Section 8 Company vs Trust vs Society: Which NGO Structure Is Right for You?
If you want to start an NGO in India, the first decision you face is choosing the right legal structure. India offers three primary options for non-profit registration: a Section 8 Company, a Trust, or a Society. Each structure has its own registration process, governance framework, compliance requirements, and suitability for different types of social work. This guide breaks down every key difference, compares costs and timelines, and helps you determine which structure is the best fit for your non-profit initiative.
Understanding the Three NGO Structures
Section 8 Company
A Section 8 Company is a non-profit company registered under Section 8 of the Companies Act, 2013 with the Ministry of Corporate Affairs (MCA). It is the corporate form of an NGO, combining the governance rigour of a company with the non-profit mandate. The company uses its profits and income solely to promote its charitable objects and cannot distribute dividends to its members.
- Governing Law: Companies Act, 2013
- Registering Authority: Registrar of Companies (ROC), MCA
- Minimum Members: 2 directors + 2 members (private) or 3 directors + 7 members (public)
- Name Style: Foundation, Forum, Association, Council (no 'Limited' or 'Pvt Ltd')
- Legal Status: Separate legal entity with limited liability
Trust
A Trust is the oldest and simplest form of non-profit entity in India, governed by the Indian Trusts Act, 1882, or state-level public trust acts. A trust is created when a person (settlor) transfers property or funds to trustees for the benefit of beneficiaries or for a charitable purpose. It is ideal for charitable, religious, educational, and community welfare initiatives.
- Governing Law: Indian Trusts Act, 1882 / State Public Trusts Acts
- Registering Authority: Sub-Registrar of Assurances / Charity Commissioner
- Minimum Members: 2 trustees (varies by state)
- Name Style: Any suitable name (Trust, Charitable Trust, etc.)
- Legal Status: Not a separate legal entity in many states; trustees act on its behalf
Society
A Society is a membership-based non-profit organization registered under the Societies Registration Act, 1860. It is formed when a group of individuals comes together for a literary, scientific, charitable, or social purpose. Societies are popular for cultural organizations, sports clubs, housing welfare associations, and professional bodies.
- Governing Law: Societies Registration Act, 1860 / State-specific amendments
- Registering Authority: Registrar of Societies (state-level)
- Minimum Members: 7 members (most states)
- Name Style: Any suitable name (Society, Sanstha, Sangha, Samiti)
- Legal Status: Separate legal entity with limited member liability
Section 8 Company vs Trust vs Society: Detailed Comparison
| Parameter | Section 8 Company | Trust | Society |
|---|---|---|---|
| Governing Law | Companies Act, 2013 | Indian Trusts Act, 1882 / State Acts | Societies Registration Act, 1860 |
| Registration Authority | ROC (Ministry of Corporate Affairs) | Sub-Registrar / Charity Commissioner | Registrar of Societies |
| Minimum Members | 2 directors + 2 members | 2 trustees | 7 members |
| Separate Legal Entity | Yes | No (in most states) | Yes |
| Member Liability | Limited | Unlimited (unless limited by deed) | Limited |
| Registration Time | 30 to 45 days | 7 to 15 days | 15 to 30 days |
| Registration Cost | Rs. 10,000 to Rs. 30,000 | Rs. 5,000 to Rs. 15,000 | Rs. 5,000 to Rs. 20,000 |
| Governance | Board of Directors (strict) | Board of Trustees (flexible) | Managing Committee (moderate) |
| Annual Compliance | High (ROC filings, audit, AGM) | Low to Moderate | Moderate |
| Annual Filing | AOC-4, MGT-7 with ROC | Accounts with Charity Commissioner (if applicable) | Annual return with Registrar of Societies |
| Statutory Audit | Mandatory | Required for 12A registration | Required in most states |
| Alteration of Objects | Possible (with ROC/RD approval) | Very difficult (may need court order) | Possible (with Registrar approval) |
| Dissolution | NCLT / ROC process | Difficult (court order may be needed) | 3/5th member resolution |
| CSR Fund Eligibility | Preferred by corporates | Eligible (with 12A) | Eligible (with 12A) |
| FCRA Eligibility | Yes (after 3 years) | Yes (after 3 years) | Yes (after 3 years) |
| Credibility | Highest | Moderate | Moderate |
Registration Process for Each Structure
How to Register a Section 8 Company
- Obtain DSC and DIN: All proposed directors need a Digital Signature Certificate and Director Identification Number
- Name Reservation: Apply for name approval through the RUN (Reserve Unique Name) service on the MCA portal
- Apply for License (INC-12): File Form INC-12 with the ROC along with the MOA, AOA, estimated income/expenditure for 3 years, and a declaration by a practicing CA/CS/Advocate in Form INC-14
- License Approval: The ROC reviews and issues the Section 8 license (INC-16)
- SPICe+ Filing: File the SPICe+ incorporation form with all required documents
- Certificate of Incorporation: ROC issues the CoI with CIN, PAN, and TAN
How to Register a Trust
- Draft the Trust Deed: Prepare a comprehensive trust deed on non-judicial stamp paper (stamp duty varies by state)
- Sign the Trust Deed: The settlor and all trustees sign the deed in the presence of two witnesses
- Visit the Sub-Registrar: The settlor and at least two trustees appear before the Sub-Registrar of Assurances with original documents and identity proofs
- Pay Registration Fees: Pay the applicable registration fee and stamp duty
- Receive Registered Trust Deed: The Sub-Registrar registers the deed and returns a certified copy with registration details
How to Register a Society
- Draft the Memorandum of Association: Prepare the MoA with the society's name, objects, registered office, and names of governing body members
- Draft Rules and Regulations: Prepare the rules governing membership, meetings, elections, and administration
- Collect Member Documents: Gather identity proofs, address proofs, and photographs of all founding members (minimum 7)
- File with Registrar of Societies: Submit the application along with the MoA, Rules, member documents, and registration fee
- Verification and Approval: The Registrar verifies the documents and, upon satisfaction, issues the Certificate of Registration
Tax Benefits Available to All NGO Structures
Regardless of which structure you choose, the following tax benefits are available:
| Registration | Benefit | Eligibility |
|---|---|---|
| Section 12A | NGO income is exempt from income tax | All three structures |
| Section 80G | Donors get 50% or 100% tax deduction | All three structures |
| FCRA Registration | Allows receiving foreign donations | All three structures (after 3 years) |
| Section 10(23C) | Full income exemption for specified categories | Educational/medical institutions (all structures) |
| GST Exemption | Certain charitable services exempt from GST | All three structures (if providing exempt services) |
Under the new provisions (effective from April 2021), all NGOs must apply for fresh 12A and 80G registration under the new regime, even if they had prior registration. The new registration is valid for 5 years and must be renewed. Newly registered NGOs get a provisional registration valid for 3 years, after which they must apply for regular registration based on activities carried out.
Which Structure Should You Choose?
Choose a Section 8 Company If:
- You want the highest credibility and institutional trust for fundraising
- You plan to receive CSR funds from corporate donors
- You are building a national-level or multi-state non-profit
- You value limited liability protection for all members
- You want a structured governance framework with a Board of Directors
- You plan to apply for government contracts, tenders, or partnerships
- You are comfortable with higher annual compliance (ROC filings, audits, board meetings)
Choose a Trust If:
- You want the quickest and cheapest registration to start operations fast
- You are working on a local or community-level charity (education, healthcare, religious activities)
- You want maximum flexibility in governance with minimal regulatory oversight
- You are a small group of 2-3 committed individuals starting a social initiative
- Your primary funding comes from individual donors and personal contributions
- You are setting up a religious or spiritual organization
Choose a Society If:
- You are forming a membership-based organization (residents' welfare, professional body, cultural group)
- You need a democratic governance structure with elected representatives
- You want the ability to add and remove members flexibly
- You are working in education, literary, scientific, or sports promotion
- You plan to work within a single state (state-level registration)
- You want a moderate balance between flexibility and formal structure
Annual Compliance Comparison
| Compliance | Section 8 Company | Trust | Society |
|---|---|---|---|
| Statutory Audit | Mandatory | Required for 12A | Required (most states) |
| Income Tax Return | ITR-6 (by Sep 30) | ITR-7 (by Oct 31 or Jul 31) | ITR-7 (by Oct 31 or Jul 31) |
| Annual Filing with Authority | AOC-4 + MGT-7 (ROC) | Accounts to Charity Commissioner | Annual return to Registrar of Societies |
| Board/Committee Meetings | Minimum 4 per year | As per trust deed | As per rules (usually 4-6) |
| AGM | Mandatory within 6 months of FY end | Not required (unless deed specifies) | Mandatory (annually) |
| DIR-3 KYC (Directors) | Annual (by Sep 30) | Not applicable | Not applicable |
| FCRA Annual Return | If FCRA registered (Dec 31) | If FCRA registered (Dec 31) | If FCRA registered (Dec 31) |
| Estimated Annual Compliance Cost | Rs. 20,000 to Rs. 60,000 | Rs. 5,000 to Rs. 20,000 | Rs. 8,000 to Rs. 25,000 |
Post-Registration Steps (Applicable to All NGO Structures)
After registering your NGO, these steps are essential regardless of the structure you choose:
- Apply for PAN: Get a Permanent Account Number for the NGO (automatically issued for Section 8 Companies; must be applied for separately for Trusts and Societies)
- Open a Bank Account: Open a current account in the NGO's name with the registration certificate, PAN, and governing body resolution
- Apply for 12A and 80G Registration: File Form 10A with the Income Tax department within the first year to get tax exemption and donor deduction benefits
- Apply for GST Registration (if applicable): Required if the NGO provides taxable services or has turnover above the threshold
- Plan for FCRA Registration: After 3 years of operation with Rs. 15 lakh domestic spending, apply for FCRA to receive foreign contributions
- Set Up Accounting Systems: Implement proper bookkeeping from day one to maintain clean financial records for audits and compliance
Conclusion
Choosing between a Section 8 Company, Trust, and Society is one of the most important decisions for any non-profit initiative. Each structure has distinct advantages: Section 8 Companies offer the highest credibility and governance transparency, Trusts provide simplicity and flexibility, and Societies enable membership-based democratic governance. The right choice depends on your scale, funding sources, governance preference, and long-term goals.
All three structures are equally eligible for 12A and 80G tax benefits, FCRA registration for foreign funding, and CSR fund eligibility. The differences lie in compliance burden, credibility perception, and operational flexibility. At IncorpX, we help non-profit founders evaluate their options and handle the complete registration process for any NGO structure, along with 12A, 80G, and FCRA filings.
Frequently Asked Questions
What are the three main legal structures for NGOs in India?
The three main legal structures for registering a Non-Governmental Organization (NGO) in India are: 1) Section 8 Company: Registered under Section 8 of the Companies Act, 2013 with the Ministry of Corporate Affairs. 2) Trust: Registered under the Indian Trusts Act, 1882 (for private trusts) or relevant state Public Trusts Act with the local Sub-Registrar. 3) Society: Registered under the Societies Registration Act, 1860 with the Registrar of Societies in the respective state. Each structure has different formation requirements, governance rules, and compliance obligations.
Which NGO structure is easiest to register?
A Trust is the easiest and fastest to register. It requires a minimum of 2 trustees (in most states), a trust deed drafted on stamp paper, and registration with the local Sub-Registrar of Assurances. The process can be completed in 7 to 15 working days. A Society takes moderate effort, requiring a minimum of 7 members and registration with the Registrar of Societies (15 to 30 days). A Section 8 Company is the most complex, requiring MCA approval, at least 2 directors and 2 shareholders, and the process takes 30 to 45 days.
What is a Section 8 Company?
A Section 8 Company is a non-profit company registered under Section 8 of the Companies Act, 2013. It is formed for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other useful object. The key feature is that profits and income must be applied solely towards promoting its objects and cannot be distributed as dividends to members. It has the word 'Foundation', 'Forum', 'Association', 'Federation', or 'Council' in its name instead of 'Limited' or 'Private Limited'.
What is the minimum number of members required for each NGO structure?
The minimum membership requirements are: Section 8 Company: Minimum 2 directors and 2 shareholders (for private Section 8) or 3 directors and 7 shareholders (for public Section 8). Trust: Minimum 2 trustees (some states require 3). There is no upper limit, and the settlor can also be a trustee. Society: Minimum 7 members from 7 different states for a national-level society registered under the central act. At the state level, requirements vary: most states need 7 members, but some need more. In all cases, there is no maximum limit on members.
Can an NGO earn profits?
Yes, but with restrictions. All three NGO structures can earn income through donations, grants, service charges, sale of goods, and other activities. The critical rule is that profits cannot be distributed to members, trustees, or shareholders. All surplus income must be used to further the objects of the organization. This applies equally to Section 8 Companies, Trusts, and Societies. If an NGO distributes profits to its members, it risks losing its tax-exempt status under Section 12A/12AA and 80G registrations.
Which NGO structure has the best credibility?
A Section 8 Company has the highest credibility among the three structures. This is because it is regulated by the Ministry of Corporate Affairs under the Companies Act, follows strict governance and compliance norms, files annual returns with the ROC, undergoes mandatory statutory audit, and has a transparent organizational structure. Government bodies, international donors, CSR departments of corporates, and foreign funding agencies generally prefer Section 8 Companies over Trusts and Societies. However, all three structures are equally valid for 12A and 80G registration and FCRA registration.
What is the cost of registering each NGO structure?
Approximate registration costs: Trust: Rs. 5,000 to Rs. 15,000 (including stamp duty, which varies by state, and Sub-Registrar fees). Society: Rs. 5,000 to Rs. 20,000 (including state registration fees, which vary significantly). Section 8 Company: Rs. 10,000 to Rs. 30,000 (including MCA fees, DSC, DIN, and professional charges). These are government and basic professional fees. Stamp duty on trust deeds can be significant in some states (for example, Maharashtra charges stamp duty based on the corpus amount).
What documents are needed for Trust registration?
The documents required for Trust registration include: 1) Trust Deed drafted on non-judicial stamp paper (stamp duty varies by state). 2) Identity proof of all trustees (Aadhaar, PAN, Passport). 3) Address proof of all trustees. 4) Address proof of the registered office of the trust. 5) Passport-size photographs of all trustees. 6) NOC from the property owner (if office is rented). 7) Two witnesses' identity and address proofs. The trust deed must clearly state the name of the trust, its objects, the names and details of the settlor and trustees, and the rules governing the trust.
What documents are needed for Society registration?
The documents required for Society registration include: 1) Memorandum of Association (MoA) of the Society stating its name, objects, and registered office. 2) Rules and Regulations of the Society (governing body, meetings, membership). 3) Identity proof and address proof of all members. 4) Address proof of the registered office. 5) Passport-size photographs of all members. 6) A resolution signed by all members authorizing the registration. 7) NOC from the property owner (if office is rented). The exact requirements may vary slightly between states.
What documents are needed for Section 8 Company registration?
The documents required for Section 8 Company registration include: 1) DSC (Digital Signature Certificate) of all proposed directors. 2) DIN (Director Identification Number) for all directors. 3) Name approval through RUN service on MCA portal. 4) Memorandum of Association (MoA) and Articles of Association (AoA). 5) Declaration in Form INC-14 by a practicing professional (CA/CS/Advocate). 6) Estimated annual income and expenditure for the next 3 years. 7) Identity and address proof of directors. 8) Registered office proof. 9) License application in Form INC-12.
Can a Trust receive foreign donations?
A Trust can receive foreign donations only after obtaining FCRA (Foreign Contribution Regulation Act) registration from the Ministry of Home Affairs. FCRA registration is available to all three NGO structures (Trust, Society, and Section 8 Company) after they have been operational for at least 3 years and have spent a minimum of Rs. 15 lakh on their charitable activities during the last 3 years. Before completing 3 years, an NGO can apply for FCRA Prior Permission for a specific project or donor. Without FCRA, receiving any foreign contribution (donations, grants) is illegal.
What is the difference in governance between the three structures?
Governance differs significantly: Section 8 Company: Governed by a Board of Directors under the Companies Act. Must hold board meetings (minimum 4 per year), AGM, maintain statutory registers, and file annual returns with ROC. Trust: Governed by a Board of Trustees as per the trust deed. Governance rules are primarily defined in the trust deed. No mandatory board meeting frequency unless specified in the deed. Less regulatory oversight. Society: Governed by a Managing Committee (Governing Body) as per the MoA and Rules. Must hold an AGM and committee meetings as per its rules. Files annual returns with the Registrar of Societies.
Which structure is best for receiving CSR funds?
A Section 8 Company is the most preferred structure for receiving CSR (Corporate Social Responsibility) funds. Under the Companies Act, 2013 (Section 135 and Schedule VII), companies must spend CSR funds on eligible activities through implementation agencies. Section 8 Companies are explicitly recognized as eligible implementation agencies. Trusts and Societies can also receive CSR funds if they are registered under Section 12A of the Income Tax Act. However, most corporates prefer Section 8 Companies because of their transparent governance, mandatory audits, and ROC filings.
What is 12A and 80G registration and do all NGOs need it?
12A and 80G registration are tax-related certifications: Section 12A grants the NGO tax exemption on its income (the NGO does not pay income tax on donations and grants received for charitable purposes). Section 80G allows donors to claim a deduction (50% or 100%) on their taxable income for donations made to the NGO. Both are essential for any NGO wanting to operate effectively. Without 12A, the NGO pays income tax like any other entity. Without 80G, donors get no tax benefit, reducing their motivation to donate. All three structures (Trust, Society, Section 8) are eligible.
How long does it take to register each NGO structure?
Typical timelines: Trust: 7 to 15 working days (fastest, as it only requires Sub-Registrar appointment and registration). Society: 15 to 30 working days (depends on the state Registrar of Societies' processing time; some states have online portals, others require physical submissions). Section 8 Company: 30 to 45 working days (involves name approval, license application in INC-12, MCA processing, and SPICe+ filing). These timelines assume all documents are in order. Delays in government processing or document deficiencies can extend timelines.
Can a Trust be converted to a Section 8 Company?
There is no direct legal provision for converting a Trust into a Section 8 Company. The usual approach is to: 1) Incorporate a new Section 8 Company with similar objects. 2) Transfer the assets, programs, and operations of the Trust to the Section 8 Company (with proper board/trustee approvals). 3) Wind down or dissolve the Trust. This must be done carefully to maintain continuity of 12A, 80G, and FCRA registrations. A Society can similarly be transferred but not directly converted. Professional legal advice is recommended for such transitions.
What happens if an NGO is dissolved?
Upon dissolution: Section 8 Company: Assets must be transferred to another Section 8 Company or similar non-profit with similar objects, as per the Companies Act. Assets cannot go to members. Trust: The trust deed usually specifies what happens to assets on dissolution. If silent, assets go to another trust or charitable entity with similar objects. Society: The Societies Registration Act requires assets to be transferred to another society or charitable organization with similar objects. The Registrar of Societies oversees dissolution. In no case can remaining assets be distributed to members.
Which structure offers better tax benefits?
All three structures are eligible for the same tax benefits under the Income Tax Act: 1) Section 12A/12AA: Tax exemption on income used for charitable purposes (available to all three). 2) Section 80G: Tax deduction for donors (available to all three). 3) Section 10(23C): Exemption for entities existing solely for charitable purposes with income below Rs. 5 crore (available to all three). 4) GST exemption: Certain services by charitable organizations are exempt from GST. The tax treatment is identical; the difference lies in governance transparency and donor perception, not in actual tax law.
Can foreigners be part of an NGO in India?
Yes, with some conditions: Section 8 Company: Foreigners can be directors and shareholders. At least one director must be an Indian resident. FDI rules for Section 8 Companies are relaxed since no profit distribution is involved. Trust: Foreigners can be trustees. No specific restriction exists, but FCRA compliance must be ensured if foreign funds are involved. Society: Foreigners can be members, but the Registrar of Societies in some states may have specific rules. Important: If an NGO has foreign members/trustees and receives foreign funds, it must comply with FCRA requirements strictly.
What are the annual compliance requirements for each structure?
Annual compliance varies: Section 8 Company: Statutory audit, filing AOC-4 and MGT-7 with ROC, conducting AGM and board meetings, income tax return filing, maintaining statutory registers, and DIR-3 KYC for directors. Trust: Annual audit (required for 12A registration), income tax return filing, maintaining books of accounts, and filing with the Charity Commissioner (in applicable states like Maharashtra and Gujarat). Society: Annual audit, filing annual return with the Registrar of Societies, income tax return filing, conducting AGM, and maintaining member registers. Section 8 Companies have the highest compliance burden.
How does fundraising capability differ between the three structures?
Fundraising capability: Section 8 Company: Best positioned for all types of fundraising including CSR funds, government grants, institutional donors, foreign contributions (with FCRA), and crowdfunding. Corporate donors strongly prefer Section 8 due to governance transparency. Trust: Good for individual donations, religious/charitable contributions, and some government grants. Smaller trusts may face credibility challenges with institutional donors. Society: Effective for membership-based fundraising, community contributions, and government grants. All three can receive FCRA funds and 80G donations. The difference is primarily in perceived credibility and donor preferences.
What is the role of the Charity Commissioner?
The Charity Commissioner is a state-level authority that oversees charitable trusts and societies in states where the Public Trusts Act applies (notably Maharashtra, Gujarat, Rajasthan, and Madhya Pradesh). Functions include: registering public trusts, receiving annual accounts and audit reports, approving property transactions, investigating misuse of trust funds, and authorizing changes in trust objects. In states without a Public Trusts Act, trusts are primarily governed by the trust deed itself and the Indian Trusts Act. Section 8 Companies are regulated by the ROC/MCA and are not under the Charity Commissioner's jurisdiction.
Can an NGO engage in commercial activities?
Yes, with limitations. An NGO can engage in commercial activities that are incidental to its main charitable objects. For example, an education-focused NGO can sell books or courseware, a healthcare NGO can charge nominal fees for consultations. The key rules: 1) Commercial income should be incidental, not the primary activity. 2) All profits must be applied towards the charitable objects (no distribution to members). 3) If business receipts exceed 20% of total receipts, the NGO may lose its 12A tax exemption for that year. 4) GST registration may be required if commercial turnover exceeds the threshold.
Which NGO structure is best for educational institutions?
For educational institutions (schools, colleges, training centers), a Section 8 Company or Trust is typically preferred. Trusts are traditionally the most common structure for running schools and colleges in India because many state education laws (like the state universities acts) recognize trusts as the promoting body. Section 8 Companies are increasingly popular for newer educational initiatives, especially those seeking CSR funds or institutional partnerships. Societies are also used, particularly for professional education and skills training. The Right to Education Act and state-specific regulations may influence the choice.
How is property ownership handled in each NGO structure?
Property ownership differs: Section 8 Company: The company itself owns property as a separate legal entity. Property is held in the company's name. Trust: Property is held in the name of the trust or the trustees (varies by state). In many states, the trust deed must authorize trustees to buy, sell, or mortgage property. Charity Commissioner approval may be needed for property transactions in applicable states. Society: Property is held in the name of the society or its office bearers as per the MoA and Rules. Approval of the general body may be required for property transactions.
What is the liability of members in each NGO structure?
Liability of members: Section 8 Company: Members have limited liability, similar to a Private Limited Company. Their personal assets are protected; liability is limited to the amount unpaid on their shares (usually minimal or zero). Trust: Trustees have unlimited personal liability unless the trust deed specifically limits it. If the trust incurs debts, trustees may be personally liable. Society: Members typically have limited liability as per the MoA, but the governing body members may face personal liability if they act beyond their authority or in breach of the rules.
Can I change the objects of my NGO after registration?
The process for changing objects varies: Section 8 Company: Requires a special resolution, alteration of MOA, and approval from the Regional Director and ROC. The process is formal and takes 2 to 4 months. Trust: Changing the objects of a trust is very difficult once registered. In most cases, the trust deed must have a specific clause allowing amendment of objects. Without such a clause, you may need a court order. This is why drafting the trust deed with broad objects is critical. Society: Changing objects requires a special resolution at a general body meeting and approval from the Registrar of Societies.
How do auditing requirements differ?
Audit requirements: Section 8 Company: Mandatory statutory audit by a Chartered Accountant every year, same as any company under the Companies Act. Must also file audited financials with ROC. Trust: Audit is not mandatory by default under the Indian Trusts Act, but it becomes mandatory if the trust has 12A registration (which most operational trusts have). States with Charity Commissioner also require annual audited accounts. Society: Audit requirements are governed by the Societies Registration Act and state rules. Most states require an annual audit. It is mandatory if the society has 12A registration.
Which structure is recommended for a first-time NGO founder?
For first-time founders: 1) If you need quick, simple registration on a small budget and plan to work in a local community with individual donor funding: choose a Trust. It is the fastest and cheapest to set up. 2) If you plan to operate at a medium scale, work with memberships, and conduct community programs: choose a Society. 3) If you are planning to scale nationally, receive CSR funds, apply for government contracts, or work with institutional donors: choose a Section 8 Company. The higher compliance cost is offset by greater credibility and fundraising access.
What are the naming requirements for each NGO structure?
Naming rules: Section 8 Company: Name must be approved by MCA through the RUN service. Cannot use words like 'Limited' or 'Private Limited'. Typically uses suffixes like 'Foundation', 'Association', 'Forum', or 'Council'. Must be unique and not similar to existing companies. Trust: No formal naming approval process. The name is chosen by the settlor and mentioned in the trust deed. Should not be misleading or similar to a government body. Society: Name is approved by the Registrar of Societies. Should end with a word indicating it is a society (like 'Society', 'Sanstha', or 'Sangha'). Must be unique within the state.
Can an NGO pay salaries to its staff?
Yes. All three NGO structures can pay salaries to their employees, including founders who work full-time. This is a legitimate operational expense, not profit distribution. However: 1) Salaries must be reasonable and commensurate with the role and responsibilities. 2) Excessive salaries to founders/trustees may attract scrutiny from the Income Tax department and may jeopardize 12A/80G registration. 3) TDS must be deducted on salaries as per Section 192 of the Income Tax Act. 4) For Section 8 Companies, director remuneration must be approved by the board and may be subject to limits in the AOA.
How does FCRA registration work for NGOs?
FCRA registration allows an NGO to receive foreign contributions (donations, grants) legally. Key requirements: 1) The NGO must have been registered for at least 3 years. 2) Must have spent at least Rs. 15 lakh from domestic sources on its main objects during the last 3 years. 3) Application is filed with the Ministry of Home Affairs. 4) FCRA-designated bank account must be opened with SBI, New Delhi Main Branch. 5) Annual FCRA return filing is mandatory. 6) FCRA registration is valid for 5 years and must be renewed. New NGOs (less than 3 years old) can apply for FCRA Prior Permission for specific donors or projects.
Can the same person be a trustee and a beneficiary?
In general, a trustee should not be a beneficiary of the same trust, as it creates a conflict of interest. The trustee holds property and manages the trust for the benefit of others (beneficiaries). However, there are exceptions: in some family trusts, the settlor may be both a trustee and beneficiary. For charitable trusts (which is what most NGOs are), trustees are expected to act selflessly for the public benefit and should not personally benefit from the trust's income or property. The Income Tax Act provisions for 12A and 80G also scrutinize situations where trustees personally benefit.
What are the penalties for non-compliance?
Penalties vary by structure: Section 8 Company: Same penalties as companies under the Companies Act: Rs. 10,000 to Rs. 5 lakh for late ROC filings, potential DIN deactivation for directors who miss DIR-3 KYC, and strike-off proceedings for non-filing of returns for 2+ years. Trust: Penalties under the state Public Trusts Act: fines for non-filing of accounts with the Charity Commissioner, potential removal of trustees for breach of duty. Society: Penalties under the Societies Registration Act: fines for non-filing of annual returns, potential cancellation of registration by the Registrar of Societies. All three face consequences for non-filing of income tax returns.
Can an NGO be shut down or deregistered?
Yes. Section 8 Company: Can be closed through a voluntary winding up resolution or by the NCLT, or struck off by ROC for non-compliance (similar to other companies). MCA approval is needed. Trust: A trust, especially an irrevocable trust, is difficult to dissolve. If the trust deed allows dissolution, it can be dissolved by the trustees. Otherwise, a court order is required. The Charity Commissioner (where applicable) must approve. Society: Can be dissolved by a resolution of 3/5th of the members, or by the Registrar of Societies for non-compliance. In all cases, remaining assets go to a similar charitable organization.
What is a Deemed Section 8 Company?
The concept of a Deemed Section 8 Company does not exist in law. However, certain entities may be referred to informally as having Section 8-like characteristics. It is important to note that only entities that have actually obtained a license under Section 8 of the Companies Act qualify as Section 8 Companies. Some older entities that were licensed under Section 25 of the Companies Act, 1956 (the predecessor provision) are now deemed to be Section 8 Companies under the 2013 Act. These entities automatically transitioned and do not need to re-register.
