Non Profit Organization (NPO)
NPOs refers to a non-governmental organization which is formed by ordinary citizen and not by any governmental bodies
The nonprofit organization and its outlook in India?
Non-Profit Organization is a body which is either public or private from which the owner of the organization can’t draw any profits/dividend. These types of organizations can generate revenues, ample of surplus profit but cannot use this profit and it has to be with the organization only. Non-Governmental Organization (NGO) is a category of Non-Profit Organization (NPO). Basically, a nonprofit organization serves in the public interest. These nonprofit organizations are generally involved in activities related to helping the public and to help the poor and disadvantaged.
- Basically, NPOs refers to a non-governmental organization which is formed by the ordinary citizen and not by any governmental bodies.
- They generally draw the attention of the government towards the grievances faced by a citizen and promote political participation.
- NPO can be registered as a Trust under Trust Act or as a Society under Societies Registration Act or as Non-profit Company under section 8 of the companies act 2013.
- Area of operation of this type of organization is very large.
- NGOs generally work for the betterment of society and economy of the country and also contributes towards the awareness in society.
- Most of the income from NPO are exempted from taxes.
- In contrast to business entities which have to use different means to raise loans, NPO can receive grants and help.
- NPOs contributes towards the social development at the highest level etc.
In India, Non-Profit Organisation can is registered in three following ways:
- Trust Registration
- Society Registration
- Section 8 Company
Trust is a form of interest created in a property. Under this, interest is created by one person for the benefit of another. In this trustee will manage the property and look after it.
In India, Trust registration depends upon the type of trust.
Here are the following types of trust:
- Public trust
- Private trust
Private trust registration takes place under the Indian Trusts Act, 1882. But in case of public trusts, there is no separate act and they are governed by their respective state laws. Usually, state laws appoint a commissioner who administers and carries all trust activities in that state.
In India, under The Societies Registration Act, 1860, society registration will take place. A society is an entity which works for promoting following activities:
- Public museums
- Creating military orphan funds
Society Registration is managed by State governments. For society registration, an application is sent to the appropriate state government. Appropriate state government refers to the government of the state where the registered office of the society is located. These necessary steps are taken to register a society
- Finalize a name with the consent of founding members.
- Preparation of MOA and regulations of the society.
- On MOA, obtain signatures of founding members.
- Get the MOA witnessed by professional.
Section 8 Company
Under the Companies Act 2013, Section 8 Company is a company registered with the charitable object. The registration of a section 8 company is governed by the Ministry of Corporate Affairs. Section 8 company is incorporated to promote certain causes such as commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment or any other similar objects. Under Section 8 company profits are used to promoted causes. The dividend is not paid to its members. After the satisfaction of all these conditions, the Central government will issue a license to carry business. In Section 8 company there is no need to add privately limited or limited to its name.
There are numerous benefits of section 8 company. Here are the following:
- Tax Exemption
In section 8 companies numerous tax exemptions are provided mainly to the donors who are contributing to Section 8 Companies, they can claim for tax exemption against the donation they made.
- No minimum capital requirement
There is no prescribed limit for the minimum capital requirement but the capital structure can be altered for the growth of the company at any stage.
- No stamp duty payable
Section 8 Company is exempted from the payment of stamp duty applicable for registration as it is applicable in case of other structures such as private limited or a public limited company.
- Separate Legal entity
A Section 8 Company has its own separate legal identity from its member and also has a perpetual existence.
In comparison to any other Non-profit organization structure such as Trust or Society, Section 8 Company has more credibility as it is a licensed by the central government. Under section 8 company there are more stringent regulations such as no change in MOA and AOA can be done at any stage.