How to form a non-profit organization- Trust/Society/Section 8 company

Charity means giving something to those in needs without expectation or wanting something back in return. It is doing something good to others without expectations.  

Charity is a selfless act. There are a lot of ways of doing charity. The people who are keen to do good for others need not necessarily have a good bank balance. The intent to do charity is more important than the healthy bank balance. Thus, many people run Non-Governmental Organizations (NGOs) to help the society in various ways. NGOs mainly have charitable objects. These organizations do not exist for the profit motive, hence also called as Non-Profit Organizations (NPOs).

The World Bank defines NPOs as "private organizations that pursue activities to relieve suffering, promote the interests of the poor, protect the environment, provide basic social services or undertake community development."

There are many registered and unregistered NGOs in India working for the welfare of society. However, it is always advisable to register your NGO to avail the various benefits and have legal status.

Forms of Constitution

NGOs have multiple options to select the form of constitution. The different forms of the constitution which can be chosen are as below:

1. Public Charitable Trust.
2. Society.
3. Section 8 Company.

Each form of the constitution has its own enactment and the provisions contained therein would apply to the respective form.

1. Public Charitable Trust

Trust is created for charitable and religious purposes. Trust can be constituted by Trust deed. For the formation of trust, there are no specific statues available.

However, the Charitable Endowment Act’1890 and Charitable and Religious Act’1920 have bearing on the formation of a charitable trust. The state of Maharashtra, Rajasthan, Gujarat and Madhya Pradesh etc. have their own state Acts.

2. Society

Society is an association of persons who come together by mutual consent to act jointly for a common purpose. The compliance has to be made under the Societies Registration Act’1860.

Minimum 7 members are required for the formation of society. The requisite documents are to be submitted to the office of the Registrar. After the verification of the documents, a certificate of registration is issued along with the certified copy of the bye-laws of the Society.

3. Section 8 Company

Companies Act’2013 applies in case of a registration of Section 8 Company. The main object of the company is to give benefit to the public. It is a company formed for charitable objects.

Minimum 2 members are required in a Private and 7 members in a public company. 2 directors are required for the formation of the private company and 3 directors for a public company.

Comparison b/w Public Charitable Trust, Society and Section 8 Company

The selection of particular legal form depends on various factors like Size of the institution, Cost, Number of persons, Compliance, global appearance and availability of funds etc.  Apart from it, there are various other factors which may be considered while selecting a particular form of NGO.

Here is the comparative analysis between the Trust, Society and Section 8 Company on the basis of various factors:

It is important to note here that notwithstanding the fact that trust, society and section 8 companies are registered as per their respective acts, the registration under section 12AA is necessary to claim exemption under Income Tax Act. Trust, Society and Section 8 Company can seek registration u/s 12AA to claim exemption under provisions of Income Tax Act’1961 if certain conditions are satisfied.

The charitable organizations also need to apply for registration u/s 80G of the income tax act. It provides deduction while computing the total income in the hands of the donor. If the registration is granted under section 12AA, it does not mean that section 80G approval is to be given i.e. registration under section 12AA will not provide automatic approval under section 80G. Both these registrations are completely separate. Further, section 80G applies only to charitable trusts or institutions. It does not apply to religious trust or institutions.