Types of NGO – Trust, Society and Section 8 Company

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Outline

The three types of organizations that are about to be discussed within this article are Non-Governmental organizations NGOs. These organizations are generally formed to promote social welfare, social development, and other charitable purposes.
In India, such an organization may be established as a Section 8 Company, Trust, or Society. Bear in mind that these are not the same. They have different purposes and uses depending upon what you intend to achieve through the establishment of the organization.

NGO – TRUST, SOCIETY OR COMPANY

Section 8 Company

Section 8 companies are governed by the Companies Act 2013.  A company under this section can be formed for promoting charitable objects relating to art, commerce, science, health, and so on. These companies enjoy all the privileges and are subject to all obligations of Limited Companies.

Trust

Trust is considered to be the oldest form of Charitable Organization. Trust can be either private or public. It is primarily created for the benefit of a section of people. Trust is governed by the Indian Trust Act 1882. The main instrument for Registration of Trust is Trust Deed. The creator of the Trust also appoints trustees. The trustees are given control or powers of administration of property in trust with a legal obligation to administer it solely for the purposes specified.

Society

Societies are governed under Society Registration Act 1860. It is generally formed by seven or more people who come together for a common charitable purpose. The main instrument for the Registration of Society is the Memorandum of Association.
The registration process of NGOs under the Indian Trust Act, Society Registration Act, or The Companies Act, 2013 is different, but the status of the organization is equal an NGO. There is no difference in getting funding from the Sources mentioned above.

Basis

Section 8 Company

Trust

Society

Statute/ legislation
The Companies Act, 2013Relevant state ActSocieties Registration Act, 1860
Jurisdiction
Registrar of CompaniesDeputy Registrar/Charity CommissionerRegistrar of Societies
Registration documents
Memorandum and articles of associationTrust DeedMemorandum Of A Society
Stamp Duty
Differ from stateTrust deed to be executed on non-judicial stamp paper, vary from state to state.Differ from state
Members required
Minimum 2Minimum 2 trusteeMinimum seven committee members. No upper limit.
Board of Management
Board of directorsTrustee/Board of trusteeGoverning body of council/Managing or executive committee
Grants and subsidies from the government
Considerable (possible)Not muchNot much
Preference in registration under  FCRA 
PreferredLow preferenceLow preference
Transparency 
HighLowLow
Legal right over the property
Held in the name of the CompanyHeld in the name of the TrustHeld in the name of the Society
Annual compliance requirement
Annual compliance of filing of accounts and filing of annual return of Section 8 company, with the Registrar of Companies (ROC).There is some annual compliance requirement depending on whether the trust is Private trust or Public Trust.

Annual filing of a list of names, addresses, and occupations of members of the Managing Committee of the society, with the Registrar of Societies.

What Should You Choose?

1. Section 8 Company – Executing a wide range of activities and gaining reliability and credibility.
2. Trust – More than one family member is running the business. Privacy in activities is much needed.
3. Society – Ideal organizational body if you want an elected body to manage it. It also allows for an easy exit of its members.
An NGO can avail exemption under the Income Tax Act by getting itself registered and complying with certain other formalities, but such registration does not provide any benefit to the persons making donations. The Income Tax Act has certain provisions, which offer tax benefits to the “donors”. All NGOs should avail the advantage of these provisions to attract potential donors. Section 80G is one of such sections.
By virtue of 12A registration, Trusts and NGOs and other Section 8 companies enjoy exemption from paying income tax. NGOs are basically organizations that are meant for charitable and non-profit activities. However, they do have income and would be required to pay tax as per normal rates if not registered under section 12A of the Income Tax Act. Section 12A of the Income Tax Act, 1961 does not differentiate between charitable and religious Trusts. Hence 12A registration is applicable to both kinds of organizations.

Conclusion

From the above comparison, we get an overview of the important points that need discussion before choosing from the proper type of organization. Apart from these, there are some other important matters that need to be taken into consideration for choosing a better option for your business- Trust, Society, or Section 8 Company.

Disclamer: The article provided here is solely for information purposes. This is prepared based on information provided on various forums and the same has been utilized only for information of the readers. The information presented in this article does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice. In case of necessity, consult with professionals.

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