Section 8 Company differences between Trust Society When deciding whether to form a Society, Trust, or Section 8 Company in India for your non-governmental organisation (NGO), consider the following:
Forming a Society:
- Ideal if you want an elected body to manage the organisation.
- Allows for easy exit of members if they don’t want perpetual commitment.
- Easier to wind up compared to trusts and Section 8 companies.
A Section 8 company, also known as a not-for-profit company, is registered under Section 8 of the Companies Act, 2013. Its primary objective is to promote charitable or social causes, such as education, art, science, research, religion, or any other form of social welfare. Unlike other companies, Section 8 companies can apply their profits solely for the advancement of their objectives, and any dividends or income generated cannot be distributed to members. They must obtain a license from the Registrar of Companies (ROC) to operate as a Section 8 company.
Forming a Trust:
- Section 8 Company differences between Trust Society Suitable when multiple family members are involved in running the organisation.
- Trustees can hold office for their lifetime without the need for elections.
- Offers privacy in activities and flexibility in distributing benefits.
A trust is a legal arrangement in which a person or entity (the trustee) holds property or assets for the benefit of another person or organization (the beneficiary). Trusts are governed by the Indian Trusts Act, 1882, and are commonly used for philanthropic purposes. Trusts can be created through a trust deed, which outlines the objectives, powers, and administration of the trust. Unlike Section 8 companies, trusts do not require registration with the ROC but must be registered with the local registrar or sub-registrar.
Reasons for Forming a Section 8 Company: Section 8 Company differences between Trust Society
- Section 8 Company differences between Trust Society Needed for executing a wide range of activities.
- Enhances reliability and credibility as it’s approved by the central government.
- Provides the legal structure of a company without requiring high capital investment.
A society, also known as a non-profit organization (NPO), is formed by a group of individuals who come together for a common non-profit purpose, such as cultural, educational, scientific, or charitable activities. Societies are governed by the Societies Registration Act, 1860, and are required to register with the Registrar of Societies or the respective state government authority. Societies must have a governing body or managing committee to oversee their operations and must adhere to the rules and regulations set forth in their memorandum of association and bylaws.
Section 8 Company differences between Trust Society Each form of organisation has its advantages and is suited to different objectives and preferences. Section 8 Company differences between Trust Society Consider your specific needs and goals when choosing the most suitable option for establishing your NGO.
While all three types of organizations share the common goal of promoting social welfare, they differ in their legal structure, registration process, and regulatory requirements. Section 8 companies offer limited liability protection to their members, while trusts and societies do not. Additionally, Section 8 companies are subject to stricter regulatory oversight by the ROC compared to trusts and societies.
The Comparison table highlighting the differences between the three forms of organisation:
| Particulars | Trust | Society | Section 8 Company |
| Meaning | Oldest form of charitable organisation; one party holds property for another | Collection of people for common charitable purpose; extends beyond charity | Company promoting various objectives, with profits reinvested |
| Governing Legislation | Indian Trust Act, 1882 (private); state laws apply for public trusts | Societies Registration Act, 1860 | Companies Act, 2013 |
| Registered as | NGO/NPO | NGO/NPO | NGO/NPO; enjoys privileges of limited company |
| Document of constitution | Trust Deed | Memorandum of Association (MOA) and rules/regulations | MOA and Articles of Association (AOA) |
| Registration Authority | Deputy Registrar of the state | Registrar or Deputy Registrar of the state | Registrar of Companies (ROC) or Regional Director |
| Minimum members required | Minimum 2 trustees | Minimum 7 members (5 for Jammu & Kashmir, Telangana) | Minimum 2 directors and 2 shareholders |
| Annual compliances | No mandatory yearly compliance | List of managing committee members filed annually | Annual returns and accounts filed with ROC |
| Cost factor | Low | Medium | High |
| Grants/subsidies | Limited | Limited | Considerable potential |
| FCRA preference | Low | Low | Preferred |
| Income Tax Act | Allowed | Allowed | Allowed |
| Transparency | Low | Low | High |
| Legal right over property | Held by trustee | Held in society’s name | Held in company’s name |
| Registration period | Approximately 15-20 days | Approximately 20-25 days | Approximately 30-45 days |
| Stamp duty | Dependent on state laws and property value | None | None |
Section 8 Company differences between Trust Society These differences encompass various aspects such as legal framework, membership requirements, compliance, transparency, and legal rights over property. Section 8 Company differences between Trust Society Each form of organisation serves different purposes and operates under distinct regulations and procedures.
Section 8 Company differences between Trust Society In conclusion, while all three forms serve charitable purposes, they differ in their legal structures, governance, compliance requirements, and operational aspects.
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