company has to:
1. Exist as an entity independent of the State
2. Be self-governed by a managing board or governing council that consists of trustees
3. Produce benefits for others people who are not members of the organization
4. Be non-profit making, which means that they are prohibited from providing the profit for the benefits of the members
The choice of whether to register as a trust, society or private limited company is dependent on the state under which the NGO is being formed and legal framework involved. Tax benefits, however, remain more or less the same irrespective of what kind of NGO you make. All nonprofit organizations are considered equal under Section 2(15) of Income Tax Act, and they are eligible to income tax exemptions and granting of 80G certificates.
The process of starting a nonprofit organization as a trust is defined by the Trust Act of the governing state. In the states that do not have their own Trust Act, the process would be as defined under the Indian Trusts Act, 1882. The main instrument to create a charitable trust is the ‘trust deed’, which is a legal document on a non-judicial stamp paper of appropriate value based on the value of the trust property. The trust deed would contain the objectives and mission of the NGO, and the method of management. There should be at least 2 trustees in an NGO registered as a trust, but there is no maximum limit.
If you are registering an NGO as a society, then the process to be followed is defined by the Societies Registration Act, 1860. This is a federal act, and some states may have a charity commissioner for registration. In such states, the NGO would have to be registered under the Bombay Public Trusts Act as well as the Societies Registration Act. The main instrument in this case would be the ‘memorandum of association’ that contains the rules of the society, apart from the mission and objectives and method of management. However, a stamp paper is not needed in this case. An NGO society needs to have at least 7 members, but there is no maximum limit.
A nonprofit organization that is being registered as a private limited company would fall under Section 25 of the Indian Companies Act, 1956. In fact, such NGOs are often called section 25 companies. The main instrument for registering your company under this Act is the ‘memorandum and articles of association’. This document does not have to be made on a stamp paper, and the minimum number of trustees required for registration is three. Like the other two registration processes, there is no maximum limit on the number of trustees you can add.
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