clipped from www.indianngos.com| What is a non-profit Company? A non-profit company is like any other Company. There is only one important difference. It is not supposed to make profits. In other words, it does not exist for commercial gain. Is it relevant for voluntary work? Non-profit company has been designed for voluntary work only. It provides all the advantages of a corporate form to a Development Organisation. What are the advantages?
Going back to basics, what is a Company? A Company is very much like a society. In fact, both are corporate forms of organisation. A company has members (commonly called 'shareholders'), a Governing Body (Board of Directors), Memorandum and Articles. A Company is different from a firm. Many firms are casually called 'companies'. For example, 'Amit & Company' actually means a firm. This firm may be a partnership firm or a proprietorship firm. A proprietorship firm is owned by one single person. In a partnership, there are several partners, who share profits. A real Company will always have the word 'Limited' at the end of the name. Normally it is written as 'Ltd.'. This means that the liability of its members is limited. So we will be called 'Lok Jagran Manch Limited'? That sounds funny… Yes, it does. Therefore, non-profit companies enjoy a special facility. They are allowed to drop the word 'Limited' (or 'Private Limited') from their name. So you can still call yourself as 'Lok Jagran Manch'. Do we need to renew the registration after few years? No. If you keep filing the annual returns etc., no renewal is ever required. What about the Charity Commissioner? All public Trusts and Societies in Maharashtra and Gujarat have to be registered with the Charity commissioner. Can a non-profit Company pay salary to its directors? Yes. They can pay salary to any director or office bearer who is working actively in the company. This applies across the country, including states like Tamilnadu (where office bearers of society can not draw remuneration). The catch is that if any of the director is also a member (shareholder), then approval of the Central Government is needed for paying any salary or fees to that director. Can a non-profit Company get FCRA? Yes. A non-profit company is treated in exactly the same way as a society, so far as FCRA is concerned. Is it very difficult to register a non-profit company? Yes and no. It is probably less difficult than registering a society in some states. The advantage of a company is that you escape the whims and fancies of the Registrar of Societies. But… You fall into the clutches of Registrar of Companies (ROC). Only saving grace is that at the ROC everything works according to written rules. And your C.A.s know most of the rules. The real problem is with getting a license under section 25. This is needed so you can drop the word 'limited'. The license is issued by one of the four Regional Directors and is fairly difficult to get. Are there many formalities later on? Some of the formalities have been waived for non-profit companies. Still, the formalities are more than a society. And, most important, the ROC is pretty good at enforcing these formalities. Who should go for a non-profit Company? People who want to do things differently but want a rock-solid organisation structure. These people would probably be based in a state capital. They would be willing to invest a little extra time in paper work and reading the rulebook. They may possibly like to call themselves 'social entrepreneurs'. They would be thinking of unusual, untested strategies of working and raising funds. They would definitely be interested in taking their work across state boundaries. And they may also be tempted by what lies beyond India's borders. If you choose the company form, do it after careful thought. A non-profit company is not for the novice or the faint-hearted! Registration Realities Choosing a name This may take a week or two. A fee of Rs.50 has to be paid [Order u/s 613 dated 22-Dec-62]. For commercial companies the fee is Rs.500. Memorandum & Articles There are some standard requirements for inclusion in these. There are printers who specialise in this. It is cost-effective to ask the printer whether they have a standard type-set. On the other hand, it is also a good idea to go through the articles carefully. This will help protect your Company later on from undesirable elements. The printers normally agree to give you 4-8 copies initially. The ROC invariably asks for some changes in the Memorandum and Articles. The printer will deliver another 100-200 copies later after making these corrections or changes License under section 25 You will also have to publish a small notice about your application in two newspapers (English and a regional language). The Regional Director may ask for reports from the District Magistrate, ROC and the State Government. However, in normal cases, ROC's report is sufficient. Some follow-up and a visit to Regional Director may be required for getting this license. This process may take up to 4-5 months. Registration with ROC The registration procedure varies a little from state to state. However, the registration certificate is normally granted within one month after filing section 25 license. No stamp duty is required for filing Memorandum and Articles. But you will have to pay registration fees. This depends on your share capital. If your authorised share capital is less than Rs.20,000 then total registration and filing fees will come to about Rs.500. If the capital is five lacs, then the fees will be around Rs.6,000. If you do not have a share capital, this may range from about Rs.200 to Rs.1,700. ROC offices
Total costs of registering a non-profit company may range between Rs.8,000 to Rs.20,000. The figure includes all costs: ROC fees, printing, fees to CA / lawyer, advertisement and travel to Regional Director's office. The total cost depends upon your share capital, fees of the CA or lawyer, and whether you have to travel to Regional Director's office. Converting to Company This may, however, require that you re-apply to FCRA for change in your FC registration. Ambling along Board Meetings Board meetings must be held regularly, normally once each quarter. Proper minutes should be maintained. Annual General Meetings It is compulsory for companies to give copies of audited accounts to members. Proper notice and minutes of these meetings are required. Members in a company enjoy much more real power than in a Society. Their rights are also better protected by the Law. A member who can not attend personally can also vote by proxy. Members in a Company can not be removed so easily as in a society. Auditors Auditors of a society can be removed very easily. Removal is much more difficult in case of a company. This helps ensure independence of auditors. Annual Returns These requirements are enforced pretty strictly. Annual Costs But there are additional costs to be paid to C.A.s or lawyers for their advice and help with paper work. These may average around Rs.5,000 to Rs.15,000 each year. Daring Disclosures Conflict of Interest They can not vote on any contract in which they may be interested. All such contracts are entered in a register. Disclosure of payments Any other payment to the directors, their relatives, or their firms, has to be disclosed. Similarly, payments to highly paid employees have to be disclosed. All payments to auditors have to be disclosed. Public access Audited accounts of a society are also open to public in the same manner. However, in practise, locating accounts of a Society in the Registrar's office is very difficult. Facts and Figures How many non-profit companies are registered in India? The Registrar of Companies does not have clear statistics on this. By 31st March '99, a total of 5,10,954 companies had been registered. We do not know how many of these were exempted under section 25. However, we know that at least 17,942 companies of these are classified under 'Community Social Services'. Information Courtesy : Accountaid.net Visit Accountaid.net for the latest information.
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