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.”
- World Bank

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 FoxMandal 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.
Society
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.
Cooperative Society
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.”
Not-for-profit Company
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.