I know many NGO organization, and I am personally involved in some. It is hard to get registered with the Internal Affairs Bureau. I tried to setup Coffee Bean Club to help students to get access to successful people, but it was not possible to register, so my choice, and many other NGO’s choice was to stay unregistered.
To have many organizations unregistered is not a good thing for all the parties. For the founders of the organization, since it is not legally recognized, it is very vulnerable, not just to the government inspection, but to all type of criminals. For example, they have to use personal account to keep organization money ($#%#!), and they cannot legally hire people, and they cannot do anything outside the power of several individuals. For volunteer organizations, it may be OK, but there is no growth. For the government, it is not good since they cannot provide services, and cannot take their duty to make sure everything is fine. For others the organization is interacting with, it is the same to deal with a gangster organization – no legal protection.
The line between good people doing good stuff (unregistered NGO) and bad people doing bad things (like criminal groups) is blurred.
Since the road for unregistered organization is hard, many people just register as a company – a for profit company. This is actually the only workaround I can think of. In practices, I know many of my friends doing good things using a company. There is a small issue of registering as a company – every dollar coming into the company is subject to 5% of tax, and subject to income tax. Well. It does not bother most of people since this is the only choice. They pay tax!
NGO as a Company
Gongmeng’s situation is like many NGOs in China, although more NGO is not registered at all.
In the Gongmeng’s case, the tax authority accuses Gongmeng for tax evasion for a donation not confirmed by Yale University. This is the typical risk NGO as a company faces. In theory, most of the organizations involved in Sichuan earthquake the last year are vulnerable to this claim. If the any of the government officials want, they can legally investigate and punish the organizations involved in the Sichuan help. As far as I know, most of the organizations just transfer the money directly to the people who needed help. If they got 100 RMB, they gave out 100 RMB. “Hey guys! You didn’t pay the tax!” I don’t know a policy to give tax free status to NGO so far (correct me if I am wrong).