Section-8 Company vs. Trust vs. Society- Which form of NGO is better?
If you are intending to form a “Non-Profit Organisation” (NPO) or “Non-Government Organisation” (NGO), you might be thinking of the best form of NGO for you. NGOs are the organisations which are formed to promote education, health, social welfare & other charitable purposes. In India, you have three options for forming a NGO which are namely:
- Section 8 Company
- Trust
- Society
You may choose any of these forms of NGO depending on the size and nature of activities and the compliances involved in running such form of NGO. Let’s have a discussion over each form of NGO to decide which one is better for you.
Forms of NGO
As already discussed above, there are 3 forms of constitutions for a NGO:
- Section 8 Company
- Trust
- Society
Each form of NGOs is governed by separate enactments. For example:
- Section 8 Company: Companies Act, 2013 is applicable to a Section 8 Company. Section 8 companies are registered under Companies Act 2013.
- Society: Societies are registered as per the provisions of Societies Registration Act, 1860.
- Trusts: Trusts are formed under the provisions of Public Charitable Trust Act of the respective state.
Factors to be considered while choosing form of NGO
You might be confused about the appropriate mode of NGO for your desired activities. The selection of the form of NGO depends on various factors. These factors are as below:
|
Factors |
Particulars |
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Size of institution |
The size of the institution is an important factor to decide the form of constitution of NGO. In case of smaller size, you can opt trust instead of society or section 8 company. But where the size of NGO is expected to be large, you should opt for society or section 8 company as appropriate form.
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Initial Cost of formation |
Undoubtedly, the cost of forming a trust is lower as compared to society or section 8 company. Therefore, if initial cost is your concern, you should opt for trust as your choice of NGO.
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Recurring Cost |
Small NGOs should opt trusts as an option to keep recurring cost as minimal. Medium or Large size NGOs can opt for Society or Section 8 Company as their form of NGO.
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Compliances required |
In case of a Section-8 company, the statutory compliances include statutory audit, audit u/s 12A, yearly director’s kyc, filing of annual returns. Whereas in case of society or trust, you need to file audit u/s 12A only. Therefore, if you are concerned with compliances, you should opt for a trust or society.
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Corporate Identity |
Section-8 company gives a corporate identity to the NGO. It also receives more recognition as compared to a trust or a society.
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Number of members |
Minimum 7 members are required for forming a society. In case of a trust or a company, minimum 2 members are required.
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Trend |
Presently, Section 8 company is more preferred and is in trend. Trust is considered as an older & outdated form of constitution of NGO.
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Activities |
If the objects of the NGO are expected to benefit a larger section of the society, constituting a society or section 8 company is preferable. If the activities are confined to a small segment of public, then constituting a trust is preferred.
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Comparison of Section 8 Company, Trust and Society
In the table below, we have made a comparison of the three forms of NGOs namely Section 8 Company, Trust and Society. This may help you in deciding the constitution of your NGO:
|
Basis |
Trusts |
Society |
Section 8 Company |
|
Applicable Statue |
Public Trusts are governed by Trust Act of respective states in which the jurisdiction of trust falls. Private Trusts are governed by Indian Trusts Act, 1882. |
If society is operating PAN India, the Societies Registration Act, 1860 applies. In other cases, State-wise Society Act shall apply. |
Section 8 Company are formed under and governed by Companies Act, 2013 |
|
Registering Authority |
Sub-registrar of the concerned area is authorised to register a Trust |
In every state, Registrar of Societies is the authority for registration of society. |
Registrar of Companies (ROC) is the registering and regulating authority of section 8 company. |
|
Constitution Document |
Trust Deed |
Memorandum of Society and Rules & Regulations |
Memorandum of Association & Article of Association |
|
Minimum Members required |
Minimum 2 trustees are required |
Minimum 7 members are required for State-level Society. 8 members from different states in which the society is operative are required to form a national level society, these members should be the individuals only. |
Minimum 2 directors and 2 shareholders are required to form a Section 8 Company. The shareholders and the directors can be the same person. |
|
Management |
Managed by the Board of Trustees |
Managed by the Managing or Governing Committee |
Managed by the Board of Directors |
|
Annual Compliances |
There are no mandatory annual compliances except ITR filing |
The Society is required to file the list of names, occupation and address of the managing committee members of society to the Registrar annually in addition to ITR filing |
The company is required to file annual return with ROC & Director’s KYC in addition to ITR filing |
|
Registration under Income Tax Act |
Allowed (Charity Commissioner Registration also needed) |
Allowed (Charity Commissioner Registration also needed) |
Allowed |
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Annual Compliance Cost |
Low |
Medium |
High |
|
Global Acceptability |
Low |
Medium |
High |
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Preference for FCRA registration |
Low Preference |
Low Preference |
Preferable- High |
|
Ownership of Assets |
Trust properties are held by the trustees |
Assets & properties of society are held in the name of society itself |
All the assets & properties of section 8 company are held in the name of company itself. |
|
Time period involved in registration |
10-15 days |
20-30 days |
25-35 days |
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