Non-Profit Organization – Registration Procedure & Benefits

What Is An NPO (Non-Profit Organization)?

A Non-Profit Organization (NPO) is an entity dedicated to promoting social causes, charitable activities, and community development. Unlike traditional businesses that focus on generating profits for their owners or shareholders, NPOs reinvest any revenue earned back into their mission. Whether it’s education, healthcare, environmental conservation, or poverty alleviation, NPOs play a crucial role in shaping society.

India has over 3.1 million registered non-profit organizations, according to a government report, with countless others operating informally. Given the increasing support for social entrepreneurship, setting up an NPO in India can be an impactful decision.

In this article, we will discuss how to register a Non-Profit Organization in India, its benefits, and drawbacks, helping you navigate the process effectively.

Requirements For NPO Status

Documents that are required for the Non-Profit organization status are as follows:

The following are the requirements for trust certification:

• Aadhar Card
• Passport
• Driver’s License 
• An invoice of power or water that specifies the location to be enrolled.
• At least two employees of the firm’s identities must be verified. Voter Registration can be used as evidence.

It requires approximately a week or more for the virtual portal to be finalized once the registration fee is paid. The settlement must conduct a seminar at the registry office before the property becomes recognized throughout the nation.

The mandatory documents for a Section 8 company incorporation are as follows:

• Aadhaar number of the firm’s Declaration of Association of the company.
• The identity of the business is to be approved.
• Confirmation of the headquarters location. 
• Driving Permit
• Visa photocopy
• Voting identification

The following documents are required for society enrolment:

• Passport replica
• Identification cards for voters
• An Aadhaar card is a one-of-a-kind number assigned that is provided to every individual’s chevalier.
• Two copies of the society’s By-laws and Memorandum of Association.
• The society’s name
• The office address is proof.
• All nine members must provide identification evidence.

Procedure to Register a Non-Profit Organization in India

There are three primary legal structures under which you can register a Non-Profit Organization in India:

• Trust (under the Indian Trusts Act, 1882)
• Society (under the Societies Registration Act, 1860)
• Section 8 Company (under the Companies Act, 2013)

Depending on the organization’s size, goals, and operations, each structure has benefits.

1. Registering a Trust

A trust is a legal entity where one party (trustee) holds assets on behalf of beneficiaries. It is commonly used for charitable, religious, or educational purposes.

Steps to Register a Trust:

• Step 1: Draft a Trust Deed mentioning objectives, details of trustees, and rules.
• Step 2: Get the Trust Deed notarized and pay stamp duty.
• Step 3: Submit the deed to the local sub-registrar office along with proof of address and identity of trustees.
• Step 4: Upon verification, the Trust is officially registered.

2. Registering a Society

A society is a group of people who meet together for a shared activity, including charitable, scientific, or cultural endeavors.

Steps to Register a Society:

• Step 1: Prepare the Memorandum of Association (MOA) and Rules & Regulations.
• Step 2: A minimum of seven members is required.
• Step 3: Submit the documentation to the Registrar of Societies in your respective state.
• Step 4: Upon approval, the society gets registered and can operate legally.

3. Registering a Section 8 Company

A Section 8 Company is a non-profit entity formed under the Companies Act, 2013, and is widely preferred for professional operations.

Steps to Register a Section 8 Company:

• Step 1: Obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN) for directors.
• Step 2: File an application with the Ministry of Corporate Affairs (MCA) for name approval.
• Step 3: Submit the required forms (INC-12, INC-32, INC-33, INC-34) along with Memorandum of Association (MOA) and Articles of Association (AOA).
• Step 4: Upon approval, a Certificate of Incorporation is issued.

Benefits of a Non-Profit Organization

Running a Non-Profit Organization comes with multiple advantages. Here are some key benefits:

1. Tax Exemptions

• NPOs registered under Section 12A and 80G of the Income Tax Act enjoy tax exemptions on income and donations.
• Donors to 80G-registered NPOs can claim tax deductions, encouraging more contributions.

2. Credibility and Trust

• A registered NPO gains credibility among donors, government bodies, and international funding agencies.
• It enhances transparency and makes fundraising easier.

3. Government and Foreign Funding

• Eligible NPOs can apply for Corporate Social Responsibility (CSR) funding from companies.
• Organizations registered under FCRA (Foreign Contribution Regulation Act) can receive foreign donations.

4. Limited Liability (For Section 8 Companies)

Unlike Societies and Trusts, a Section 8 Company provides limited liability protection to its members.

5. Social Impact and Recognition

NPOs can significantly contribute to society, bringing long-term change in various sectors such as education, healthcare, and women empowerment.

Drawbacks of a Non-Profit Organization

While NPOs are impactful, they do come with some challenges.

1. Limited Profit Generation

Since profits cannot be distributed among members, sustainability depends heavily on donations, grants, and external funding.

2. Strict Regulatory Compliance

• NPOs must comply with multiple regulations such as Income Tax Act, FCRA, and Companies Act.
• Non-compliance can lead to penalties or cancellation of registration.

3. Fundraising Challenges

• Raising funds requires strong networking and a solid reputation.
• Government grants and CSR funds come with stringent eligibility criteria.

4. High Operational Costs

• While the organization itself is not for profit, administrative expenses such as staff salaries, legal compliance, and audits can be significant.

5. Public Scrutiny

• NPOs are often scrutinized for how they utilize funds.
• Any mismanagement can lead to loss of credibility and support.

How Does Non-Profit Organization Raise Money?

A Non-Profit organization in India is not in the business of making money. Non-profit organizations implement programs for a variety of goals, including humanitarian, religious, academic, economic, intellectual, governmental safety assessment, and volunteer development.

Various forms of funding or donations are available to nonprofit organizations. The most popular methods for non-profit organizations to raise money and generate income are listed below.

1. Individual Contributions

Individual contributors who provide funds, commodities, or services to support a nonprofit organization’s mission are frequently relied upon. Donors have the option to make one-time or ongoing contributions, and they can do so through a variety of media, such as websites, direct mail, or live events.

Some people might also work with their employer to have donations deducted from their salary on a regular basis.

2. Grants 

Grants from foundations, businesses, or governmental organizations are available to nonprofit organizations. Grants are frequently given out for specific initiatives or programs, and they frequently come with stipulations or reporting obligations that must be fulfilled by the enterprise.  Typically, nonprofits are required to submit a lengthy application in order to be considered for the grant.

3. Major Occasions 

Activities like galas, auctions, and charitable marathons are frequently held by nonprofits to generate funds as well as exposure for their causes. These occasions could have sponsorships, merchandise or service auctions, or ticket sales.

4. Business gifts 

Businesses may give money, commodities, or services to nonprofit organizations as part of their social responsibility programs or to assist initiatives that are consistent with their beliefs or objectives.

5. In-Kind Donations

Donations of products or services, like office supplies, machinery, or expert services, are sometimes given to nonprofit organizations. Having specific things provided could prove more effective than having people or businesses donate cash. 

Not only can this lower their costs and free up money for other uses, but the giving party might also profit tax-wise from giving in-kind gifts rather than selling a thing to contribute the money.

Not-for-Profit vs Nonprofit

Tax-exempt entities including nonprofit organizations which are obligated to submit Form 990 to the IRS as an informational return. This form plays a crucial role as a means of disclosure, offering vital insights into the financials, programs, and activities of the organization. 

By submitting Form 990, these entities provide both the IRS and the public with transparency regarding their operations. Charitable, religious, educational, and various other tax-exempt groups, including private foundations, charitable trusts, and political organizations, all have the responsibility to comply with this filing obligation.

Organizations must furnish comprehensive details concerning their revenue, expenses, assets, and liabilities when submitting Form 990. Unlike an individual’s tax form, Form 990 contains additional governance-related questions that are specifically designed to ensure the organization’s compliance with the IRS regulations.

Conclusion

Non-Profit Organizations (NPOs) serve as the backbone of social change, addressing crucial issues in education, healthcare, environmental protection, and poverty alleviation. While they face regulatory challenges and financial constraints, their impact on communities is immeasurable.

For individuals passionate about making a difference, establishing or supporting an NPO can be a fulfilling endeavor. However, navigating the legal and financial aspects requires careful planning and compliance. With the right strategy, transparency, and dedication, an NPO can thrive and create lasting social impact.