Section 8 Company vs Trust vs Society: Understanding the Differences

 

• Section 8 Company vs Trust vs Society: Understanding the Differences

  When setting up a non-profit organization in India, choosing the right legal structure is crucial. Section 8 Companies, Trusts, and Societies are the most common forms of non-profits. Here’s a detailed comparison to help you understand their differences and decide which structure best suits your organization’s objectives.

  1. Legal Framework

  • Section 8 Company:

    • Governed by the Companies Act, 2013.
    • Requires registration with the Registrar of Companies (ROC) under the Ministry of Corporate Affairs (MCA).
    • Structured as a corporate entity with limited liability for its members.

  • Trust:

    • Governed by the Indian Trusts Act, 1882 (for private trusts) or state-specific laws (for public charitable trusts).
    • Requires registration under the relevant state law, typically with the Charity Commissioner or Registrar of Trusts.
    • Managed by trustees based on a trust deed.

  • Society:

    • Governed by the Societies Registration Act, 1860.
    • Requires registration with the Registrar of Societies in the respective state.
    • Operates based on a set of rules and regulations outlined in its memorandum of association and bylaws.

  2. Objectives and Scope

  • Section 8 Company:

    • Formed with the objective of promoting arts, commerce, science, research, education, sports, charity, social welfare, religion, environmental protection, or other similar objectives.
    • Can engage in profit-generating activities, provided profits are used solely for promoting its objectives.

  • Trust:

    • Typically formed for charitable purposes, including relief of poverty, education, medical relief, and advancement of any other object of general public utility.
    • The scope is defined by the trust deed and is generally more flexible.

  • Society:

    • Established for literary, scientific, or charitable purposes.
    • Aimed at promoting social welfare, education, art, culture, or similar objectives.
    • Operates on a broader spectrum and can be more community-driven.

  3. Formation and Registration

  • Section 8 Company:

    • Minimum of 2 directors and 2 members required.
    • Registration process involves name approval, submission of incorporation documents (MOA and AOA), and obtaining a license from the ROC.
    • Requires digital signatures for directors and application filing.

  • Trust:

    • Typically requires a minimum of 2 trustees.
    • Requires a trust deed specifying the trust’s objectives, management, and mode of administration.
    • Registration involves submitting the trust deed to the relevant authority.

  • Society:

    • Requires a minimum of 7 members to form.
    • Registration involves submitting the memorandum of association and rules and regulations to the Registrar of Societies.
    • Requires periodic renewal and compliance with state-specific regulations.

  4. Governance and Management

  • Section 8 Company:

    • Managed by a Board of Directors.
    • Subject to strict governance norms, including holding board meetings, maintaining minutes, and filing annual returns and financial statements.
    • High level of transparency and accountability.

  • Trust:

    • Managed by trustees appointed as per the trust deed.
    • Less stringent governance norms compared to Section 8 Companies.
    • Accountability primarily to the Charity Commissioner or Registrar of Trusts.

  • Society:

    • Governed by a managing committee elected by members.
    • Requires regular meetings and adherence to bylaws.
    • Annual filing of returns and list of managing committee members required.

  5. Tax Benefits and Compliance

  • Section 8 Company:

    • Eligible for various tax exemptions under the Income Tax Act, such as Section 12A (registration) and Section 80G (donation deductions).
    • Must maintain stringent compliance with corporate governance norms.

  • Trust:

    • Eligible for tax exemptions under Sections 12A and 80G of the Income Tax Act.
    • Compliance with state-specific regulations and periodic audit requirements.

  • Society:

    • Eligible for tax benefits similar to trusts, under Sections 12A and 80G.
    • Requires adherence to state-specific regulations and annual filings.

  6. Fundraising and Sustainability

  • Section 8 Company:

    • Can raise funds through donations, grants, and CSR contributions.
    • Allowed to engage in income-generating activities aligned with its objectives.
    • Higher credibility among donors and funding agencies due to strict regulatory compliance.

  • Trust:

    • Primarily relies on donations and grants.
    • Flexibility in managing funds as per the trust deed.
    • May face challenges in fundraising due to less stringent regulatory oversight.

  • Society:

  • Funded through membership fees, donations, grants, and government aid.
  • Can undertake activities to generate income for its objectives.
  • Perceived credibility depends on compliance with governance norms and community impact.
  
  
  
  

  
  

  Conclusion

  Choosing the right structure—Section 8 Company, Trust, or Society—depends on your organization’s objectives, governance preferences, and compliance capabilities. A Section 8 Company offers higher credibility and strict governance, making it suitable for organizations aiming for substantial funding and growth. Trusts provide flexibility and ease of management, ideal for family-run or smaller charitable initiatives. Societies, with their community-driven approach, are suitable for educational, cultural, and social welfare activities.

  By understanding these differences, you can make an informed decision that aligns with your organization’s vision and operational needs, ensuring long-term sustainability and impact.