Section 8 Company vs Trust and Society: Which is Best for NGOs?

Non-governmental organizations (NGOs) are crucial for social development and welfare. Choosing the right legal structure is vital for establishing credibility and attracting resources. When it comes to forming an NGO in India, three common options are available: Section 8 Company, Trust, and Society. In this article, we’ll break down the differences between them to help you decide which structure best fits your organization’s needs.

What is a Section 8 Company?

A Section 8 Company is a special category under the Companies Act, 2013, aimed at promoting charitable activities such as education, art, commerce, and social welfare. These companies do not pay dividends to shareholders, and profits must be reinvested into the company’s objectives.

Benefits of Section 8 Company

• Legal Standing and Credibility: Section 8 companies have a higher level of credibility as they are registered under the Companies Act, which offers better governance and accountability.

• Tax Exemptions: The government provides tax exemptions under Sections 12A and 80G of the Income Tax Act.

• Easy Section 8 Company Registration: The process is streamlined, and online Company Registration portals make the procedure hassle-free.

Trust as an NGO

A Trust is another popular form of NGO, governed by the Indian Trusts Act, 1882. Trusts are formed to manage property or resources for charitable purposes, ensuring they are used for the benefit of a particular group or cause.

Advantages of Trusts

• Simple Setup: Trusts have an easy setup process and require less documentation compared to a Section 8 Company.

• Local Operations: Trusts often operate within a specific region or state, which can simplify local compliance.

Society as an NGO

A Society is an association of individuals who come together to promote a charitable cause. Societies are governed by the Societies Registration Act, 1860, and are usually formed by at least seven members.

Benefits of Society

• Wider Reach: Societies can operate across India and even internationally if registered at the national level.

• Collaborative Structure: The society model encourages more democratic participation from its members, with decisions typically made through voting.

Key Differences Between Section 8 Company, Trust, and Society

Legal Structure and Governance

• Section 8 Company: Governed by the Companies Act, 2013, and requires stricter compliance with annual filings and audits.

• Trust: Governed by the Indian Trusts Act, 1882, and has minimal regulatory requirements, mostly at the state level.

• Society: Governed by the Societies Registration Act, 1860, and requires annual filings, but is less stringent than a Section 8 Company.

Compliance and Tax Benefits

• Section 8 Company: Offers maximum tax benefits under the Income Tax Act, and has the highest level of regulatory oversight.

• Trust: Offers fewer tax benefits and is simpler in terms of compliance.

• Society: Offers moderate tax benefits and has minimal regulatory oversight compared to a Section 8 Company.

Which is Best for NGOs?

When choosing between a Section 8 Company, Trust, and Society, the decision depends on the size, scale, and ambitions of your NGO. If you're looking for long-term sustainability, maximum tax benefits, and high credibility, a Section 8 Company Registration is the best option. However, if you aim for simpler operations with limited reach, a Trust or Society may suffice.

Conclusion

Selecting the right legal structure for your NGO is a critical decision. Each option has its benefits and limitations. While Trusts and Societies offer ease of setup and operation, a Section 8 Company provides higher credibility and tax exemptions. For NGOs aiming to grow and expand their reach, Section 8 Company Registration under the Companies Act is the preferred route.

Also Read: How to Download the IRDA License Certificate Online?