When it comes to forming a nonprofit organization in India, two common options stand out: NGOs and Section 8 companies. Both serve charitable purposes, but they differ in structure, registration process, governance, and legal compliance. Understanding these differences is crucial for individuals and organizations aiming to contribute to society. In this article, we will compare NGOs and Section 8 companies in detail and determine which is the better option for your charitable endeavors.
What is an NGO?
A Non-Governmental Organization (NGO) is a voluntary group that operates independently from the government to address social, environmental, and humanitarian issues. NGOs can be registered as trusts, societies, or Section 8 companies. Their primary aim is to promote social welfare and development without a profit motive.
Types of NGOs:
- Trust – Governed by the Indian Trusts Act, 1882, suitable for long-term charitable activities.
- Society – Governed by the Societies Registration Act, 1860, requiring a minimum of seven members for formation.
- Section 8 Company – Governed by the Companies Act, 2013, with a corporate structure and strict compliance requirements.
What is a Section 8 Company?
A Section 8 company is a type of nonprofit organization registered under the Companies Act, 2013. It is formed to promote commerce, art, science, education, research, sports, charity, social welfare, religion, environmental protection, or similar objectives. Unlike NGOs registered as trusts or societies, Section 8 companies have a more structured and transparent framework.
Key Differences Between NGO and Section 8 Company
| Feature | NGO (Trust/Society) | Section 8 Company |
|---|---|---|
| Governing Law | Indian Trusts Act, Societies Registration Act | Companies Act, 2013 |
| Registration Process | Easier and faster | More complex but ensures better compliance |
| Regulatory Body | State government | Ministry of Corporate Affairs (MCA) |
| Legal Identity | No separate legal entity | Separate legal identity |
| Governance | Managed by trustees/members | Managed by a Board of Directors |
| Funding & Credibility | Less credibility in fundraising | High credibility for receiving foreign and domestic funds |
| Annual Compliance | Less stringent | More stringent but structured |
Advantages of Section 8 Company Over NGO
- Separate Legal Identity: Unlike trusts and societies, Section 8 companies have a separate legal identity, meaning they can enter contracts and own property in their name.
- Credibility & Transparency: Due to its corporate structure, a Section 8 company enjoys higher credibility among donors, making it easier to attract funding.
- Limited Liability: The liability of the members is limited, providing protection against financial risks.
- Tax Benefits: Section 8 companies can avail of several tax exemptions under the Income Tax Act, 1961.
- Better Governance: Section 8 companies follow strict regulations under the Companies Act, ensuring better governance and transparency.
Section 8 Company Registration Process
The Section 8 company registration process involves multiple steps, ensuring that the company adheres to legal standards and compliance. Here’s how to register a Section 8 company:
- Obtain Digital Signature Certificate (DSC): The first step is obtaining a DSC for the directors.
- Apply for Director Identification Number (DIN): Directors need to apply for a DIN from the Ministry of Corporate Affairs.
- Name Approval: Submit a name approval request through the RUN (Reserve Unique Name) service of MCA.
- Draft Memorandum & Articles of Association: The MoA and AoA must align with the charitable objectives of the organization.
- File Incorporation Form (SPICe+): Submit Form SPICe+ along with necessary documents to the Registrar of Companies (RoC).
- Obtain License under Section 8: Upon approval, a license is granted, allowing the organization to operate as a nonprofit entity.
- PAN & TAN Application: The company must apply for PAN and TAN for tax compliance.
This structured registration process ensures that a Section 8 company registration maintains transparency and accountability.
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Which One Should You Choose?
The choice between an NGO (trust/society) and a Section 8 company depends on your objectives, scale of operations, and compliance capabilities.
- If you are starting a small-scale charitable initiative with minimal regulatory requirements, a trust or society is a better option.
- If you aim for large-scale fundraising, international funding, and structured operations, a Section 8 company registration is the ideal choice.
- If you want better governance, limited liability, and corporate credibility, a Section 8 company is preferable over a trust or society.
Conclusion
While both NGOs and Section 8 companies serve charitable purposes, a Section 8 company registration provides greater credibility, governance, and funding opportunities. It is a preferred option for organizations looking for long-term sustainability and structured operations. However, if you prefer a simpler and less stringent framework, registering as a trust or society may be the right choice.
Before making a decision, evaluate your organization’s goals, funding requirements, and legal compliance capacity. If you seek a structured nonprofit with transparency and tax benefits, Section 8 company registration is the better option for long-term impact and growth.
