Non-Governmental Organizations were originated from Article 71 of the United Nations Act in 1945.
An NGO can be any kind of an organization provided that it is independent of government influence and is not-for-profit.
In the Indian economic system, an NGO structure has been fairly divided into three different categories namely: Trusts, Societies & Section 8 Companies.
Salient features of all three categories have been mentioned below:
- Governed by the Indian Trust Act, 1982 except for the states Gujrat & Maharashtra; A Trust can be incorporated in India by any person, AOP, HUF, Company, etc provided there are at least 2 persons who can lay the foundation of trust by signing a Trust Deed.
- Trusts in India are incorporated into 2 sub-categories namely:
- A Private Trust, which is created for a closed group i.e, its beneficiaries can be identified. Eg: A trust created for the relatives, friends, sister concerns of the author.
- A Public Trust, which is created for a large group, i.e. for the general public wherein individual beneficiaries cannot be ascertained in specific.
- A trust can simply be incorporated by registering the Trust deed with the Jurisdictional registrar and is valid to operate PAN India.
- What makes a Trust different from a society and a section 8 company?
A trust is an agreement between parties, whereby one party holds the ownership of a property for the benefit of another party, and the legal title of the property vests in hands of the Trustees.
- Governed by The Societies Registration Act, 1860 uniformly across India. A society can be incorporated by several individuals having a mutual will to participate, govern, and control an entity for a communal purpose such as the development of fine arts, science, or literature or for other charitable purposes.
- Minimum 7 members are required to Incorporate and run a society.
- Any Individual, AOP, HUF, or company, other registered societies, as well as foreigners can register for the Memorandum of association of the society and become its members.
- A society in India can be either unregistered or registered. However, only the registered societies will be able to withstand consigned properties and/or have an ensemble filed against or by the society.
- Society registration is maintained by state governments. Hence, the application for society registration must be made with the Registrar or Deputy Registrar of Societies of the state where the registered office of the society is situated.
- What makes a Society different from a Trust and a section 8 company?
A society is a collection of persons, who come together for initiating any literary, scientific, or charitable purpose, and the legal title of the properties of society vests in the name of the society only.
SECTION 8 COMPANY
- Governed by the Companies Act, 2013, a Section 8 company can be Incorporated for the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other object.
- If the proposed Section 8 Company has been registered as a private limited then a minimum of 2 directors are required. But if it is a “public limited Section 8 Company” then a minimum of 3 directors shall be appointed.
- A Section 8 Company can be registered with MCA following a normal company incorporation procedure wherein basic KYC documents are filled along with Memorandum & Articles of association.
- What makes a Section 8 Company different from a Trust and a society?
As per the Companies Act, 2013, A Section 8 company can purse the above objects subject to the condition that it “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”.
In simple words, a section 8 company can get involved in commercial transactions to promote its charitable activities; Provided the proceeds/ profits made from such commercial transactions are used for the furtherance of its charitable activities only.
Dividends or any other transactions that may benefit the shareholders/ directors are prohibited.
How can SSI help, if you want to register a Trust/ Society/ Section 8 Company?
A team of experts at SSI first understands the scope of activities that you want to carry out in your NGO, and then on the basis of a diligent conclusion suggests you the correct organizational structure amongst Trust, society or a section 8 company.
For example: If a group of individuals wants to set-up an online store for selling the merchandise of dogs to the general public; and in turn aim to use the profits earned, in such commercial selling, for the welfare of stray dogs only. Then the correct organizational structure is Incorporation of a Section 8 Company.
However, if a company/HUF/AOP/LLP wants to constitute an entity for the welfare of surrounding areas and upkeep of shelter homes, and aim to do so without getting involved in any other commercial activity be related or unrelated to their core business; Then the correct organizational structure is Incorporation of a Trust.
Similarly, if a group of authors want to constitute an entity for teaching underprivileged children, distribution of books, organizing public plays and shows to spread awareness on the importance of education in rural areas with the help of several volunteers, and aim to do so for a longer period of time, under a brand name; Then the correct organizational structure is Incorporation of a Society.