Legislative, Regulatory & Organizational Requirements when Sourcing from Not-for-Profit

Sourcing from not-for-profit organizations (NPOs) in India involves understanding and complying with specific legislative, regulatory, and organizational requirements. These ensure that transactions are legal, ethical, and beneficial to both parties.

Legislative and Regulatory Requirements

1. Foreign Contribution (Regulation) Act, 2010 (FCRA):

NPOs receiving foreign contributions must be registered under the FCRA. Businesses sourcing from such NPOs should ensure their partners comply with FCRA regulations to avoid legal issues related to foreign funding.

2. Goods and Services Tax (GST):

NPOs are subject to GST regulations, and their services or products may be taxable under certain conditions. Businesses need to understand the implications of GST on transactions and ensure compliance.

3. Income Tax Act, 1961:

Sections like 80G provide tax benefits for donations to certain NPOs. While this might not directly affect sourcing transactions, understanding the tax implications of financial transactions with NPOs is crucial.

4. Companies Act, 2013:

Under the Corporate Social Responsibility (CSR) provisions, companies can partner with NPOs to execute CSR activities. Ensuring that the NPO complies with the Companies Act provisions for CSR projects is necessary.

5. Societies Registration Act, 1860 or Indian Trusts Act, 1882:

Depending on the structure of the NPO, it may be registered under these Acts. Businesses should verify the legal status and compliance of NPOs under these Acts.

Organizational Requirements

1. Due Diligence:

Before engaging with an NPO, conduct thorough due diligence to verify its legal status, financial health, reputation, and compliance with relevant laws and regulations.

2. Transparency and Accountability:

Ensure that the NPO follows principles of transparency and accountability, especially in financial transactions and project implementations.

3. Contractual Agreements:

Any agreement with an NPO should clearly outline the terms of engagement, expectations, deliverables, compliance requirements, and mechanisms for monitoring and evaluation.

4. Ethical Sourcing:

Ensure that the NPO adheres to ethical sourcing practices, especially if the engagement involves products. This includes fair labor practices, environmental sustainability, and respect for community rights.

5. Intellectual Property Rights:

If the sourcing arrangement involves intellectual property (e.g., traditional knowledge, artistic works), ensure that the rights are respected and that appropriate agreements are in place.

6. Data Protection:

Compliance with the Information Technology (Amendment) Act, 2008, for the protection of digital data and privacy is crucial, especially if the engagement involves sharing sensitive information.

Recommendations

• Regular Compliance Checks:

Conduct periodic audits and compliance checks to ensure that both the business and the NPO continue to adhere to all relevant legal and regulatory requirements.

• Capacity Building:

Consider providing support or training to NPOs to help them comply with complex regulatory requirements, especially in areas related to finance and legal compliance.

• Engage with Legal Experts:

Given the complexity of laws governing NPOs and CSR activities, seeking advice from legal experts specializing in non-profit law and corporate law in India is advisable.