|There are no real statistics on the number of NGOs in the country. The estimates vary widely, with a recent article putting the number at over a million. And less than half of these are legally registered.
Before we go further, what exactly is an NGO? Short for Non Governmental Organization, NGO is not an easy term to define. Generally, they are taken to be not-for-profit organizations that work on one or many developmental issues. Way back in the 'nineties, the World Bank tried to work out a comprehensive definition of the term (see box).
The fact is that you do not have to register an NGO to do not-for-profit, developmental work. But being a legal entity helps, particularly when you want to get funding of some sort, or when you want to make the organization big, bring in professional management or when you want to work in certain sensitive areas.
|What is an NGO?
|"The diversity of NGOs strains any simple definition. They include many groups and institutions that are entirely or largely independent of government and that have primarily humanitarian or cooperative rather than commercial objectives. They are private agencies in industrial countries that support international development; indigenous groups organized regionally or nationally; and member-groups in villages.
NGOs include charitable and religious associations that mobilize private funds for development, distribute food and family planning services and promote community organization. They also include independent cooperatives, community associations, water-user societies, women's groups and pastoral associations. Citizen groups that raise awareness and influence policy are also NGOs."
Where do I register?
There is more than one way in which you can register an NGO - four to be exact. You can register as a society, a trust, a cooperative or as a not-for-profit company.
All these come under separate Acts-Bombay Public Trusts Act of 1950, The Societies Registration Act of 1860, the State Cooperative Societies Act or the Multi-state Cooperative Societies Act or the Companies Act of 1956, specifically Section 25 of the Companies Act. The process, per se, is quite similar under all the Acts; the difference being in where to get registered and other procedural details, like the minimum number of people required, the documents required, jurisdiction under which registration is possible, mode of succession of management and such.
Now the question is, which of these options should you go for, given your circumstances? Why should you choose, say, a society over a trust or a Setion-25 company?
"There are merits and demerits attached to different Acts. It is difficult to pick any one and say that this is the best form to get an NGO registered. It all depends on the requirements of the person or the organization seeking registration", says Rodney Ryder, a practicing lawyer and partner with Fox Mandal Little.
Choosing the right Act is not that difficult as there are certain characteristics of all the Acts that are specific to some circumstances.
Public or Charitable Trust
A trust is the easiest to get started with as the minimum strength required to form a trust is just two - the author and the trustee. And the author could also be the trustee. So, if you want to start small or if you do not have many people who share your vision or objectives, then a trust is your best bet.
For a trust to be formed, there has to be the author or the person at whose instance the trust comes into existence, a clear intention by the author to create a trust, a purpose for the trust, property belonging to the trust (usually bequeathed by the author as part of the trust deed, to start with) and beneficiaries of the trust. The ownership of the trust is divested by the author in favor of the beneficiary or the trustee. A trust is set up on a basis of a trust deed and cannot be dissolved unless it is provided for in the trust deed. Trusts also get tax exemptions on parts of their income.
Charity is a matter of state jurisdiction. So, different states have different legislation in the form of trusts or endowment Acts to govern and regulate public charitable trusts. For example, the Bombay Public Trusts Act, 1950, governs all public charitable trusts in the state of Maharashtra. Other state acts are more or less similar to the Bombay Trusts Act. In case a state does not have a specific Act, then the general principles of the Bombay Public Trusts Act, 1950, apply. There are also private trusts governed by the Indian Trusts Act of 1882. But that is outside the scope of this discussion.
Between a trust and a society, a trust offers more democracy and transparency than any other form of registration, but the fallback for a trust is the fact that all the trustees are equally empowered and one dissenting partner can be the cause of the trust to become non-productive.
"When it comes to a trust, the Act empowers all the members, better known as trustees, equally. Though there is a head of the committee designated as the chairman, all the decisions, under this Act, are taken after discussion with all the trustees. This sometimes can end up in delays and the functioning gets cumbersome," says Rodney Ryder.
"A trust is like a partnership - one for all, all for one. Whereas a society is similar to sole proprietorship - one person makes all the decisions and the work is fast", concludes Ryder.
In terms of documentation, the main instrument for the registration of a trust is the trust deed, which sets out the aims and objectives of the trust, the number of trustees (a minimum of two) and other details about your trust. While registering, you would be required to be present personally to submit these documents to the charity commissioner of your state.
A society requires a minimum of seven individuals to come together and may be wound up if three-fifths of the members of the general body so desire. Societies are registered under the Societies Registration Act. While this is an all-India Act, each state has its own variations. In Maharashtra and Gujarat, for example, all societies must also simultaneously be registered as trusts under the Bombay Public Trusts Act, 1950.
As per the law "every society registered under the Societies Act may sue or be sued in the name of the president, chairman, or principal secretary, or trustees, as shall be determined by the rules and regulations of the society, and, in default of such determination, in the name of such person as shall be appointed by the governing body for the occasion." However, "if a judgment shall be recovered against the person or officer named on behalf of the society, such judgment shall not be put in force against the property or against the body of such person or officer, but against the property of the society."
The documents required to register a society are a memorandum and an article of association, which need not be executed on a stamp paper. The memorandum of association should have the name of your society; the objectives; the names of all the trustees and other details of your committee members to which the management of its affairs is entrusted. All these documents should be submitted to the registrar of joint-stock companies of the state in which you are seeking registration.
A cooperative society is registered when the intended beneficiaries are the members themselves. You have the choice of registering under the concerned State Cooperative Societies Act or the Multi-state Cooperative Societies Act of 2002. Increasingly, the latter is being preferred.
A cooperative society can be registered under the Multi-state Act if "its main objects are to serve the interests of members in more than one state; and its bye-laws provide for social and economic betterment of its members through self-help and mutual aid in accordance with the cooperative principles". Members can be individuals, other cooperatives registered under the act or a combination of the two. It has to be registered with the Central Registrar of Cooperatives and have an elected board of directors and a CEO who is a full-time employee. The application for registration has to be signed by at least fifty persons from each of the states concerned. Such a cooperative society can be dissolved if "any number, not less than three-fifths of the members of any society, may determine that it shall be dissolved."
Multi-state cooperatives are required to invest or deposit funds in cooperative banks, securities specified in the Indian Trusts Act, 1882, etc., and are restricted from making contributions "to an institution that has an object of furtherance of the interest of a political party."
Multi-State cooperative society with limited liability can be established "by having the liability of its members limited by its bye-laws to the amount, if any, unpaid on the shares held by them or to such amount as they may, respectively, thereby undertake to contribute to the assets of the society, in the event of its being wound up."
An NGO can also be registered as a company under the Indian Companies Act. Section 25 of the Indian Companies Act, 1956 provides for the registration of the NGOs. A Section-25 company is identical to an ordinary company in all respects except that it is not established for profit and commercial gain.
Section 25 of the Companies Act states that if a company "is about to be formed as a limited company for promoting commerce, art, science, religion, charity or any other useful object, and intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members" then the government may allow it to drop the word "limited" or "private limited" from its name.
A minimum of three promoters are required to register a (Section 25) company. Winding up a company is a fairly time consuming and laborious process. A Section-25 company perhaps offers the best liability protection to the founders and owners. An NGO under the Companies Act for all practical purposes is a company, a distinct legal entity and will be sued as such. The shareholders will not be liable to action against the company.
Traditionally, there have been very few NGOs registered under the Companies Act. It has always been more of a choice between a trust and a society, irrespective of the size of the organization. Dr Ravi Chandra, who recently set up a small organization to carry out developmental activities amongst the under privileged in rural Bihar chose the trust route - the Bihar Development Trust. However, there are some changes happening.
Laura Parkin Executive Director of the National Entrepreneur Network (NEN) says that NEN is being registered as a not for profit under the companies act. "The cost of compliance of running a Section 25 is higher than it would be for a trust or society. Despite that, increasingly NGOs, particularly those with international ties, are electing to go the Section 25 route," says Parkin. According to Parkin, this makes it easier to bring in professional management akin to what companies do, and keep them separate from the share holders.
A Section-25 company, like any other company, requires a memorandum and an article of association to register. The memorandum and article should have the same information required to register a society.
The fee for registering an NGOs is very nominal under all the Acts; it varies from Rs 3 to Rs 50. But there is more to it, and like with many other things you can make the papers move faster. The easiest way to get the paperwork done is to get an experienced CA or lawyer to do the drafting and even to get the registration done.
Funding and registration
NGOs, registered under any of the Acts, should have an experience of two years to be eligible for foreign aid. However, you can apply for government aid from the day of receiving registration. Before applying for foreign funds, you should have FCRA (Foreign Contribution Regulation Act) registration, which falls under the purview of Home Ministry and an FCRA bank account.