Difference between Section 8 and NGO

Many people think “NGO” and “Section 8 company” mean the same thing, but they’re actually different. An NGO is a broad term for any non-governmental organisation working for social causes, whereas a Section 8 company is a specific type of legal structure for non-profit organisations registered under the Companies Act, 2013.

Overview

"NGO" is a broad term that simply refers to any non-governmental organisation working for a social cause. It covers a wide variety of legal structures in India, including Trusts, Societies, and Section 8 companies. In contrast, a Section 8 company is a specific type of nonprofit organisation registered under the Companies Act, 2013, and recognised for its formal governance and regulatory requirements. You can register an NGO as a Trust, Society, or Section 8 company. Each has its own rules, benefits, and requirements. If you're planning to start a non-profit organisation in India, 

Quick takeaway:

• NGO = General term for non-profit organisations (can be a Trust, Society, or Section 8)
• Section 8 Company = A specific corporate structure for NGOs under the Companies Act
• All Section 8 companies are NGOs, but not all NGOs are Section 8 companies

Meaning of NGO

NGO stands for Non-Governmental Organisation. It's a voluntary, non-profit organization that works independently from the government to address social, cultural, environmental, or humanitarian issues.

Key Characteristics of NGOs

• Operate independently of government control
• Work for public benefit, not private profit
• Focus on social welfare, education, healthcare, environment, and human rights.
• Cannot distribute profits to members or directors
• Funded by donations, grants, membership fees, and CSR contributions

Types of NGO Structures in India

1. Trust

• Registered under the Indian Trusts Act, 1882 or state trust laws
• Minimum 2 trustees required
• Managed by trustees according to a Trust Deed
• Best for: Small-scale charitable work, religious organisations, family-run charities

2. Society

• Registered under the Societies Registration Act, 1860
• Minimum 7 members required
• Managed by a Governing Body 
• Best for: Membership-based organisations, cultural activities, community welfare

3. Section 8 Company

• Registered under the Companies Act, 2013
• Minimum 2 directors required 
• Managed by the Board of Directors like a company
• Best for: Professional NGOs, organisations that need CSR funding
• Registration: With the Ministry of Corporate Affairs (MCA)

Meaning of Section 8 Company

A Section 8 company is a special type of non-profit company registered under Section 8 of the Companies Act, 2013. This structure is best suitable for organisations that want the credibility of a company but with charitable objectives instead of profit-making goals.

Simply because it's governed by Section 8 of the Companies Act, it is henceforth named as ‘Section 8’. Before 2013, these were called "Section 25 companies" under the old Companies Act, 1956.

Main objectives of a Section 8

• Promoting commerce, art, science, and sports
• Education and research
• Social welfare and charity
• Environmental protection
• Religion and culture

Features of Section 8 Company

1. No minimum capital requirement, so you can start with as little as ₹1,000
2. Unlike regular companies, it is not mandatory to add "Private Limited" or "Limited" in the name. 
3. Separate legal entity - The company exists independently from its members
4. Directors and members are not personally liable for company debts beyond their contributions
5. Perpetual succession - The organisation continues to exist even if members change
6. It has a proper structure, including the Board of Directors, shareholders, and governance
7. Government license required before incorporation
8. Stricter compliance is necessary to file annual returns, maintain proper accounts, and conduct audits

Understanding the Difference Between Section 8 and NGO

When you register a Section 8 company, you are creating an NGO. But when you register an NGO, you need to choose among a Trust, Society, or Section 8 company as your structure.

Conclusion

If you're planning for robust growth and seeking foreign grants, Section 8 can be the right choice. However, if you're starting small and local, a Trust or Society might be perfect. Remember, the best structure is the one that aligns with your vision, resources, and long-term goals. Consider consulting with an online legal agency, such as NGOExperts which can guide you to make the right choice for your specific situation.

Frequently Asked Questions (FAQs)

Q1: Is the Section 8 company an NGO?
A: Yes, a Section 8 company is a type of NGO. It's a non-profit organisation registered under the Companies Act, 2013, specifically for promoting charitable and social welfare objectives.

Q2: Can I convert my Trust into a Section 8 company?
A: Not directly. You cannot "convert" a Trust to Section 8. However, you can register a new Section 8 company and transfer the assets and operations from the Trust, subject to legal procedures and approvals.

Q3: Which is better - NGO or Section 8 company?
A: NGO is the general category, and Section 8 is a specific type. The answer depends on your scale, funding needs, and compliance capacity.

Q4: Do Section 8 companies need to pay taxes?
A: Section 8 companies can get tax exemption under Section 12A of the Income Tax Act if they register properly.