Section 8 vs. NGO Trust: What is Best for Social Entrepreneurs?
Starting a social enterprise in India? One of the first and important decisions is choosing the right legal structure. For social entrepreneurs, the two most popular nonprofit options are Section 8 Companies and NGO Trusts. Both are public welfare legal forms but differ in registration procedure, compliance, source of finance, and authenticity.
Let’s compare both models and help you decide which is the best fit for your mission.
What Is a Section 8 Company?
A Section 8 Company is a not-for-profit company registered under the Companies Act, 2013. It’s formed with the primary objective of promoting charitable causes like education, arts, science, sports, and protection of the environment.
- Registered with Ministry of Company Affairs (MCA)
- Requires at least 2 directors and 2 shareholders
- Profits (if any) can be used only for spreading its objectives
- Has a clear legal personality and is accepted as an independent legal person
Section 8 Companies are widely recognized, particularly among corporate donors and foreign agencies for their transparency and compliance levels.
What is an NGO Trust?
An NGO Trust is a more traditional and direct type of charitable activity in India. It is governed by the Indian Trusts Act, 1882, or state trust law.
- Formed under a Trust Deed with at least 2 trustees
- Registered off-line by local Sub-Registrar or Charity Commissioner
- It is not an independent legal entity — trustees are personally linked to the trust
- More manageable and easier to use with lower compliance costs
Trusts are most appropriate for grass roots schemes, local projects, and low-level charitable activities.
Legal & Operational Differences Explained
A Section 8 Company is governed by national law — the Companies Act, 2013 — and is managed by the MCA. It is registered online and is a formal organization with directors, shareholders, and well-defined roles.
As compared to this, an NGO Trust is governed by state legislations and the Indian Trusts Act. It is offline-registered and requires only a Trust Deed, and is comparatively easier to form with lesser formality.
A Section 8 Company is held to be a separate legal entity, and therefore can sue and be sued in its name and own property. A Trust is not separate from its trustees in law and is liable for its acts.
Compliance Requirements
Section 8 Companies have greater compliance. You have to:
- Hold board meetings annually
- Maintain proper financial records
- Submit the returns with the Registrar of Companies (ROC)
- Get audits carried out by a Chartered Accountant
This degree of compliance boosts credibility, especially when applying for CSR financing or overseas donations.
NGO Trusts have moderate compliance. Simple record-keeping and accounting need to be done. But if you are registering under 12A/80G or FCRA, then financial reporting on some basis becomes mandatory.
Funding and Donor Preference
Section 8 Companies are appealing to:
- CSR-contributing corporates
- Institutional funders
- Foreign contributors (particularly under FCRA)
This is because of their robust governance and transparency standards.
NGO Trusts are generally supported by:
- Local donors
- Community members
- Small funding agencies
These donors are often more comfortable with direct relationships and informal operations.
Advantages of Section 8 Company
- Builds strong trust with corporates and government bodies
- Easier to open offices in India or abroad
- Eligible to be certified by FCRA in 3 years of business
- Transparency in operations with well-established governance
- Can bring in professional staff and organized finance
Drawbacks of Section 8 Company
- Involves a lengthy and complex registration process
- Needs CA/CS support for filing and compliance
- Increased compliance costs per year
- Demands extensive internal reporting and meetings
Advantages of NGO Trust Simple and affordable registration
- Low compliance load — most ideal for small groups or solo founders
- More suitable to localized, grass-roots impact
- Fewer papers and simpler money management
- Can operate with minimal staff or resources
Flaws of NGO Trust
- Less credibility with corporates or large donors
- Not an independent legal person, hence trustees could be held liable
- Limited capacity for large-scale expansion or cross-border operations
- FCRA approval is more difficult and requires more time
- No central registration — state regulations vary
When to Use Section 8 Company
- If you intend to scale up in many cities or states
- If you are interested in seeking foreign funds or CSR donations
- If you are looking for a well-organized, responsible, and professional arrangement
- If you can live with increased compliance and ongoing legal requirement
When do we use NGO Trust?
- If your activity is limited to a neighborhood or community area
- If you want to start quickly and on a low budget
- If you are low on resources or a one-person operation
- If you are testing an idea before investing in a bigger building
What About Societies?
Apart from Trusts and Section 8 Companies, you can register as a Society under Societies Registration Act, 1860. A minimum of 7 members is required for a Society and is most appropriate for scientific, cultural, and literary societies. Educational institutions and community organizations prefer to register under Societies.
But societies also pose compliance issues like trusts and are not always the CSR or fundraising first choice.
What Works Best for You?
Your choice is dependent on your vision, size, and funding strategy.
Choose a Section 8 Company if:
- You desire utmost credibility, development potential, and organized governance.
- You intend to work locally or abroad.
- You are seeking corporate or foreign contributions.
Proceed with an NGO Trust if:
- You are beginning small and don’t wish to have legal complexity.
- You require fast installation at affordable cost.
- You are working within a local community with grass-roots contributors.
Need Professional Assistance with Registration?
We at Legal Dalal simplify NGO registration through the following:
- Section 8 Company Registration
- Trust registration with drafting of Trust Deed
- 12A, 80G & FCRA certification
- End-to-end compliance support
Call us on +91-80942 37237
Go to www.legaldalal.com to start.
