Question

According to results from a telephone survey conducted by the regional collaborative WNC Healthy Impact, cost or lack of health insurance proved to be the number one deterrent preventing people from seeking mental health care when needed.

As a result, a team has decided to raise funds for people in need of mental healthcare services. The team envisions an entity that would provide both fundraising efforts and employ qualified therapists at a reasonable cost for patients.

Research and discuss the optimal business type for this entity. Is a not-for-profit status a possibility?

What alternatives has the team considered? What factors must be taken into account to start operations? Discuss both quantitative and qualitative aspects, including but not limited to costs, taxes, timing, and legal ramifications. How have they influenced the teams final conclusion?

Answer 1

A non profit organisations can be registered in India as a Society, under the Registrar of Societies or as a Trust, by making a Trust deed, or as a Section 8 Company, under the Companies Act, 2013.

Whether a trust, society or Section 8 company, the Income Tax Act, 1961 gives all categories equal treatment, in terms of exempting their income and granting 80G certificates, whereby donors to non-profit organisations may claim a rebate against donations made. Foreign contributions to non-profits are governed by FC(R)A regulations and the Home Ministry.

For an organisation to be termed as charity it requires Income tax clearances under 12 A Clause of Income Tax Act. Section 2(15) of the Income Tax Act defines ‘charitable purpose’ to include ‘relief of the poor, education, medical relief and the advancement of any other object of general public utility’. A purpose that relates exclusively to religious teaching or worship is not considered as charitable.

HENCE THERE IS A POSSIBILITY OF NOT FOR PROFIT STATUS.

Application for Registration

1. An application has to be made for availability of name to the registrar of companies, which must be made in the prescribed form no. INC-1, together with a fee of Rs.1000/-. It is advisable to suggest a choice of five other names by which the company will be called, in case the first name which is proposed is not found acceptable by the registrar.

2. Once the availability of name is confirmed, an application should be made in writing to the regional director of the company law board. The application should be accompanied by the following documents:

• Three printed or typewritten copies of the memorandum and articles of association of the proposed company, duly signed by all the promoters with full name, address and occupation.
• A declaration by an advocate or a chartered accountant (Or practicing company secretary or cost accountant) that the memorandum and articles of association have been drawn up in conformity with the provisions of the Act and that all the requirements of the Act and the rules made thereunder have been duly complied with, in respect of registration or matters incidental or supplementary thereto.
• Three copies of a list of the names, addresses and occupations of the promoters (and where a firm is a promoter, of each partner in the firm), as well as of the members of the proposed board of directors, together with the names of companies, associations and other institutions in which such promoters, partners and members of the proposed board of directors are directors or hold responsible positions, if any, with description of the positions so held.
• A statement showing in detail the assets (with the estimated values thereof) and the liabilities of the association, as on the date of the application or within seven days of that date.
• An estimate of the future annual income and expenditure of the proposed company, specifying the sources of the income and the objects of the expenditure.
• A statement giving a brief description of the work, if any, already done by the association and of the work proposed to be done by it after registration, in pursuance of section-8 of Companies Act, 2013 (section-25 of Companies Act, 1956).
• A statement specifying briefly the grounds on which the application is made.
• A declaration by each of the persons making the application that he/she is of sound mind, not an undischarged insolvent, not convicted by a court for any offence and does not stand disqualified under section 164 of the Companies Act, 2013 (section 203 of the Companies Act 1956), for appointment as a director.

3. The applicants should also, within a week from the date of making the application to the registrar of the companies, publish a notice in the prescribed manner at least once in a newspaper in a principal language of the district in which the registered office India of the proposed company is to be situated or is situated and circulating in that district, and at least once in an English newspaper circulating in that district.

4. The registrar of companies may, after considering the objections, if any, received within 30 days from the date of publication of the notice in the newspapers, and after consulting any authority, department or ministry, as he may, in his discretion, decide, determine whether the licence should or should not be granted.

5. The registrar of companies may also direct the company to insert in its memorandum, or in its articles, or in both, such conditions of the licence as may be specified by him in this behalf.

Special Licensing

In addition to registration, a non-profit engaged in certain activities might also require special license/permission. Some of these include (but are not limited to):

1. A place of work in a restricted area (like a tribal area or a border area requires a special permit – the Inner Line Permit – usually issues either by the Ministry of Home Affairs or by the relevant local authority (i.e., district magistrate).
2. To open an office and employ people, the NGO should be registered under the Shop and Establishment Act.
3. To employ foreign staff, an Indian non-profit needs to be registered as a trust/society/company, have FCRA registration and also obtain a No Objection Certificate. The intended employee also needs a work visa.
4. A foreign not-for-profit may be registered as a branch, liaison or project office [and not necessarily as an Indian entity] after the requisite permission has been granted by the RBI. Upon receipt of approval from the RBI, the foreign office must within 30 days seek registration under the Companies Act, 1956. Alongside of these permissions, the office must acquire tax registrations.