NGOs and section 8 companies are two different types of organizations that are commonly associated with philanthropic activities. Both entities are established with the aim of promoting social welfare and contributing towards social causes. However, there are significant differences between the two in terms of their legal structure, governance, and operational frameworks.
In this article, we will discuss the key differences between NGOs and section 8 companies, highlighting their unique characteristics, objectives, and legal implications.
NGOs: A Brief Overview
Non-Governmental Organizations (NGOs) are private organizations that are created with the aim of pursuing social, cultural, or environmental causes. NGOs operate independently of the government, and their primary aim is to promote social welfare and sustainable development. NGOs are often established by individuals or groups of people who are passionate about a particular cause and want to create a platform to mobilize resources, organize events, and advocate for policy changes.
NGOs can be established in a variety of forms, including as charitable trusts, societies, or non-profit companies. The primary aim of an NGO is to promote social welfare, and they do not exist for the purpose of making a profit.
Section 8 Companies: A Brief Overview
Section 8 companies are a special type of business organization that is established under the Indian Companies Act, 2013. These companies are created with the objective of promoting social welfare and community development. Section 8 companies are similar to NGOs in many ways, but they differ in terms of their legal structure and operational framework.
A section 8 company is a non-profit organization that is established with the aim of promoting social welfare, education, healthcare, or any other charitable cause. These companies can be registered as either a public or a private company, and they are exempt from paying income tax under Section 12AA of the Income Tax Act.
Key Differences between NGOs and Section 8 Companies
Legal Structure: NGOs can be established in various legal forms, including charitable trusts, societies, and non-profit companies. On the other hand, section 8 companies are registered under the Indian Companies Act, 2013, and are subject to its legal framework.
Governance: NGOs are typically governed by a board of trustees or a managing committee, while section 8 companies are governed by a board of directors.
Taxation: NGOs are exempt from paying income tax under Section 12A of the Income Tax Act, while section 8 companies are exempt under Section 12AA of the same act.
Fundraising: Both NGOs and section 8 companies can raise funds through donations and grants, but section 8 companies can also raise funds through equity shares and debentures.
Liability: NGOs and section 8 companies are both non-profit organizations and are not liable to pay dividends to their members. However, section 8 companies have limited liability, which means that their members are only liable to the extent of their share capital.
Conclusion
NGOs and section 8 companies are two different types of organizations that are established with the aim of promoting social welfare and community development. While both entities share similar objectives, there are significant differences between the two in terms of their legal structure, governance, taxation, fundraising, and liability.
NGOs are typically established as trusts, societies, or non-profit companies, and are governed by a board of trustees or a managing committee. On the other hand, section 8 companies are registered under the Indian Companies Act, 2013, and are governed by a board of directors.
In terms of taxation, both NGOs and section 8 companies are exempt from paying income tax, but section 8 companies have the added advantage of being able to raise funds through equity shares and debentures.
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