What makes the difference between Trust, Society and Section 8 Company, Don’t you want to know!
If you are willing to form an NGO (non-governmental organization)/NPO (non-profit organization) then you are probably at the right place at the right time. As we the team of Compliance calendar LLP is here to guide you about the concept of NGO/NPO in India. Through this article, we are ready to answer all your curiosities on this topic.
In India, NGO/NPO can be formed as a Trust, Society, or as a Section 8 Company. Let’s discuss each concept one by one to gain a deep understanding and to eliminate the confusion among Trust, Society, and Section 8 Company.
ALL ABOUT TRUST
LEGAL MEANING: As per The Indian Trust Act 1882, a trust is an obligation annexed to the ownership of any property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner.
PARTIES INVOLVED: There are three parties involved in the formation of trust. the person who declares the confidence, known as the “author of trust”, then the person who accepts the confidence is called the “trustee”, and the person for whose benefit the confidence is accepted is called the “beneficiary”.
MINIMUM AND MAXIMUM NUMBER OF MEMBERS: There should be a minimum of 2 trustees to form a trust. However, there is no limit on the maximum number of trustees.
TYPES OF TRUST: Trust can be of two types as public and private trust. “Public trust” is the one where beneficiaries are the general public/public at large and it can be charitable or religious. Whereas a “private trust” is formed for the benefit of definite individuals. such as for the benefit of family, friends or relatives, etc.
DOCUMENTS REQUIRED FOR REGISTRATION:
- ID proof (Aadhar/voter id card/passport/driving license) and Passport size Photographs of all the authors and trustees.
- “Trust deed” contains objectives of the trust.
- Proof of registered office address such as utility bill (water/gas/electricity bill).
- NOC from the property owner, if the registered office is a rented property.
COMPLIANCES FOR TRUST:
A private trust needs to comply with the following compliances:
- One-time compliance-registration of trust u/s 12AB and 80G of The Income Tax Act, 1961.
- Annually audit of books of accounts by the chartered accountant. if its total annual income exceeds Rs. 2,50,000 .
- Filing of the Income-tax return in form ITR-7 on or before 30th September each year.
- Filing of TDS return and donors return from whom donations are received.
- Conduct board meetings and general meetings.
- Maintain minutes of board and general meetings.
- Maintain necessary books of accounts and other records.
ALL ABOUT SOCIETY FORMATION
LEGAL MEANING: when seven or more persons associated for any literary, scientific, or charitable purpose, or for any such purpose as is desired in section 20 of The Societies Registration Act 1860, by subscribing their names to the memorandum of association, and filling the same with the registrar of the state, to form themselves into a society.
FEATURES OF SOCIETY:
- At least seven persons, who do not have blood relations between them are required for the creation of society, which may include Companies, foreigners, other registered societies, etc.
- A society can be registered or unregistered but only a registered society can file suit in court and own property in its name.
- Governing body of society includes trustees, committee, council, governor, directors, etc.
- The members of society hold office for a given period and after their tenure elections should have been held.
- Registration of society took place state-wise so its area of operation is limited to that specific state, but one can also go for national-level registration for that there must be a minimum of eight members and, each of them should be from a different state of India.
DOCUMENTS REQUIRED FOR REGISTRATION:
- Pan Card of all the members subscribing to the memorandum of society.
- Address proof (Aadhar/bank statement/utility bill/passport/ driving license) of all the members subscribing to the memorandum of society.
- Memorandum of association of the society which contains main objectives and other details of the society as well as rules and regulations of the society.
- Address proof (utility bill) for the registered office of the society.
- List of all the members ready to subscribe to the memorandum of the society along with their signatures.
- Conduct a minimum of four Governing Body Meetings and one Annual general meeting of its members.
- Maintenance of books of accounts, Register of members, and Minutes of meetings of the society.
- A list of members of the society along with committee members list shall be filed to the registrar of society within 30 days of the Annual General Meeting, every year.
- Conduct election for the governing body as the tenure of a governing body in society is fixed for some time.
LET’S DISCUSS SECTION 8 COMPANY
LEGAL MEANING: As Per The Companies Act 2013, Section 8 Company can be registered as a private limited or as a public limited company and has in its object the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other object.
FEATURES OF SECTION 8 COMPANY:
- The minimum number of directors can be 2 or 3 depending on the type of company i.e. private or public respectively.
- Can enjoy all the privileges and be subject to all the obligations of a limited company.
- A firm can be a member of a section 8 company.
- Can use its profits/income in promoting its objects only.
- Payment of dividends to its members is prohibited.
- It cannot alter its memorandum except with the approval of the Central Government.
- Not required to add the word “limited” or private “limited” to its name necessarily.
ANNUAL COMPLIANCES OF SECTION 8 COMPANY:
- The file of various forms to the Registrar of the Companies such as-
- ADT-1(Information for appointment of Auditor) within 15 days of the appointment of the auditor.
- AOC-4(Form for filing the financial statement and other documents with the Registrar) within 30 days from the date of its annual general meeting.
- MGT-7(Form for filing annual return by a company) with the Registrar of the Companies within 60 days from the date of its annual general meeting.
- To Maintain proper records in the separate registers such as the register of the company, members, loans, charges, and also required to maintain its proper Books of Accounts comprise of the profit and loss account, balance sheet, cash flow statement, etc. as per section 128 ofThe Companies Act 2013, etc.
- Section 8 Company shall hold at least one Board Meeting within every six calendar months and the gap between two board meetings is not less than 90 days As per section 173 of The Companies Act, 2013and the Annual General Meeting of its members within a period of 6 months from the end of its financial year.
- Section 8 Company is required to prepare a Board Report as per section 134 of The Companies Act 2013 which discloses the relevant financial as well as non-financial position of the company to its shareholders.
- Section 8 Company is also required to file its income tax return in form ITR-7 on or before 30th September every year.
WHY TO PREFER SECTION 8 COMPANY OVER TRUST AND SOCIETY?
Section 8 company is more preferred over the other organizations, as there are numerous of benefits like all the applicable compliances can be done through online mode, more transparency than other organizations, also prioritize for government subsidiaries and eligible for registration under FCRA.
Let’s discuss some FAQs:
|FAQs||SECTION 8 COMPANY||TRUST||SOCIETY|
|Who is governing Authority for getting registration?||Registrar of companies (ROC).||Deputy Registrar of such area.||Registrar of societies of the state.|
|Comparative Compliance Burden||High as compared to trust and society||Medium||Comparatively low|
|Best suited||For executing a wide range of activities while holding the legal structure of the company.||When more than one family member is running the business.||Ideal to form when you want any elected body for its management.|
|If Once formed, is Alteration possible?||Easily possible||Possible||Possible but Complex procedure|
|Transfer of membership/directorship||Possible||No such provision in the trust||Non-transferable|
HOW COMPLIANCE CALENDAR HELP YOU?
Now, you are aware of basic concepts as well as the difference among all of the three above. If you wish to incorporate an NGO you can initiate your journey with the team of compliance calendar LLP. Well, you don’t have to worry about all the hectic compliances for your business. The same can be handled by the expert team of compliance calendar LLP. We are here to provide you with detailed knowledge about the compliance framework and to safeguard you from heavy penalties.
We can assist you with the preparation of all the documents, financial statements and other records, registers, etc. also with the submission of relevant authorities. Get in touch with our team to get all your queries resolved. Our expert team will assist you within 24 hours. You can reach us at +91-9988424211 via call/message or email us your queries at email@example.com