Which form of NGO (trust/society/Sec.8 company) is suitable in terms of compliance and recognition?
Trust, society and Section 8 companies are the common business structures as a Non-profit organization. Each of the three has different levels of compliances, advantages, and disadvantages. There are many people who want to invest their money by starting an NGO. It can be for any social cause instead of running a company or doing something else. Starting an NGO requires more than just money. It requires hard work, determination, and a genuine desire to support others. Here in this blog, we will discuss the three forms of Non-profit organization and which one is appropriate in terms of compliance and recognition.
The Indian Trust Act, 1882 is applicable to the formation of a trust. A trust can either be a public charitable trust or a private trust based on the reason the trust is being formed. It is registered under state government regulations. A minimum of only two persons is required to form a trust. It can be set up by executing a trust deed on non-judicial stamp paper, duty on which is required to be paid as per the State Stamp Act. It can also depend on the value of trust property. The trust deed contains the aims, objects, and mode of management of the trust. The creator of trust appoints trustees who are empowered with the administration of property in trust with a legal obligation to administer it for the purpose specified in the trust deed. As per compliance point of view, there is no regulatory body and therefore, there are no such higher compliances. There is no requirement of annual return filing.
A registered society can be set up under the Societies Registration Act, 1860. It can either be a state level society or a national level society. A minimum of seven members is required to form a society who come together for a common charitable purpose. They have to file a memorandum of association on non-stamp paper clearly that sets out the objectives of the society before the registrar of societies in the state in which the society is set up. The legal requirements are much simpler than in the case of a trust or Section 8 company. Stamp duty is not required to be paid. Societies must file annually, a list of the names, addresses and occupations of their managing committee members with the Registrar of Societies.
Section 8 company
Section 8 company is formed for promoting commerce, art, science, religion, charity or any other useful object, provided the profits, if any, or other income is applied for promoting only the objects of the Company and no dividend is paid to its members. Section 8 (1) of the Companies states that a non-profit making company is a company which:
- has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment or any such other object.
- Intends to apply its profits, if any, or other income in promoting its objects and
- Intends to prohibit the payment of any dividend to its members.
It is managed by the Board of Directors. There is a requirement of annual compliance by the filing of annual accounts and the return of the company with the Registrar of Companies.
If we compare the three of them, Section 8 companies have the most reliable strongest organizational structure as it is governed by the Companies Act, 2013 which is a uniform law across the country. Coming back to trust and society, Indian trusts have no central law applicable to them and societies have such legal and institutional framework which differs from one state to another. In fact, Companies Act is such a powerful act that it regulates the formation, management, and accountability of a Section 8 company which makes it more closely regulated and monitored than trusts and societies, and thus recognized all over the world.