Tag Archives: NPO Formation

Not for profit (NPO) entity selection

It’s very typical to be confused between what’s ideal entity for an NPO. What’s good and not so good about various options available.

One can consider a Trust, Co-operative society, a Section 8 Company. All can work like an NPO.

It’s a situational decision as to what suits best for your NPO which can be an NGO or an association. Now let’s look at (evaluate) each entity model….

1. Trust : – trust is simpler to register. Just make a deed of trust. Have more than two or three trustees. There is a state trust Act almost in each state wherein one can register. Like in Mumbai imfact for whole of Maharashtra and Gujarat there is a Mumbai public trust Act.

1. Different trust Acts across the country for being registered. State managed model of governance.
2. Complicated formalities for managing the changes, rotations and so on.

1. Best for charity organization like hospitals, food distribution, relief to poor, etc. Also religious organization can form trust.
2. Formation easier. Only a deed between trustees needs to executed and registered.
3. Compulsory formalities of charity commissioner.

2. Cooperative Society:– Just create a bylaw with minimum seven members. It gets registered under the cooperative societies Act 1860. Exception to this is Maharashtra state wherein it has to formed and registered with Charity commissioner of Maharashtra. Few other states also have this compulsion of registering with local charity office.

Governance of the same through bylaws. Governing body should be rotating by election model.

1. Good for Credit societies, Public Gymkhana or Clubs, promotion of culture, education, Music and Art promotion.
2. No stamp paper required for registration of society. That means society is exempt from Stamp Duty as far as registration goes.

1. Complete Offline process for registration, change in members, etc. Very painful to manage.
2. Compulsory periodical Rotation of governing body is a hassle.

Section 8 Company under Companies Act 2013 (section 25 company under companies Act 1956). This is central Act with registrars in all the states. It’s governed by the board of director generally elected by voting for governance:-

1. Good for associations, professional bodies, art promotion societies, science Laboratories, public libraries
2. Complete online upload from registration to changes to submission of annual accounts.
3. Not compulsory to register under the local charity commissioner.
4. No stamp duty payment for registration.

1. Audit under Companies Act
2. Complications with respect to new companies Act 2013 apply
3. Higher penalties for delays in compliance

All above models can be registered for exemptions with income tax and also the donors can get tax deduction for their contribution. Non of above are permitted to distribute surplus of any kind to the trustees.

So depending on what you want to do and where you want do in NGO or an NPO, you may look up to the above options.