Different groups currently have vital roles in solving social, environmental, educational, and humanitarian challenges. Inclusive growth and public welfare are championed first and foremost by nonprofit groups (NPOs) and nongovernmental organisations (NGOs). These groups seek their objectives with any surplus cash rather than being motivated by profit. Although NPO and NGO are used interchangeably, they denote a large category of organisations encompassing Trusts, Societies, and Section 8 Companies in India. Moreover, charitable trusts, volunteer associations, and community-based organisations also make significant contributions towards a number of causes. These institutions act as a liaison between the government and the general public by providing creative solutions, advocacy, and the actual implementation of welfare programs. With growing social needs and international challenges, these kinds of organisations have emerged as vital allies of the state in nation-building and sustainable development, venturing into areas like health, education, environmental conservation, poverty reduction, and human rights.
What is an NGO?
A Non-Governmental Organisation (NGO) is a non-profit, volunteer-driven organisation that acts independently of the government to advocate social, cultural, educational, environmental, or humanitarian objectives.
NGOs are crucial to civil society as they address problems that might be overlooked by the commercial and governmental sectors, such as poverty reduction, child development, women’s empowerment, education, healthcare, conservation of the environment, and human rights.
There is no legal definition for “NGO” in India; it instead refers to a broad spectrum of non-profit legal entities. Non-governmental organisations may be set up as trusts under the Indian Trusts Act, 1882, as societies registered under the Societies Registration Act of 1860, or as section 8 companies under the Companies Act of 2013.
The constitution and functionality of an NGO are guided by the legal framework that it chooses to adopt. While all NGOs are non-profit, they are permitted to raise income through donations, grants, service charges, or membership fees, as long as the income is strictly utilised in promoting their charitable cause and not divided among members.
NGOs may operate at local, national, or international levels. They usually work with governments, companies, and global institutions like the United Nations to execute social activities and lobby for policy reforms. In order to qualify for tax relief, Indian NGOs have to register under Sections 12A (for income tax exemption) and 80G (for donors’ tax relief) of the Income Tax Act, 1961.
NGOs act as the link between the government and the people, and their role is fundamental in the development of democracy and in inclusive social advancement.
What is a Section 8 Company?
A Section 8 Company is a particular type of non-profit organisation in India formed under Section 8 of the Companies Act, 2013. Its main objective is to promote charitable or not-for-profit activities, such as commerce, art, science, education, research, religion, social welfare, conservation of the environment, or similar activities. Unlike ordinary companies, a Section 8 Company does not seek profit and is not allowed to distribute dividends among its members. Instead, all earnings and profits must be reinvested to further the company’s objectives.
Although it is a non-profit organisation, a Section 8 Company is legally placed on par with a private limited company or a public limited company. It must comply with several statutory obligations, including keeping proper accounting books, conducting annual audits, and filing returns with the Ministry of Corporate Affairs (MCA). The institution is regulated by a Board of Directors, and its affairs are strictly regulated by corporate law to maintain transparency and accountability.
In order to form a Section 8 Company, an applicant has to first obtain approval from the Central Government (through the Registrar of Companies) by submitting required documentation, such as the Memorandum and Articles of Association, purpose statements, and financial projections.
Section 8 Companies are preferred by corporations for CSR funding, foreign donors, and government agencies because of their structured organisation and reliable compliance. Such bodies are also eligible for tax exemptions under Sections 12A and 80G of the Income Tax Act, 1961, subject to separate registration.
In summary, a Section 8 Company is the ideal structure for individuals or groups who want to undertake systematic, meaningful charitable works with legal recognition and public trust.
NGO Vs Section 8 Company
Indian Non-Governmental Organisations (NGOs) are organisations that are incorporated for public services, charitable causes, or social welfare. Section 8 Company is a special type of legal form of a non-government organisation. The Section 8 Company is registered under the Companies Act, 2013. Though all Section 8 Companies are NGOs, it must be clarified here that not all NGOs are Section 8 Companies. This unequal distribution occurs because of differences between their legal framework, formation process, regime of rules, and flexibility in operation.
1. Definition & Nature
- Non-Governmental Organisations (NGOs) are not-for-profit organisations formed with the goal of addressing social, cultural, economic, environmental, and educational problems. NGOs may adopt any one of the following legal forms: trusts, societies, and Section 8 companies.
- A Section 8 Company is a properly registered NGO as per the Companies Act, 2013, for the benefit of promoting business, art, science, religion, charity, education, or any other objects of public utility. It is a non-profit firm, and dividends cannot be paid to the members from the profit.
2. Legal Status and Governing Law
- The term NGO is not defined specifically in Indian law. NGOs may be administered by the Indian Trusts Act, 1882 (in case of trusts), the Societies Registration Act, 1860 (in case of societies), or the Companies Act, 2013 (in case of Section 8 companies).
- Section 8 companies are regulated by the Companies Act, 2013 and come under the Ministry of Corporate Affairs (MCA), so section 8 companies have a distinct legal personality similar to that of a corporation.
3. Process of Registration
NGO (Trust/Society):
- Trusts need to register with the Sub-Registrar of the concerned local area.
- Societies register with the Registrar of Societies of the concerned state.
- Documentation is easier.
Section 8 Company needs:
- MCA name approval (through RUN or SPICe+ form)
- Director Identification Number (DIN) and Digital Signature Certificates (DSC)
- Filing with the Central Government (MCA) of Memorandum and Articles of Association
- Rules of compliance are more stringent.
4. Form and Governance
NGO (Trust/Society):
- Trusts are controlled by trustees who are appointed by settlor.
- Societies are governed by a governing body or council who is elected by members.
- Less formalised, generally up to local or state level.
Section 8 Company:
- Controlled by a Board of Directors like other companies.
- Very formalised and adheres to the principles of corporate governance.
- Ideal for large and professionally managed not-for-profits.
5. Compliance Needs
NGO (Trust/Society):
- Less stringent compliance obligations.
- Annual filings are subject to state-level laws
- No compulsive audit unless there is foreign funding or a certain income criterion is achieved.
Section 8 Company:
- Compulsory annual filing of financial statements and returns with MCA.
- It is required to maintain proper books of accounts.
- A chartered accountant’s annual audit is mandatory.
- Must comply with board meetings and other procedural requirements.
6. Financing and Tax Deductions
NGO (Trust/Society):
- Can accept donations, grants, or foreign contributions (with FCRA registration).
- Separately, need to apply for Section 12A and 80G of the Income Tax Act for tax deductions.
Section 8 Company:
- More credible in the eyes of donors, corporations (in case of CSR), and government agencies.
- Tax exemptions under 12A/80G after proper registration.
- Harder to divert CSR funding from companies, as companies like to contribute to Section 8 Companies for compliance under Section 135 of the Companies Act, 2013.
7. Credibility and Recognition
NGO (Trust/Society):
- Recognised at the district or state level; typically less structured in form.
- Could face trust issues with major sponsors because of a lack of transparency.
Section 8 Company:
- Recognised as an organised legal entity at the state level.
- Governed under the MCA, which increases transparency and reliability.
- Increased credibility for institutional and international donors.
8. Conversion and Closure
NGO (Trust/Society):
- Difficult to convert from one type to the other (e.g., Trust to Society).
- The process of closure is subject to state laws and could be less formal.
Section 8 Company:
- Any conversion or closure is subject to sanction by the National Company Law Tribunal (NCLT).
- Winding up calls for due legal process and governmental permits.
Conclusion
Whereas both Section 8 Companies and NGOs have the overall objective of upholding social welfare and non-profit operations, their legal structure, legal framework, and scope of operation are very different. NGOs are a general term that encompasses Trusts and Societies, which are comparatively simpler to establish and function with less compliance. A Section 8 Company, however, is a more conventional and regulated organisation under the Companies Act, 2013, being more transparent, credible, and governed in terms of standards. It is generally the preferred option for organisations for substantial-scale operations, CSR funds, or global collaborations. The choice between registering as a conventional NGO or a Section 8 Company relies on the founders’ vision, resources, and long-term vision. Both types are therefore vital in helping solve societal problems and advancing sustainable development, each having its own strengths based on the size, scope, and type of activity undertaken.
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