Updated : October 17, 2024Difference Between Trust, Society & Section 8 Company
Overview : Thinking of starting an NGO in India and unaware of the available options? This blog solves your problem to the fullest extent! It covers the three popular types of NGOs in India viz. Trusts, Societies, and Section 8 Companies, discussing their concepts and nuances in detail for your comprehensive understanding. Also, you get an elaborate table highlighting the difference between trust, society, and section 8 company based on several vital parameters. Our ultimate goal is to help you make an informed choice as to which structure suits your needs the best. So, read the complete blog for full information.
“Think of giving not as a duty, but as a privilege”
India has the highest number of people volunteering and donating money in the world, ahead of both the USA and China. The worth of Indian donations across the globe was as high as INR 34,242 crore in 2017, which was 30 percent more than the net worth of ultra-high-earning individuals in India.
Donations in India are usually offered by ordinary people who contribute their money, time, skills, voice, and goods for the promotion of local community, religion, charity, and disaster relief to nonprofit NGOs. These non-profit, non-governmental organisations can be set up as a trust, a society, and a section 8 company, registered under different regulatory authorities.
A Section 8 Company is a company established under Section 8 of the Companies Act and is regulated by the Registrar of Companies, an office under the Ministry of Corporate Affairs. The purposes for which Section 8 Company can be established are also mentioned in the Companies Act. Unlike Section 8 companies which are regulated by the Central Government, trusts and societies are regulated under the respective governments of the states where they are being established. We have discussed each of these in detail here.
Did you know? : The Indian Trusts Amendment Bill of 2015 amended the Trusts Act, 1882, and removed some restrictions on the investment of monetary assets made by Trusts. At the same time, the amendment enabled the government to scrutinise the investments made by Trusts at will.
Meaning of Trusts
The Indian Trusts Act, 1882, defines a trust as an obligation, annexed by the ownership of property, arising of a confidence reposed in the owner and accepted him, for the benefit of another owner or another person known as its beneficiary. In simple words, the owner of the property/assets, called the ‘author of the trust’, entitles its ‘trustee’ to hold his property / assets for the benefits of other authors and beneficiaries. For this purpose, we can say that the ‘author of the trust’ has reposed his confidence on the Trustee. The beneficiary’s rights against the trustee as the owner of the property / assets is termed as his ‘beneficial interest’ in the Trust.
Meaning of Societies
A society is the simplest form of a Non-Governmental Organisation in India and can be registered to operate on state level or national level for educational, charitable, religious, social welfare purposes or for the promotion of art, music, culture, science, literature, and political education. In India, societies are registered under the Societies Registration Act, of 1860. While the Societies Registration Act is applicable throughout India, many Indian states have specific laws on Society Registration as well.
Meaning of Section 8 Companies
Section 8 of the Companies Act, 2013 mentions provisions to establish a company as a non-profit organisation owned by an individual or an association of persons. Such companies must obtain approval and licence from the Central Government, prior to being established as a non-profit entity. The primary objective of Section 8 companies is to promote arts, commerce, education, sports, science, research, social welfare, religion, charity, environment conservation, and such other objects as prescribed by law. All the income, donations, and grants that are earned by a section 8 Company, must be completely spent in the promotion of the prescribed objects only.
Difference Between Trusts Societies and Section 8 Companies
NGOs and their donors usually receive tax exemptions under the Income Tax Act, on grants received or offered for charitable purposes. In this context, a “charitable purpose” has been defined under Section 2(15) of the Income Tax Act as that which includes “poverty relief, medical relief, promotion of education, healthcare, and wellness, conservation and preservation of environment including vulnerable ecologies like watersheds, forests, conservation of wildlife, conservation of monuments, places, or objects of artistic or historic interest, and the advancement of any other object of general public interest”. Note that “charitable purposes” do not include purposes that exclusively relate to religious teachings or worship.
While selecting the type in which a nonprofit making entity should be registered, a thorough evaluation must be conducted, by taking into account, the object and the area of operation, the persons involved in the constitution of the organisation, and the sources of revenue generation to achieve the objective. There are about three major types of non profit organisations in India, which include a
- Trust,
- Society, &
- Section 8 Company
In the table below we have drawn clear distinctions between Trusts, Societies, and Section 8 companies, so that you would have the correct information before making a decision over the choice of form of nonprofit organisation.
| Parameters | Trust | Society | Section 8 Company |
|---|---|---|---|
| Statute/Legislation | Private Trusts are governed by the Indian Trust Act, 1882 . Public Trusts are governed by respective Trusts Acts of the state where these are established | The State Acts are applicable for state level Societies, whereas, for the societies operating all over India, the Societies Registration Act, 1860 is applicable | Governed by the Indian Companies Act, 2013 |
| Regulating & Registering Authority | Deputy Registrar of the concerned area is authorised to regulate and register a Trust | Deputy Registrar of the concerned area is authorised to regulate and register a Society | Regional office of the Registrar of Companies under the jurisdiction of which the Section 8 company falls, has the authority to regulate it. Registration is however, done by the Central Office of Registrar of Companies |
| Constitution Document | Trust Deed | Memorandum of Association & Rules and Regulations | Memorandum & Article of Association |
| Stamp Duty on the Constitution Document | Non-Judicial Stamp duty is required to be paid as per the Stamp Act of the concerned state. The stamp duty depends on the value of the Trust property as well. | Non-Judicial Stamp duty is required to be paid as per the Stamp Act of the concerned state. | Non-Judicial Stamp duty is required to be paid as per the Stamp Act of the concerned state. |
| Minimum Members Required | Minimum two trustees are required, could be the artificial person created under an Indian law or a foreigner serving in this capacity | Minimum seven members are required for State-level society. Eight members from different states in which the society is operative are required to form a national level society, these members should be the individuals only | Section 8 companies can be set up as Private or Public Limited Companies. Minimum two shareholders are required for a private limited company, whereas seven shareholders for a public limited company. |
| Management | Managed by their Trustee or Board of Trustee | Governed by a Managing Committee or by Governing Council | The Board of Directors is solely responsible for controlling the management |
| Ownership | Trust properties are owned by the Trustees | All the properties of the society are held by society itself in its own name | All the properties of the company are held by company itself in its own name |
| Dissolution | Except a Public Charitable Trust, all trusts can be dissolved on grounds mentioned in the Trusts Act | May be dissolved with the approval of 3/5th members of the society | Companies can be wound up following the conditions and procedure prescribed under the Companies Act |
| Annual Compliance | Annual return filing not required | Must file the annual return with the registrar of the societies as prescribed in Societies Registration Act | Companies are required to file an annual return and annual financial statements with the Registrar of companies |
| Preference for Grant of subsidy by the government | Preferred less | Preferred less | Highly preferred |
| Preference for Foreign Contribution | Less preferred | Less preferred | Most preferred |
| Transparency in working | Low | Low | Working is highly transparent as everything is in the public domain |
| Change in the board of directors/ trustees / members | According to the provisions of the Trust Deed | According to the provisions of the Rules & Regulations of the Society | According to the provisions of the Articles of Association drafted and signed by shareholders |
| Change of Registered office | Difficult | Difficult | Easy |
| Cost factor | Low | Medium | High |
| Time Period involved in registration/ formation | 10-15 days | 30-45 days | 60-75 days |
Conclusion
Setting up and registering a non-profit organisation is quite simple if the procedures are followed thoroughly. Now that you might have understood the key differences between the three types of non-profit organisations, you can make an informed decision over the choice of the type of nonprofit entity you wish to establish, depending on the goals and objectives of your business. Once a particular form of non-profit objective is chosen, it has to be registered with the same objective. To avail specialised services of Trust Registration, Society Registration, or Section 8 Company Registration, simply request a callback from our expert startup advisors.
