Several registration structures are available when starting a non-profit organisation, including trusts, societies, and section 8 companies. Among the above-mentioned types of registrations, there are several important differences. Trusts, societies, and section 8 companies have different legal formalities, registration procedures.
Overview
Establishing a charitable or non-profit organisation involves navigating through various legal structures, each serving distinct purposes. Trusts, Section-8 Companies, and Societies are three common frameworks that individuals or groups often consider when aiming to contribute to social causes. In this blog, we will provide a comprehensive overview of each structure, outlining its key characteristics, formation processes, and governing regulations. Understanding these fundamental aspects will empower individuals to make informed decisions when choosing the most suitable option for their philanthropic endeavours.
Difference Between Trust, Section 8 Company and Society
Defining Terms
Trust
There is a trust that exists for the benefit of the public. A trust can have varied interests, such as education, animal welfare, religious or even recreational, but can only be set up if the property is involved, such as the building of schools or hospitals.
A first-party creates the Trust as a legal entity. Here the first party authorises the assets to the second party for the third party ‘s benefit. The first party here implies the Trust author or the Trustor; the second party is the Trustee. On behalf of the beneficiary (third party), the Trustor entrusts the properties to the Trustee. The trust’s subject matter is known as Trust Property, and the document defining the terms and conditions is called Trust Deed. Trusts are controlled by the Indian Trusts Act of 1882. They are applicable across the country excluding the Jammu & Kashmir state.
One can easily form and control a Trust. Nevertheless, since there is no regulatory oversight, disputes must go to the court. Also, the trust deed can only be altered by the settlers. In the lack of settlers, one must go to court or alter the trust deed. There are also no regulatory requirements for governance or public account filing.
Society
We can register an NGO as a society under the Indian Society Act, 1860. It has a proper governing community and managing council that runs and carries out its principles.
Society is a group of people who are associated with each other to fulfil a shared goal or to serve a common mission. Such a goal or mission may relate to the development of any scholarly, philanthropic works or academic research.
The incorporation of society needs a minimum of seven individuals to be associated. The association is formally recognized by signing an Association Memorandum (MoA) which is then submitted to the Registrar of Companies ( ROC). The society is formed in this way legally under the Societies Registration act, 1860.
The MoA contains the society’s name and its stated purpose. Furthermore, It also lists the names, addresses details and occupations of the governing body ‘s members. The governors, executives, council, trustees and others establish the governing body.
Section 8 Company
A Section 8 company registration has limited liability. One usually forms it to promote commerce, recreational art, or religion. The main prerequisite of Section 8 organizations is that one cannot divide the profits earned by the organizations. They can use the profits only to promote and strengthen the work. It can be created only with 2 individuals being Indian or international. It should have a minimum of two directors who do not need to be a member.
Law & Jurisdiction
The Registrar of Trusts governs the Trust. Whereas, the Registrar of Societies governs societies. On the other hand, the Registrar of Companies and the state commissioner oversee the Section 8 companies.
Relevant Documents
One needs a trust deed to register a trust. Society requires a Memorandum of Association as well as rules and regulations. A Section 8 company requires a Memorandum of Association as well as Articles of Association.
Number of Members
A trust must have at least two trustees, while a society requires seven (in the case of a state-level society) and eight (in the case of a national-level society). On the other hand, a section-8 company requires two members for a private limited company and seven members to register it as a public limited company.
Management
Trustees usually manage the Trusts. The managing council committee manages the society’s functioning. A Section-8 company has 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 75 days to register a Section-8 company.
Difference Between Trusts, Societies, and Section 8 Companies: Comparative Analysis
While Trusts, Societies, and Section 8 Companies share the common goal of promoting social welfare, they diverge significantly in their legal frameworks, operational mechanisms, and regulatory compliance.
| Feature | Trust | Society | Section 8 Company |
| Formation | Created through a trust deed | Registered under the Societies Act | Registered under the Companies Act, 2013 |
| Legal Entity | Not a separate legal entity | Distinct legal entity | Distinct legal entity |
| Members/ Trustees | Trustees | Members or Governing Body | Directors and Shareholders |
| Objective | Charitable or Religious purposes | Promotion of fine arts, science, etc. | Promoting commerce, art, science, etc. |
| Governance | Board of Trustees | Governing Body or Managing Committee | Board of Directors |
| Regulation | Governed by Indian Trusts Act | Governed by Societies Act | Governed by Companies Act, 2013 |
| Registration Authority | Registrar of Trusts | Registrar of Societies | Registrar of Companies |
| Minimum Members/ Trustees | At least two trustees | Seven or more members | Two directors |
| Minimum Members/ Trustees | At least two trustees | Seven or more members | Two directors |
| Auditing Requirements | No statutory requirement | Annual audit recommended | Mandatory annual audit |
| Tax Benefits | Tax exemptions under IT Act | Tax exemptions under IT Act | Tax exemptions under IT Act |
| Use of Surplus Funds | Restricted to charitable purposes | Restricted to promoting objectives | Reinvestment into the company or dividends |
| Name of the Entity | Contains the word “trust” | Contains the word “society” | Ends with “Foundation” or “Section 8 Company” |
Conclusion
If the above inputs are taken into account, it would be easier for a non-profit organization to register in the appropriate manner based on its function. For further help contact our team or leave us your comment below.
Frequently Asked Questions
Can a Section 8 company take over a society?
Yes, a Section 8 company can potentially take over a society. However, this process would typically involve legal procedures, approvals from regulatory authorities, and compliance with specific conditions as per the relevant laws. The takeover should be executed in accordance with the prescribed guidelines to ensure a smooth and lawful transition.
Can a trust be registered as a Section 8 company?
Yes, a trust can be registered as a Section 8 company. The conversion process involves obtaining approval from the Registrar of Companies (RoC) and making necessary amendments to the memorandum and articles of association to align with the requirements specified for Section 8 companies.
Can a trust be registered as a society?
The conversion of a trust into a society may be possible depending on the jurisdiction's legal provisions. Some regions allow trusts to transform into societies, while others may prefer the establishment of a new society. The specific procedures and conditions for such conversions will vary, and it is recommended to seek guidance from legal professionals or regulatory authorities to ensure compliance with applicable laws.
