Understanding the difference between an NGO and a Section 8 Company might initially seem challenging. Both entities extend aid to individuals in need, but their eligibility criteria and engagement methods are different.
Both entities hold legal recognition, operate with defined purposes, and have the capacity to receive contributions from diverse sources, possibly qualifying for tax deductions. However, the underlying legal acts that govern them, which is the Societies Registration Act for NGOs and the Companies Act of 2013 for Section 8 Company registration set them apart in terms of formation and regulation. In this blog, we will see what is the difference between an NGO and a Section 8 Company in India.
Understanding an NGO And Section 8 Company
Before going into the difference between an NGO and a Section 8 Company, let us first understand the basic meaning of the two concepts:
Section 8 Company:
A Section 8 company is a legal entity established in India under the provisions of the Companies Act of 2013. It encompasses companies formed with the purpose of advancing trade, arts, sciences, religion, charity, or similar objectives often associated with non-profit endeavours. The nomenclature “Section 8” derives from the Companies Act’s Section 8, which governs the creation and regulation of such companies.
A distinctive characteristic of a Section 8 company is its independent legal identity, separate from its members. This grants the entity the capacity to engage in contracts, litigate, and own property in its own name.
Compared to other non-profit organisations, Section 8 companies offer enhanced accountability and transparency to stakeholders due to regulatory obligations. They undergo regular audits, adhere to governmental regulations, and abide by the Companies Act. Compliance entails accurate record-keeping and annual filings, all contributing to heightened openness and responsibility towards stakeholders.
Laws Governing Section 8 Company:
Section 8 companies in India are governed by several key statutes, including the Companies Act of 2013, Income Tax Act of 1961, Foreign Contribution (Regulation) Act of 1976, Goods and Services Tax (GST) Act of 2017, and Foreign Exchange Management Act of 1999. Adhering to these laws is pivotal to ensuring uninterrupted operations and maintaining legal legitimacy.
NGO:
NGOs are autonomous, non-profit entities addressing social, economic, or political concerns. Unlike government bodies, they operate independently without government control.
NGOs wield substantial influence across domains including human rights, conflict resolution, environmental preservation, and development. They deliver vital community services, advocate for underprivileged groups, and act as watchdogs, holding governments and corporations accountable. Their independence and non-profit status empower them to function transparently and efficiently, championing good governance.
Laws Governing NGOs In India:
NGOs or society registration in India operate within the legal framework established by the Indian Constitution, the Societies Registration Act of 1860, the Foreign Contribution (Regulation) Act of 1976, the Income Tax Act of 1961, the Goods and Services Tax (GST) Act of 2017, the Foreign Exchange Management Act of 1999, and other pertinent regulations, similar to Section 8 companies.
What is the Difference Between an NGO and a Section 8 Company?
When comparing NGOs and Section 8 Companies in India, there emerges significant difference between an NGO and a Section 8 Company, including:
| Basis of distinction | Section 8 Companies | NGOs |
| Legal Framework | Governed by the Companies Act of 2013. | Regulated by the Societies Registration Act of 1860 and related legislation. |
| Structure | Formally structured with shareholders and directors. | Characterised by a less formal structure comprising members and a governing body. |
| Purpose | Established for objectives like commerce, art, science, social welfare, charity, etc. | Can be formed for any lawful purpose. |
| Fundraising | Raise funds through share sales. | Acquire funds from donations, grants, and contributions. |
| Taxation | Required to adhere to all tax regulations, including income and corporate tax. | May be eligible for tax exemptions based on certain conditions. |
| Reporting Requirements | Obliged to provide annual financial statements, tax filings, and reports. | Reporting obligations can vary depending on size and funding sources. |
| Liability | Shareholders have limited liability; personal assets are protected. | Members may be personally liable for the organisation’s debts and obligations. |
It is essential to acknowledge the difference between an NGO and a Section 8 Company in India. Their legal status, organisational structure, reporting needs, liability, and fundraising methods diverge significantly. Section 8 Companies adhere to strict regulations, boast a defined governance structure, and allow share trading. In contrast, NGOs feature a more adaptable governance system, possible member liability, and diverse reporting necessities. The choice of legal structure based on the difference between an NGO and a Section 8 Company demands a profound understanding of these variances to ensure compliance with regulations.
Similarities Between NGO And Section 8 Company
Despite the difference between an NGO and a Section 8 Company as stated before, NGOs and Section 8 Companies operating in India share several commonalities that contribute to their legal recognition and operational functioning:
1. Legal Recognition:
Both NGOs and Section 8 Companies are legally established entities recognised by Indian law.
2. Purpose-Driven Operation:
Both entity types are established with a specific purpose or mission, whether it’s advancing charitable causes, promoting social welfare, education, or other similar objectives.
3. Funding Sources:
Individuals and other organisations can contribute funds and donations to both NGOs and Section 8 Companies to support their missions and activities.
4. Tax Deductibility:
Depending on the circumstances and adherence to relevant regulations, both entity types may qualify for tax deductions on donations made to them.
5. Donor Diversity:
Donations and contributions to both NGOs and Section 8 Companies can be sourced from individuals, corporations, foundations, and other organisations.
6. Regulatory Compliance:
Both types of entities are subject to regulations and laws governing corporate governance, reporting, and transparency to ensure proper functioning and accountability.
Final Thoughts
While Non-Governmental Organisations and Section 8 Companies in India exhibit several commonalities, there is a difference between an NGO and a Section 8 Company based on legal frameworks, organisational structures, and operational mechanisms. Section 8 Companies possess a more formal corporate structure, governed by shareholders and directors, while NGOs often embody a less rigid composition involving members and governing bodies. Moreover, their fundraising methods, taxation status, reporting obligations, and liability provisions differ significantly. Recognising these shared traits and disparities is pivotal for aspiring organisations and donors to make informed decisions aligned with their objectives and legal responsibilities.
