Non-Governmental Organizations (NGOs) play a crucial role in the social and economic development of a country. These organizations work towards the betterment of society, addressing various issues like education, poverty alleviation, healthcare, and environmental sustainability. However, NGOs can be structured in different ways, and one of the most recognized forms in India is the Section 8 company. While all Section 8 companies are NGOs, not all NGOs are Section 8 companies. This article explores the key differences between a Section 8 company and other types of NGOs.
What is an NGO?
An NGO, or Non-Governmental Organization, is a broad term that refers to any non-profit entity that operates independently of the government. NGOs can be formed for various purposes, including charitable, religious, educational, and social activities. In India, NGOs can be registered under different legal structures, including Trusts, Societies, and Section 8 companies.
What is a Section 8 Company?
A Section 8 company is a type of NGO registered under Section 8 of the Companies Act, 2013. It is formed to promote commerce, art, science, sports, education, research, social welfare, charity, or environmental protection. Unlike other companies, a Section 8 company does not aim to generate profits for its members but instead reinvests any income towards achieving its objectives.
Key Differences Between a Section 8 Company and Other NGOs
Legal Structure
A Section 8 company is registered under the Companies Act, 2013.
NGOs can be structured as Trusts (under the Indian Trusts Act, 1882) or Societies (under the Societies Registration Act, 1860).
Governance and Regulation
A Section 8 company is governed by the Ministry of Corporate Affairs (MCA) and must comply with corporate governance norms.
Trusts and Societies follow different regulatory frameworks based on state and central laws, and their compliance requirements are usually less stringent.
Profit Distribution
A Section 8 company cannot distribute profits or dividends to its members; all earnings must be reinvested in the company’s objectives.
In a Trust or Society, surplus funds may also be used for charitable purposes, but the structure allows for more flexibility in fund management.
Formation and Registration
To register a Section 8 company, approval from the Registrar of Companies (RoC) and a license from the MCA are required.
Trusts are created through a trust deed, and Societies require a memorandum of association and bylaws.
Tax Benefits
A Section 8 company enjoys several tax benefits under the Income Tax Act, including exemptions under Section 80G and 12A.
Trusts and Societies may also avail of similar tax exemptions but are subject to different regulatory criteria.
Credibility and Transparency
A Section 8 company is considered more credible due to strict regulatory compliance and mandatory financial audits.
Trusts and Societies may have lesser regulatory oversight, making transparency dependent on internal governance.
Ease of Fundraising
A Section 8 company is preferred by donors, government agencies, and international organizations due to its corporate structure and compliance with the Companies Act.
Trusts and Societies may face challenges in securing large-scale funding due to their less formal governance structures.
Perpetual Succession
A Section 8 company has perpetual succession, meaning it continues to exist regardless of changes in membership.
In Trusts and Societies, changes in management or trustees can sometimes lead to instability.
Dissolution
Dissolving a Section 8 company requires approval from the National Company Law Tribunal (NCLT), and any remaining assets must be transferred to another non-profit organization.
Trusts and Societies follow different dissolution processes, often requiring court intervention.
Which is Better: Section 8 Company, Trust, or Society?
The choice between a Section 8 company, Trust, or Society depends on the organization’s goals, funding needs, and regulatory preferences. A Section 8 company is ideal for NGOs that seek high credibility, long-term stability, and access to large-scale funding. Trusts and Societies may be more suitable for small-scale charitable initiatives with limited administrative needs.
Conclusion
While both Section 8 companies and other NGOs aim to serve society, their legal structures, governance, and compliance requirements differ significantly. A Section 8 company offers greater transparency, regulatory oversight, and fundraising potential, making it a preferred choice for large-scale non-profit organizations. However, Trusts and Societies remain viable options for those seeking simpler registration and operational structures. Understanding these differences can help individuals and organizations choose the right framework to achieve their philanthropic goals effectively.
