Non-governmental organisations (“NGOs”) are difficult to define and classify since the term ‘NGO’ is not used consistently. An NGO has a connotation of being a non-government organisation that is established to do public good. To put it simply, an NGO is a legally constituted organization created by natural or legal persons working for social, cultural, educational, environmental, economic, religious or other similar causes. NGOs operate independently and are not part of any government institution and are to that extent expected to operate independent of government control. NGOs are often considered the voice of the oppressed and underprivileged in India.
In India, NGOs can be registered in any of the following three legal forms:
(i) as a Society under the legislation pertaining to societies registration, of the concerned state;
(ii) as a Trust under the Indian Trusts Act, 1882; and
(iii) as a Company under section 25 of the Companies Act, 1956.
All three types of organizations are eligible to get tax benefits provided they fulfill necessary requirements as stipulated by tax laws.
In this Article we will focus on using a “Society” to establish the NGO.
NGOs can be registered as societies under the Societies Registration Act, 1860 or its versions in force in different States. For example, in the state of Karnataka, NGOs can be registered under the Karnataka Societies Registration Act, 1960 (“Act”).
The primary conditions to form and register a society under the Act are as follows:
(i) there must be a minimum of 7 (seven) persons above the age of 18 years;
(ii) such persons shall have a common objective such as promotion of charity, education, science, literature, fine arts, sports or others as specified under law;
(iii) such persons need to subscribe to a memorandum of association as specified by law; and
(iv) such memorandum of association must be filed with the jurisdictional Registrar of Societies and thereafter, members need to obtain ‘Certificate of Registration’.
The Memorandum of Association is a crucial document for societies. The Memorandum of Association must, among other things, contain the (i) name and objects of the society; (ii) names, addresses and occupations of its members; (iii) place of its registered office; and (iv)its rules and regulations.
A registered society needs to hold a general meeting every year called the annual general meeting. In such annual general meeting, the report of the management of the society for the previous year together with an audited copy of the balance sheet, income and expenditure account and the auditor’s report should be submitted for approval of the members.
Both movable and immovable property belonging to the society, if not, vested in members, is deemed to be vested, in the governing body of such society. In all court proceedings, the property may be described as the property of the governing body of such society.
Every registered society may sue or be sued in the name of the president, chairman, or principal secretary as may be determined by the rules and regulations of such society. If a judgment is passed against the person or officer named on behalf of the society, such judgment shall not be enforced against the person or property of such person or officer, but shall be enforced against the property of the society.
An affirmative vote of a minimum of three-fourths of the members of a society is required to dissolve that society. Thereupon, it shall be dissolved forthwith, or at the time then agreed upon, and all necessary steps shall be taken for the disposal and settlement of the property of the society, its claims and liabilities, according to its rules and regulations.
Upon dissolution and settlement of all debts and liabilities of a society, any of its residual property cannot be paid to or distributed among the members of the society. Basically, as these are non-profit social organizations, no individual member is entitled to receive any profit of the society. However, such residual property shall be given to some other society as may be determined by the members or by the principal civil court of original jurisdiction of the district where the society was set up.
To sum up, the legal requirements of a society are much simpler than that of a trust or section 25 companies. Further, unlike trusts, a society has a more democratic framework with membership and an elected governing body to manage its affairs. The original members of a society can continue to remain in control so long as they are elected and can also opt out of the society if they wish, which trustees cannot. The society can exist as long as the members wish, but there is always a possibility of complete renewal of its members and modification of its objects. It is easier to wind up a society compared to winding up of a trust or a company. However, the major drawback of a society is that due to the nature of its democratic set up, the society can be taken over by vested interests opposed to the objectives of the founders of the societies.