If you are thinking about starting an NGO then you should be aware about the differences between a Trust, a Society and Section 8 Company. Each one has its own unique advantages and disadvantages.
Trust NGO in India is a popular method of NGO formation. There are many definitions of a Trust. But here is the one easiest to understand.
In a Trust, a person (Trustee) will hold the property of another person (Truster) for the benefit of a third person (Society). If even this feels complicated then just remember that Trust is controlled by
It is Governed under Indian Trusts Act 1882 and can be either registered as a private trust or a public trust. Public trusts tend to work in the field of healthcare, education, support of the under privileged. Atleast 2 members are needed start a trust.
Governed under Society Registration Act, 1860 Society NGO in India typically tend to work in the field of arts, science, literature or any other non-profitable objective. 7 members are needed to start a society.
Section 8 Company NGO:
Section 8 companies are governed under Companies Act, 2013. (Earlier version was Section 25 Company of the earlier Companies Act, 1956). They are costly to incorporate and run but easier to handle government beaurocracy since almost all the filings / changes can be done online.
Key Differences between Trust, Society and Section 8 Company:
|Factor||Trust||Society||Section 8 Company|
|Governing Act||Indian Trusts Act, 1882||Societies Act, 1860||Companies Act, 2013|
|Minimum members||2||7 for state level society (8 members from different states if central level society)||2 for Private Limited and 7 for public limited company|
|Board of Management||Trustees||Governing Council or Managing Committee||Board of Directors|
|Annual Compliance||No mandate to file Annual Report except ITR||Annual Report filing is a must with the registrar of the society||Annual Report filing is a must|
|Online filing facility||Not available||Not available||Available|
|Registering Authority||Deputy Registrar of the area||Registrar or Deputy Registrar of Societies of the State||Registrar of Companies (ROC) or Regional Director|
|Registration Time Frame||15 – 25 days||30 – 50 days||10 – 20 days|
|Cost of Incorporating||Low||Medium||High|
|Changes in Board of directors||Complex||Complex||Easy|
|Change of registered office||Difficult||Difficult||Easy|
Governing Act: All the 3 forms of NGOs are governed under different government acts. Newest being Companies Act, 2013 for Section 8 Companies while oldest is Societies Act, 1860.
Minimum Members: Even 2 members can form a Trust, while 7 members are needed for state level society. If central level society is formed then 8 members are needed. Each of the 8 members have to be from different state. Section 8 company can also be of two types. Private Limited and Public Limited. 2 Directors can form a Private Limited Company, while 7 are needed for a Public Limited Section 8 Company
Board of Management: Trust is managed by trustees. Society is managed by a governing council that comprises of directors, governors, trustees etc. Society is managed by a Board of Directors. Thus control of a trust is in hand of one person, while for society, the decision making is more democratic.
Annual Compliance: Trust need not file Annual Returns. They only need to maintain their accounts and other registers like register of meeting, resolutions. However, ITR filing is a must for Trust. Society is mandated by the government to file Annual Report with the Registrar of the society. Section 8 company also has to file Annual Report.
Transparency: Since Section 8 companies have higher statutory procedures, such as annual filing etc, it has to maintain higher transparency
Advantages and Disadvantages of forming a Trust vs Society vs Section 8 Company
Control System: This is the most important difference between a Trust and Society. In a trust, the control is with Trustees. Which can be 2 persons. In case of a Society and Section 8 Company, the control is more democratic. Thus, a trustee does not have to worry about reelection since he will hold office for lifetime. Thus, there is less danger of takeover from members whom the trustees have not approved.
Registration Time Frame: Registration time period of all the types depend on several factors and can vary depending upon the states and robust filing. However, based on our experience we have seen that registering a Society is fastest and typically takes anywhere between 10 – 20 days. Trust Registration takes 15 – 25 days, while Society registration can take one to two months.
Online Filing Facility: There is no online filing facility available for Trust NGO and Society NGO. This means that for any changes to be made, one has to go the registrar office in person and this can even take 2 to 3. However, for Section 8 Companies, online filing facility is available and signed and scanned copies are enough for filing and any changes.
Cost of Incorporating: Cost of forming NGO is highest for Section 8 Company and lowest for Trust NGO.
Changes in Board of Directors or Registered Office: Since all the changes in Turst or Society are made by going to government offices, it takes time. For Section 8 companies almost everything can be handled online.
|Government Preference for||Trust||Society||Section 8 Company|
|12A and 80G registration||No difference||No difference||No difference*|
|Grant of Subsidy by Government||Low preference||Low preference||High Preference|
|FCRA Registration||Low preference||Low preference||High Preference|
12A and 80G Registration: On paper, Trust Society and Section 8 Company are given equal preference when it comes to prioritizing 12A and 80G Registration, but based on our experience, Section 8 Company find it easier to obtain these registrations.
Grant of Subsidy by Government: Section 8 companies are given higher preference in terms of subsidy amount and time to get subsidy. In fact any other government schemes / benefits / funding will give preference to Section 8 companies
FCRA Registration: Again as with the case of government subsidy, Section 8 companies are given preference
Thus, in terms of government preference, Section 8 Company score higher
Since Trust gives high control to few members, it is advisable to form a trust when family members want to run the NGO and want high level of control in the workings of NGO.
Society is helpful when you want decisions to be more democratic, and want less individual pressure in functioning. You can think of forming Section 8 company if you have enough funds and experience.
Thus, Section 8 company should be considered when you want a credible organization that wants to undertake various not for profit initiatives on a larger scale.