Choosing a legal form for an NGO in India: trust, society or Section 8 company
How the three main legal forms for non-profits in India compare, and the registrations an NGO needs to receive donations, foreign funds and CSR money.
An NGO can do good work informally, but to open a bank account, receive grants, give donors tax receipts and be accountable to the public, it needs a legal form. In India there are three main choices.
1. Public charitable trust
A trust is created when a person (the author or settlor) hands over property to trustees to manage for a charitable purpose, through a written trust deed.
- Law: The Indian Trusts Act, 1882 deals with private trusts. Public charitable trusts are governed by state laws where they exist (for example, the Maharashtra Public Trusts Act, 1950); elsewhere the trust deed is usually registered with the Sub-Registrar under the Registration Act, 1908.
- Members: a settlor and at least two trustees is common practice.
- Management: by the trustees named in the deed; often a small, closely held board.
- Strengths: simple and inexpensive to set up; stable control.
- Limitations: less democratic; changing trustees or objects depends on what the deed allows.
2. Registered society
A society is an association of people who come together for a literary, scientific or charitable purpose.
- Law: The Societies Registration Act, 1860, and state Acts where they apply (Tamil Nadu has the Tamil Nadu Societies Registration Act, 1975).
- Members: usually a minimum of seven.
- Documents: a memorandum of association and rules and regulations (bye-laws).
- Management: by an elected governing body; members vote.
- Strengths: democratic and suited to membership organisations.
- Limitations: more formalities; leadership can change through elections.
3. Section 8 company
A company formed to promote commerce, art, science, sports, education, research, social welfare, religion, charity or protection of the environment, which applies its profits to those objects and pays no dividend to members.
- Law: Section 8 of the Companies Act, 2013; licensed by the Central Government through the Registrar of Companies.
- Members: at least two directors for a private company.
- Management: a board of directors, with company-law compliance (annual returns, audited accounts, board meetings).
- Strengths: the most credible form for large donors and international funders; clear governance and limited liability.
- Limitations: the most compliance and cost.
Comparison at a glance
| Trust | Society | Section 8 company | |
|---|---|---|---|
| Main law | State trust law / Registration Act, 1908 | Societies Registration Act, 1860 (or state Act) | Companies Act, 2013 |
| Founding document | Trust deed | Memorandum and bye-laws | MoA and AoA |
| Minimum founders | Settlor + 2 trustees (usual) | 7 (usual) | 2 directors |
| Governance | Trustees | Elected governing body | Board of directors |
| Compliance burden | Low | Medium | High |
Registrations that come after
A legal form is only the beginning. Most NGOs also need:
- Income Tax registration under section 12A/12AB of the Income Tax Act, 1961, so that the NGO’s own income is exempt from tax.
- Section 80G approval, so that donors can claim a deduction for their donations.
- CSR-1 registration with the Ministry of Corporate Affairs, to receive Corporate Social Responsibility funds from companies.
- FCRA registration under the Foreign Contribution (Regulation) Act, 2010, before accepting any foreign contribution.
- NGO Darpan registration with NITI Aayog, often required for government grants.
A worked choice
A group of college students wants to run annual sports meets for differently-abled children, mostly funded by local donors, with a small, stable core team. A trust suits them: it is quick and inexpensive to set up and keeps control with committed founders. If they later grow into a large membership movement, a society might fit better; if they seek substantial CSR or international funding, a Section 8 company offers the strongest governance credentials.
Questions for discussion
- Why might a membership-based organisation prefer a society to a trust?
- What is the significance of 12A/12AB and 80G registrations for an NGO’s fundraising?
- Choose a local NGO you know. Which legal form does it use, and does that form suit its work?
Rules and thresholds change. Always check the current Income Tax, FCRA and CSR rules before advising an organisation.
Questions students ask
What is the difference between a trust, a society and a Section 8 company?
A trust is set up by a trust deed and managed by trustees; it is simple and inexpensive. A society is an association of members (usually at least seven) registered under the Societies Registration Act, 1860 or a state Act, and run by an elected governing body. A Section 8 company is registered under the Companies Act, 2013, run by a board of directors, cannot pay dividends, and carries the most compliance and credibility.
Which is the best legal form for a small NGO in India?
For a small group with a stable core team funded mainly by local donors, a public charitable trust is often the most practical, because it is quick and inexpensive to set up. A society suits a membership organisation, and a Section 8 company suits an NGO seeking large CSR or international funding.
What are 12A and 80G registrations?
Registration under section 12A/12AB of the Income Tax Act, 1961 exempts the NGO's own income from tax. Approval under section 80G lets donors claim a tax deduction for their donations, which helps fundraising.
Does an NGO need FCRA registration?
Yes, an NGO must be registered (or have prior permission) under the Foreign Contribution (Regulation) Act, 2010 before it accepts any foreign contribution.
What is CSR-1 registration?
CSR-1 is the registration an NGO files with the Ministry of Corporate Affairs to be eligible to receive and implement Corporate Social Responsibility funds from companies.