Setting up a Non-Governmental Organization (NGO) is a deliberate procedure that converts a concept for societal improvement into a legally acknowledged body with the ability to effect real-world change. This detailed guide will guide you through the crucial phases of NGO registration, encompassing the articulation of your purpose, the choice of a legal framework, and compliance with regulatory norms. It will also cover the development of a robust business plan, the importance of assembling a committed founding team, and the nuances of obtaining tax-exempt status.
Beyond the paperwork, we’ll delve into establishing financial systems, creating governance policies, and building a strong brand presence. Finally, we’ll touch on fundraising strategies and the importance of ongoing compliance. This guide is designed to equip you with the knowledge to navigate the complexities to incorporate an NGO, ensuring a solid foundation for your organization’s future endeavors.
The Registration Process
The process of registering a Section 8 company is meticulous and requires adherence to specific legal procedures:
1. Digital Signature Certificate (DSC) and Director Identification Number (DIN)
The first step in registering a Section 8 company involves obtaining two key digital identifications for the proposed directors:
- Digital Signature Certificate (DSC): This is a secure digital key issued by authorized certifying authorities to validate and certify the identity of the person holding the certificate. It is used to sign documents electronically.
- Director Identification Number (DIN): This is a unique identification number assigned to an individual who is appointed as a director of a company. The DIN is a permanent number and is required for a person to become a director in any company in India.
2. Name Approval
The second step in the registration of a Section 8 company is obtaining approval for the company’s name:
- Choose a Name: Select a unique and relevant name for your NGO that complies with the Companies Act, 2013.
- RUN Service: Submit your chosen name through the MCA’s Reserve Unique Name (RUN) service.
- Compliance Check: The Registrar of Companies will verify the name against existing companies and trademarks.
- Confirmation: Upon unique name approval, it will be held for a designated period, often 20 days.
- Resubmission Option: Should the initial name be declined, there is an opportunity to propose different names within the allotted period.
3. License Application
After securing the name approval, the next step is to apply for a license to operate as a Section 8 company:
- Prepare Application: Draft an application with your NGO’s objectives and details of the directors.
- Form Submission: File Form INC-12 with the Registrar of Companies (RoC) for the license application.
- Pay Fees: Submit the required fee alongside the application.
- RoC Review: The RoC will examine the application for compliance with Section 8 of the Companies Act, 2013.
4. Memorandum of Association (MoA) and Articles of Association (AoA)
To incorporate an NGO as a section 8 company, you must:
- MoA: Draft the MoA to define your NGO’s objectives, name, and registered office, confirming limited liability of members.
- AoA: Prepare the AoA to set out the rules for the company’s internal management and procedures.
5. Issuance of License
Once the Registrar of Companies (RoC) approves the application:
- License Issued: The RoC grants a license under Section 8 of the Companies Act, 2013.
- Unique Identifier: The license includes a number that officially recognizes the company as a non-profit.
- Terms: It specifies conditions for operations, profit use, and dividend distribution.
6. Incorporate an NGO as Section 8 Company
After obtaining the Section 8 license, the final step to incorporate an NGO as the company:
- Final Documentation: File the incorporation documents, including the Section 8 license, with the Registrar of Companies.
- Form INC-32 (SPICe): Use Form INC-32 for a simplified proforma to incorporate an NGO as a company electronically.
- PAN and TAN: The company’s Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) are generated automatically.
- Certificate of Incorporation: Upon verification, the RoC issues a Certificate of Incorporation, marking the legal birth of the Section 8 company.
Advantages to Incorporate an NGO as Section 8 Company
Section 8 companies are preferred as an NGO. So to decide if to incorporate an NGO in India is worth it or not, here are some advantages:
- Limited Liability: Members and directors have limited personal liability, protecting personal assets in case of debts or legal issues faced by the company.
- Tax Benefits: Section 8 companies often qualify for certain tax exemptions, making them financially advantageous for non-profit activities.
- Increased Credibility: Being registered under the Companies Act, 2013, they are seen as more credible by donors, government bodies, and other stakeholders compared to informal organizations.
- No Minimum Capital Requirement: They can be formed without a prescribed minimum paid-up capital, allowing flexibility in operations and funding.
- Separate Legal Entity: A Section 8 company has its own legal identity, separate from its members, which allows it to own property, incur debts, sue, and be sued in its own name.
- Ability to Raise Funds: They can raise funds from the public through donations and subscriptions, and are also eligible to apply for government grants.
- Perpetual Succession: Being a separate legal entity, a Section 8 company enjoys perpetual succession, meaning its existence is not affected by the change in membership or death of any member.
- Professional Image: The structure of a Section 8 company can often present a more professional image, which can be beneficial in dealings with external parties.
- Ownership of Property: A Section 8 company can legally acquire and own property in its name. Any property acquired is held by the company itself and not by its members.
- Capacity to Sue and Be Sued: As a legal entity, a Section 8 company can take legal action in its name and can also be sued, which is not possible in unregistered groups or associations.
Challenges and Considerations to Incorporate an NGO
While Section 8 companies offer many benefits, there are also challenges and considerations to incorporate an NGO and those are:
- Regulatory Compliance: Section 8 companies are subject to stringent compliance requirements under the Companies Act, 2013. This includes periodic filings, maintaining accurate books of accounts, and adhering to audit procedures, which can be resource-intensive.
- No Profit Distribution: As a non-profit entity, a Section 8 company is prohibited from distributing profits as dividends to its members. All earnings must be reinvested into the company’s objectives, which may not appeal to those seeking financial returns.
- Scrutiny of Activities: The activities of a Section 8 company are closely monitored to ensure they align with its stated objectives. Deviating from the objectives can lead to legal troubles and possible revocation of its status.
- Winding Up: Dissolving a Section 8 company is a complex process. Upon winding up, any remaining assets after satisfying debts and liabilities must be transferred to another Section 8 company with similar objectives.
- Fundraising Limitations: While Section 8 companies can accept donations, they may face challenges in fundraising, as they cannot issue shares or pay dividends to raise capital.
- Dependency on Donations: Section 8 companies often rely heavily on donations and grants, which can lead to financial instability if diverse funding streams are not developed.
Conclusion
The procedure to incorporate an NGO in a Section 8 company in India offers a structured pathway to contribute to societal good with a robust legal framework. The advantages, such as limited liability, potential tax benefits, and enhanced credibility, make it an attractive option for many social entrepreneurs. However, the stringent regulatory compliance, operational restrictions, and the challenges of fundraising and governance require careful consideration. Aspiring founders must be prepared to navigate these complexities to leverage the full potential of a Section 8 company. With a clear mission and a commitment to compliance and transparency, a Section 8 company can indeed become a powerful vehicle for social change and community impact.
