NGO and Profit Not Distributing Company: A Brief Comparison

A Non-Governmental organization (“NGO”) is a non-profit making entity established by a group of people for voluntary purposes in a certain sector. These organizations work for the betterment of society by contributing either in the field of environment, education, health, human rights protection, women empowerment, protection of children, old aged people, or the like. For their functioning, NGOs rely on various funding sources like private donations, grants, government foundations, etc.

Profit not distributing companies (“PNDCs”) are the companies in which although profit is sought, it is not distributed among the owners. The profit that they make or the donations they receive are used in pursuing the organization’s objectives and for the organization’s growth. The Company Act, 2063 B.S. has defined Profit non distributing company as a company that is incorporated on the condition that it will not distribute or pay to its members any dividends or any other amounts of money out of profits earned or savings made for the attainment of any objectives. Such companies are incorporated with a motive to develop and promote any profession or occupation or to protect the collective rights and interests of the people engaged in any specific profession or occupation or to carry on any enterprise for the attainment of any scientific, academic, social, benevolent or public utility or welfare objectives on the condition of not distributing dividends.

In General, PNDCs are no different than NGOs regarding what they do or aim to do. Both work alike. What differs them are the registration and legal compliance procedures and requirements. Further differences are discussed below.

Overview of the Basic Differences

Subject NGO Profit Not Distributing Company
Incorporation Incorporated as an association under Association Registration Act, 2034 B.S. at District Administration Office Incorporated as a company under Company Act, 2063 B.S. at Office of Company Registrar
Number of promoters Must be at least 7 in number At least 5, with no maximum number limit
Incorporation Document(s) Statute of Association Memorandum of Association and Article of Association
Incorporation Pre-requisite Minute of Meeting of Promoters

Formation of Ad hoc Committee

None in Particular
Registration Authority District Administration Office Office of the Company Registrar (“OCR”)
Police Clearance Report for Promoters Required Not Required
Recommendation letter from the local level Required Not Required
Scope of Work Only the district in which it is registered.

In order to work in any district other than the designated one, it requires permission from the local level.

Can work anywhere within the country
Renewal of registration Needs to be renewed every year. Documents of Annual General Meeting to be filed at OCR

Registration

Under the Nepalese legal framework, NGOs are registered at the concerned District Administration Office (DAO). DAO registers NGO only after a letter of recommendation is received from the concerned ward office at first and then from the District Coordination Committee (DCC).

Whereas, PNDCs are registered under the Office of Company Registrar pursuant to Company Act, 2063. No prior approvals or recommendations are required unless they are of specific nature.

Required Documents for registration

For the registration of an NGO, the applicant shall be required to submit the following documents to DAO:

  1. Application for registration signed by all 7 members
  2. Statue of the organization
  3. Copy of citizenship of all board members
  4. Recommendation letter from the ward office
  5. Recommendation letter from DCC
  6. Copy of minutes of the meetings of promoters for incorporation of NGO
  7. Copy of rent agreement
  8. Police Clearance Report
  9. Copy of citizenship certificate of promoters.

For the registration of a PNDC, the applicant shall be required to submit following documents to Office of Company Registrar:

  1. Memorandum of association of the company
  2. Articles of association of the company
  3. Certified copies of the citizenship certificate of promoters
  4. Application for registration
  5. Power of Attorney for an agent.

Registration Process:

NGO PNDC
Step 1: Drafting incorporation Documents: Statute of the association

Step 2: Get a recommendation letter from the local level (Municipality/ Metropolitan)

Step 3: Submit the statue of NGO along with minute of meeting of promoters, recommendation letter from the local level, police clearance report of every promoter at the District Administration Office

Step 4: Obtaining a certificate of registration

Step 5: Tax Registration (obtaining Permanent Account Number (PAN))

Step 6: Registration at the local level

Step 1: Name Reservation (Online)

Step 2: Drafting incorporation documents: Memorandum of Association, Article of Association

Step 3: Uploading the incorporation documents in the Official website of OCR

Step 4: Submitting hard copies of the incorporation documents at OCR

Step 5: Obtaining a certificate of registration

Step 6: Tax Registration (obtaining Permanent Account Number (PAN))

Step 7: Business Registration at the local level

Areas of Common Operation

Affiliation with Social Welfare Council

The Social Welfare Act, 2049 B.S., in Section 13, provides for the affiliation of social organizations with the Social Welfare Council. The NGO affiliation guideline, 2071 provides that the NGOs and PNDCs can get affiliation with the Social Welfare Council by submitting all necessary documents. If all the necessary documents are submitted, the Council will issue an affiliation certificate. The fee for such affiliation is Rs. 1500/-. Such affiliation is compulsory if it is to receive foreign aid and foreign grants.

Approval for Economic Assistance

Section 16 of the Social Welfare Act provides, social organization and institutions willing to get material, technical, economic or any other kind of assistance either from the Government of Nepal or foreign countries, international social organizations and institutions or missions or individuals shall submit a project proposal and application along with other details. The guideline for the approval of foreign aid, 2071 also provides that the NGOs and PNDCs need to get the approval of the Social Welfare Council for foreign aids. Such organizations need not pay any fee for getting such approval.

Conclusion

Although there are various similarities in the operation of an NGO and a PNDC, the registration procedures and the legal compliances that are mandated to these organizations differ in many ways. Since both an NGO and a PNDC are operated with no profit motives, both are eligible for tax exemption, both depend on grants, aids, donations, both require affiliation of the social welfare council, these two organizations have distinct motives of the establishment. While an NGO is mandated not to engage itself in any income-generating activities, there is no such restriction for PNDCs to abide by.

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