Overview
Creating a charitable or non-profit organization requires careful consideration of different legal structures, each serving unique purposes. Trusts, Section-8 Companies, and Societies are commonly explored frameworks for individuals or groups looking to make a positive impact on social causes. This blog will offer a detailed overview of each structure, highlighting their key features, formation processes, and governing regulations. By grasping these fundamental aspects, individuals can make informed choices and select the most suitable option for their philanthropic initiatives.
Difference between Trust, Section 8 Company and Society Defining Terms
Trust
A trust, established for the public benefit, can encompass a range of interests, including education, animal welfare, religious causes, or recreational activities. However, its formation is contingent upon the involvement of property, such as constructing schools or hospitals.
The Trustor, or the first party, creates the trust as a legal entity and authorizes the assets for the benefit of the third party through the second party, known as the Trustee. The Trustor entrusts properties to the Trustee on behalf of the beneficiary (third party). The subject matter of the trust is referred to as Trust Property, and the terms and conditions a outlined in the Trust Deed. The legal framework governing trusts is the Indian Trusts Act of 1882, applicable nationwide except in the state of Jammu & Kashmir.
While forming and controlling a trust is relatively straightforward, the absence of regulatory oversight means that disputes must be resolved through legal channels. Amendments to the trust deed can only be made by the settlers, and in their absence, court intervention is required. Moreover, there are no mandatory regulatory requirements for governance or the filing of public accounts.
To safeguard your philanthropic legacy, it is advisable to initiate the trust registration process promptly. This ensures streamlined procedures, legal compliance, and protection for your charitable endeavors. Take the proactive step of applying for trust registration today to secure the future of your trust.
Society
An NGO can be formally registered as a society under the Indian Societies Act of 1860, and its operations are overseen by a governing community and a managing council responsible for implementing its principles. A society, in this context, refers to a collective of individuals united by a common goal or mission, often centered around scholarly, philanthropic, or academic pursuits. To officially establish a society, a minimum of seven individuals is required.
The formal recognition of the association occurs through the signing of an Association Memorandum (MoA), which is then submitted to the Registrar of Companies (ROC) for registration under the Societies Registration Act of 1860. The MoA outlines the society’s name and its stated purpose. Additionally, it includes pertinent details such as the names, addresses, and occupations of the members of the governing body, which comprises governors, executives, council members, trustees, and other key figures. This formalizes the legal formation of the society and sets the foundation for its
organized functioning.
Section 8 Company
The registration of a Section 8 company comes with the advantage of limited liability. This type of company is typically established to promote activities such as commerce, recreational art, or religion. A crucial condition for Section 8 organizations is that the profits generated cannot be distributed among the members; rather, these profits must be utilized solely for the advancement and enhancement of the organization’s objectives. The formation of a Section 8 company requires a minimum of two individuals, who can be either Indian or international. Additionally, the company must have at least two directors, and these directors are not obligated to be members of the organization.
Law & Jurisdiction
Trusts are regulated by the Registrar of Trusts, while societies are overseen by the Registrar of Societies. In contrast, Section 8 companies are subject to governance by both the Registrar of Companies and the state commissioner.
Relevant Documents
To register a trust, a trust deed is essential. In the case of a society, registration necessitates a Memorandum of Association along with rules and regulations. For a Section 8 company, both a Memorandum of Association and Articles of Association are required.
Number of Members
For a trust, a minimum of two trustees is mandated, while in the case of a society, seven members are required for a state-level society, and eight members for a national-level society. In the context of a Section 8 company, two members are necessary for a private limited company, and seven members are needed for its registration as a public limited company.
Management
Trusts are typically managed by trustees, societies are governed by a managing council committee, and Section-8 companies are overseen by a board of directors.
Time period
It takes up to 20 days to register a trust, up to 45 days to register a society, and up to 15 days to register a Section-8 company.
Difference Between Trusts, Societies, and Section 8 Companies: Comparative Analysis
Trusts, Section 8 Companies, and Societies are distinct legal structures used for charitable or non-profit organizations.
Each has its own set of characteristics, formation processes, and governing regulations. Here’s a brief overview of the key differences:
- Formation:
a. Trusts:
Formed through a trust deed by the founder or settlor.
b. Societies:
Established by a group of individuals through a memorandum of association and rules and regulations.
c. Section 8 Companies:
Created under Section 8 of the Companies Act, 2013, through a memorandum of association and articles of association. - Minimum Members/Trustees:
- Trusts : Require a minimum of two trustees.
- Societies: Require a minimum of seven members for state-level and eight members for national-level societies.
- Section 8 Companies: Require two members for a private limited company and seven members for a public limited company.
- Management:
a. Trusts: Managed by trustees responsible for administration and execution.
b. Societies: Governed by a managing council committee.
c. Section 8 Companies: Overseen by a board of directors.
- Legal Regulations:
a.Trusts: Governed by the Indian Trusts Act of 1882.
b. Societies: Regulated by the Societies Registration Act of 1860.
c. Section 8 Companies: Subject to the Companies Act, 2013.
- Amendment of Governing Document:
a. Trusts: Trust deed can be altered by the settlers.
b. Societies: Rules and regulations can be amended by the society’s members.
c. Section 8 Companies: Memorandum and Articles of Association can be amended as per the provisions of the Companies Act.
- Profit Utilization:
a. Trusts: Profits can only be used to promote the trust’s objectives.
b. Societies: Profits can be utilized for the society’s objectives.
c. Section 8 Companies: Profits cannot be distributed among members; used for promoting company objectives.
- Tax Benefits:
a. Trusts, Societies, and Section 8 Companies:
b. Eligible for various tax exemptions and benefits under relevant income tax laws.
In conclusion, the choice between Trusts, Societies, and Section 8 Companies depends on the specific goals, nature of activities, and preferences of individuals or groups involved in charitable endeavors. Each structure offers unique advantages and is subject to different legal regulations.
Frequently Asked Questions
Can a Section 8 company take over a society?
Certainly, the possibility exists for a Section 8 company to take over a society. However, this undertaking usually requires adherence to legal procedures, approval from regulatory bodies, and compliance with specific conditions stipulated by applicable laws. The takeover process should be conducted in accordance with the established guidelines to ensure a lawful and seamless transition.
Can a trust be registered as a Section 8 company?
Indeed, it is possible for a trust to undergo registration as a Section 8 company. This conversion entails securing approval from the Registrar of Companies (RoC) and implementing essential amendments to the memorandum and articles of association to ensure alignment with the specified requirements for Section 8 companies.
Can a trust be registered as a society?
The possibility of converting a trust into a society depends on the legal provisions in the jurisdiction. In certain regions, it may be permissible for trusts to undergo transformation into societies, while in other areas, the preference might be to establish a new society. The procedures and conditions for such conversions can differ, and it is advisable to consult with legal professionals or regulatory authorities to ensure compliance with the relevant laws.
