Section 8 Company

What is the Difference Between NGO and Section 8 Company?

calendar06 Feb, 2023
timeReading Time: 5 Minutes
NGO and Section 8 Company

The difference between NGO and Section 8 Company can be hard to understand at first. They provide housing assistance to people in need, but they have different qualifications & work with clients differently. In this blog, you will learn about the difference between NGO and Section 8 Company before choosing which one is good for you as per your needs.

NGO and Section 8 Company – Meaning

  • Section 8 Company:

A company in India is considered to be a Section 8 company if it is registered as per the Companies Act of 2013[1]. Companies that are created for the purpose of promoting trade, art, science, religion, charity or any other objectives that are similar to these are sometimes referred to as “not-for-profit” companies. These companies fall under this category. The name “Section 8” originates from Section 8 of the Companies Act, the legislation that controls the formation of these companies as well as their regulation.

One of the most crucial aspects of a Section 8 company is that it functions as its own distinct legal entity, distinct from the people who make it up. This means that it has its own identity, assets, and obligations. This indicates that the corporation is able to enter into contracts, bring or defend legal actions, and hold property in its own name.

When compared to other kinds of non-profit organisations, a Section 8 corporation has the advantage of providing greater responsibility and transparency to its stakeholders. This is one of the company’s primary benefits. This is because the firm is subject to regular audits as well as rules imposed by the government and is governed by the Companies Act. In addition, the organisation is obligated to keep accurate records and to file annual returns, all of which contribute to increased openness and accountability towards the company’s stakeholders.

  • Laws Governing Section 8 Company:

A Section 8 company in India is subject to the provisions outlined in several key laws, including the Companies Act, 2013, Income Tax Act, 1961, Foreign Contribution (Regulation) Act, 1976, Goods and Services Tax (GST) Act, 2017, and Foreign Exchange Management Act, 1999. These laws dictate the formation, operation, tax implications, and regulation of these types of companies. It’s crucial for a Section 8 company to abide by all relevant laws to ensure seamless operations and maintain its legal standing.

  • NGO:

NGOs, or Non-Governmental Organizations, are independent, non-profit entities that concentrate on social, economic, or political issues. They differ from government organisations in that they operate independently and are not controlled by the government. NGOs can come in various forms, such as charities, advocacy groups, development organisations, and research institutes. They are usually supported by funding from sources that are not connected to the government, like corporations, foundations, or individual donors.

NGOs have a significant impact in several areas, including human rights, conflict resolution, environmental protection, and development. They offer vital services to communities, promote policies for the benefit of those in need, and serve as monitors, holding governments and corporations accountable for their actions. Their independence and non-profit status enable them to operate transparently and effectively, working to ensure good governance.

  • Laws Governing NGOs In India:
  • 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 laws and regulations govern NGOs in India, just like they do for section 8 companies.
  • In India, NGOs are registered and governed by the Societies Registration Act of 1860, and their ability to receive and use foreign money is governed by the Foreign Contribution (Regulation) Act (FCRA) of 1976. The GST Act of 2017 regulates the taxation of products and services rendered by NGOs, while the Income Tax (IT) Act of 1961 specifies the tax regulations that apply to NGOs, including tax exemptions and deductions.
  • The Foreign Exchange Management Act, of 1999, governs how NGOs manage their foreign exchange operations and makes sure they abide by the nation’s foreign exchange legislation. The Indian Constitution guarantees citizens basic liberties and rights, such as the freedoms of speech, expression, and association, all of which are necessary for NGOs to operate in India.

Key Differences Between NGO and Section 8 Company

The following are the important distinctions that can be made between NGO and Section 8 Company in India:

  1. Legal Framework: The Companies Act of 2013 governs the formation of Section 8 companies, while the Societies Registration Act of 1860 regulates NGOs. This means that whilst NGOs are governed by the Societies Registration Act and other pertinent legislation, Section 8 companies are subject to the requirements of the Companies Act and other applicable laws.
  2. Structure: Companies under Section 8 have a formal corporate structure, complete with shareholders and directors, whereas non-governmental organisations (NGOs) have a structure that is less formal and consists of members and a governing body.
  3. Purpose: Section 8 companies are primarily established for the goal of advancing commerce, art, science, sports, education, research, social welfare, religion, charity, or any other objective that is comparable, but non-governmental organisations (NGOs) can be established for any lawful reason.
  4. Fundraising: Funds can be raised for Section 8 enterprises by the sale of shares, whereas non-governmental organisations (NGOs) can raise funds through donations, grants, and other types of contributions.
  5. Taxation: While non-governmental organisations (NGOs) may be eligible for tax exemptions under specific conditions, Section 8 companies are required to comply with all tax regulations, including income tax and corporate tax.
  6. Reporting Requirements: Companies that fall under Section 8 are obligated to provide annual financial statements, tax filings, and other reports, whereas the reporting requirements for non-governmental organisations (NGOs) can vary widely depending on their size and the sources of their funding.
  7. Liability: Shareholders of Section 8 companies have limited liability, which means that their personal assets are safeguarded in the event that the company experiences a financial disaster. On the other hand, members of NGOs may be held personally accountable for the debts and obligations of the organisation.

When comparing NGO and Section 8 Company in India, it is important to note the variations in the latter’s legal status, organisational structure, reporting requirements, liability, and methods of managing donated funds. Non-governmental organisations (NGOs) have a more fluid governance structure, potential member responsibility, and different reporting requirements than Section 8 companies (which have a board of directors, restricted shareholder liability, and strict reporting requirements). Shares in Section 8 enterprises can be bought and sold, but memberships in non-governmental organisations (NGOs) cannot. Choosing the appropriate legal structure for a business and maintaining compliance with laws and regulations necessitate an awareness of these distinctions.

Are There Any Similarities Between NGO And Section 8 Company?

Companies operating under NGO and Section 8 Company in India have a number of things in common. Both of these types of organisations are legally recognised and have the ability to function in India to fulfill a certain purpose or mission. Either individuals or other organisations can make gifts and contributions to either kind of organisation, and depending on the circumstances, either type may be eligible for tax deductions. Donations and contributions can come from either individuals or other organisations. In addition, NGOs and companies operating under Section 8 are required to conform to the same regulations and laws regarding corporate governance, reporting, and transparency.

Conclusion

NGO and Section 8 Company are like two sides of the same coin, shining with a unique brilliance and both playing a critical role in shaping the fabric of society. On one hand, Section 8 companies bring a sense of commercial savvy and stability to the table, with a focus on maximising profits while adhering to rigorous governance standards. On the other hand, NGOs radiate a passion for change and are known for their flexible and agile approach, where impact trumps all else. Despite their differences, both NGO and Section 8 Company share a noble goal of making the world a better place, and both have the power to inspire, empower and enrich the communities they serve. Whether your passion lies in the world of commerce or in the realm of social impact, both paths offer the opportunity to create a lasting legacy and be the change you wish to see in the world.

Read our Article:NGO Registration Under Section 8 Company: A Complete Guide

Request a Call Back

Are you human? : 1 + 2 =

Easy Payment Options Available No Spam. No Sharing. 100% Confidentiality