Nature-objectives legal procedures formalities and
documentations required for registration. Different types of Non-Profit Organizations: NGOs Trust and Society, its
significance, differences and relationships.
2. Formation and Registration of Non-Profit organizations in India
In India, there are three different types of non-profit organisation exists as per type of
registration with authorities. They are –
1) Trusts,
2) Societies
3) Non-profit Companies under section 8 of the Companies Act, 2013.
3. Formation of a Trust and registration
A Trusts can be differentiated into
• Public Trust
• Private Trust.
Public Trust
If it is for the benefit of a substantial section of people, it can be called a
Public Trust.
Private Trust.
Private Trust could be for the benefit of a limited number of people having a
specific objective.
4. Formation of Trust
A Trust could be formed with a minimum member of at-least two and no limit in a
maximum number of members. It can be formed under the State Act, if any, or under
Bombay Trust Act, 1950 and needs to be registered under the Deputy Registrar or Charity
Commissioner, as the case may be, with the State into which it belongs to, for eligibility
of tax exemption.
A Trust is to be authored by a person in the form of a Trust deed with specific objectives.
A “trustee” means a person alone or in association with other persons, the Trust property
is vested into. Generally, Indian citizens are chosen as trustees, though there is no
prohibition against foreigners serving in this capacity.
Objectives of Trust
Trust could be registered for different objectives, such as
1) Providing relief to poverty or distress
2) Rendering education
3) Medical help;
4) social welfare and public benefit like recreation facilities etc.
5. Limitation to trustee
1) Trust property cannot be used by a trustee of a public Trust for their own interest or
private advantage, though Trust property is vested to the trustees.
2) There could not be any agreement by a trustee, in which a personal interest of him that
conflicts or could possibly conflict with the interests of the beneficiaries of the trust
3) Power delegation of a Trustees is not possible to others, i.e. any of their duties,
functions or powers to a co-trustee or any other person.
4) Trust is generally irrevocable in India. If a Trust becomes inoperative for considerable
duration, the Charity Commissioner could undertake a revival process for the same.
5) In case, there is a difficulty to operate a Trust with its object as mentioned in the Trust
deed, the object could be modified as near as possible, to the original object of the
Trust in concurrence with the authority.
6) Thus, the authority, Charity Commissioner, ensures that the charitable nature of a trust
will be honored, although, the original, specific purposes of the trust cannot be
continued.
6. Formation of a Society and registration
Societies in India is governed by the Societies Registration Act 1860 as well as State Act
notified for different states.
A Society can be formed by at least seven individuals or Institutions with a common
object of like ‘any literary, scientific, or charitable purpose’ as per the Societies
Registration Act 1860.
A Memorandum of Association is required to be submitted to Registrar of Societies by the
members, willing to form a Society. Registration is required to legalize the Society and to
obtain income tax exemption.
A Memorandum of Association requires to contain the following: the name of the society
to be registered
1) The object of the society
2) The basic purpose to form the Society
3) The names, addresses, and occupations of the governing body members
7. Process
The governing body members are elected or selected as per Rules
framed by the Society and are responsible for management of all
the affairs of the Society.
Framed rules and regulations of the society, certified by at least
three members, is required to be submitted, along with the
Memorandum of Association to the Registrar of Societies, under
whose jurisdiction the Society falls into
Any Indian can be a member of a Society and there is no bar to
include a Foreigner in a Society.
8. Types of a Societies which can obtain
registration under the Act
1) Charitable purpose
2) Societies for utilization of military orphan funds or societies established
at the several erstwhile presidencies of India
3) It may be formed to promote science, literature, or fine arts; for
knowledge dissemination on various subjects including Politics.
4) Society can be established for maintenance of libraries or reading-rooms
for use among the members or for public
5) Society for museums and galleries of paintings and other works of art is
possible, collections of natural history, mechanical and philosophical
inventions, instruments, or designs are also eligible under the Societies
Registration Act 1860.
9. Management of a Society
• A Society is usually managed by a governing council or managing
committee. The general members of a Society, called ‘General body
members’, delegates management of day-to-day affairs to the Managing
Committee. A Managing Committee is formed as per by-laws made by the
Society and usually are elected by the members. under the bylaws of the
society.
• A list of the names, addresses and occupations of their managing
committee members is required to be submitted to the Register of
Societies, annually, and any change is subjected to be notified to the
authority. Annual General meeting is required to be conducted as per by-
laws of a Society. Any property held by the Society is only in the name of
the Society.
10. Society dissolution
Dissolution of Society needs to be approved by at least three-fifths of
the society’s members. All debts and liabilities are required to be settled
and if there is any balance fund, it should be distributed to another
Society, having similar objects of the dissolved one.
11. Non-profit Companies under section 8 of the Companies Act 2013
A non-profit Company can be formed under the provision of section 8 of the
Companies Act, 2013, which was permitted earlier under section 25 of the
Companies Act, 1956.
The provision under the section is for Companies having a charitable object-
like promotion of education, research, commerce, art, science, sports, social
welfare, charity, protection of environment, religion, or any similar other
objects.
A Company is required to invest all its profit or other income to the
promotion of its objects and intends to prohibit payment of dividends to its
members. Minimum three individuals or legally recognised body in the form
of body corporate or Firms etc. are required to form a section 8 company.
12. • The founders or promoters of the Company, to be formed, needs to submit
application to the Regional Director of the Company Law Board along with
copies of the Memorandum of Association and Articles of Association of the
proposed company, as well as a statement of assets, brief description of the
work proposed etc. A section 8 Company may not require to include
‘Limited’ or ‘Private Limited’, as the case may be, phrases with their
proposed name.
• The internal governance of a section 8 Company differs with a Company
formed under the Act. A notification was published on 5 June 2015, by the
Ministry of Corporate Affairs for Exception, modification and adaptation of
the Companies Act 2013 for a Company formed under section 8.
13. Some of the salient exceptions are
i) Clause (24) under section 2, appointment of a Company Secretary is
not required.
ii) Paid up share capital for a Private or Public Company of INR one lakh
and INR five lakhs is not applicable
iii) Fourteen days minimum notice is required for conducting a general
meeting unlike a twenty-one days minimum notice as per Companies
Act (section 101)
iv) Minutes of a every meeting is to be recorded within thirty days of
conducting the meeting and is required to be circulated to the members.
Provision of section 118 other than mentioned is not applicable
v) Financial statements and other financial documents required by
law needs to reach each shareholder not less than fourteen days of
general meeting
14. VI) Section 149 for appointment and qualification of Directors, except
subsections (3) for at least one Director to stay in in India at least 182 days
and sub section (12) a non-executive Director’s liability, all other sub
sections of the section are not applicable
VII) For quorum in a board meeting eight members or twenty five percent
of members whichever is less is required instead of one third or two
Directors required as per the Companies Act 2013.
VIII) No provision of Nomination and remuneration clause is there for a
Company formed, under section 8 (section 178); ix) Disclosure by
Directors for interest in other companies will be applicable, if the
transaction amount exceeds INR one lakh with related company or Body
Corporate or Firms etc.
15. Dissolution of a Section 8 Company
The license of a section 8 company may be revoked by the Central
Government if the company contravenes any of the requirements of section
8 or any of the conditions under which the license is issued. The type of
violation may be a company affair conducted fraudulently, violation of its
object etc.
Settlement of all debts and liabilities of the Company will be made from the
fund or properties available with the Company and if the fund is in excess, it
cannot be distributed among the members of the company.
As per provision of section 8, the remaining funds and property will be given
or transferred to some other section 8 Company, having similar objects of the
Company, under dissolution. There is also a provision of amalgamation with
another company, registered under section 8, and having similar object. If
Central Government desires a Company under dissolution may be directed to
amalgamate with another Company having similar object under section 8
and can form a single Company.