Selecting the appropriate legal structure for your charitable or nonprofit organization can be a perplexing task. Among the most common choices in India are Trusts, Societies, and Section 8 Companies. Each has its unique features and benefits, and your decision should align with the objectives and vision of your organization. Let’s break down the distinctions between these legal structures to help you make an informed choice.
Confuse Between Trust , Society and Section 8 Company ???
Lets Make it Easy for you….
Prefer to Form a Society?
- This is the ideal organizational body if you want an elected body to manage it.
- The society allows its members to easily opt out if they do not wish to be tied to it eternally.
- If your choice depends on which of the three is easiest to eliminate, you should proceed to create a Society. It is comparatively easier to wind up a society than booth trusts and section 8 companies.
Prefer to Form a Trust?
- If more than one member of the family is running the business.
- If you wish the trustee to hold office for his lifetime without the need for election.
- Privacy in activity as well as flexibility in division of profits.
Prefer to Form a Section 8 Company?
- If the objective is to perform a wide range of activities.
- To gain credibility and reliability as it is a Central Government approved establishment.
- Achieving the legal structure of a company without the need for high capital.
- More Professional way of Work.
Lets Make it more simple.
Comparison Between Trust/ Society/ Section 8 Company
| Parameter | Trust | Society | Section 8 Company |
| Meaning | It is considered as oldest/Traditional form of charitable organisation. It is, in essence, an arrangement between parties whereby one party holds ownership over property on behalf of another person | It is formed when a collection of people come together for a common charitable purpose. But it is not limited to charitable purposes but may extend to multiple other fields. | A company established with objects of promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object and apply any profits into furthering the objective. |
| Regulated By | 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 |
| Registering Authority | Deputy Registrar of the state | Registrar or Deputy Registrar of the particular state in which it is to be registered. | Registrar of Companies (ROC) or Regional Director |
| Registered as | NGO/NPO | NGO/NPO | NGO/NPO.
They also enjoy all the privileges of a limited company Without add Pvt. Ltd. to the name. Section 8 Company Name must end with the words like foundation, forum, association, federation, chambers, confederation, council, electoral trust, etc. |
| Constitution Documents | Trust Deed | MOA and rules and regulations | MOA and AOA |
| Minimum members required | 2 trustees minimum | 7 members minimum
(5 for Jammu and Kashmir and Telangana) |
2 directors and 2 shareholders.
(The directors may also be the shareholders) |
| Management | Managed by Trustees | Managing Committee or Governing Council | Board of Directors |
| Change in Management | As per Provisions of the Trust Deed | As per Society Rules and MOA | As per AOA |
| Change in Reg Address | Difficult | Difficult | Easy |
| Process /Documentation | Physical | Physical | Online |
| Annual compliances | No Specified mandatory yearly compliance. General Compliance which required by An Assessee in Income tax. | The society must file the list of names, occupations and address of the managing committee members of the society to the Registrar annually | The company must file the annual returns and accounts with the ROC. |
| Audit | Mandatory for Only Public Trust | As per Society Regulations | Mandatory As per Companies act |
| Remuneration | Not Allowed -Trustees | Allowed-Member | Allow only in case of profit
In Good Faith No Limit for Remuneration to Employees. |
| Audit under IT Act
|
Mandatory If Obtained 80G/12A | Mandatory If Obtained 80G/12A | Mandatory If Obtained 80G/12A / Turnover exceeding tax audit limit |
| Grants and subsidies from the government | Preferred less | Preferred less | High Preferable |
| Preference for Foreign Contribution | Low preference | Low preference | Most Preferred |
| Reg. Under IT Act for 80G/12A | Allowed | Allowed | Allowed |
| Transparency | Low | Low | Very High |
| Property Ownership | Trust | Society | Company |
| Cost Factor | Low | Low | Little High in Compare to Other |
| Reg./Formation Time | 10-20 Days | 20-30 Days | 7-15 Days |
| Stamp Duty on constitution | Non-Judicial Stamp duty Based on Total worth of Property/trust | Non-Judicial Stamp duty- as per the Stamp Act of the concerned state. | According to Authorised Capital |
| 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 |
Conclusion
Choosing between a Trust, Society, or Section 8 Company depends on your organization’s goals, governance preferences, and compliance capabilities. Each legal structure has its unique advantages and limitations. This comprehensive comparison serves as a helpful guide to simplify your decision-making process and ensure that you select the most suitable legal structure for your charitable or nonprofit organization.
In the end, your choice should align with your organization’s mission and long-term objectives, as well as your capacity to meet the associated regulatory requirements. It’s essential to consult legal and financial experts before making your final decision to ensure compliance with all relevant laws and regulations.
Author Bio
Thanks’ for informative article