Difference Between Trust, Society & Section 8 Company

  • Setindiabiz Team
  • May 6, 2023
Difference Between Trust, Society & Section 8 Company

Thinking of starting an NGO in India and unaware of the available options? This blog solves your problem to the fullest extent! It presents 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 parameters like statutory and regulatory requirements, ownership structure, management, constitutional documents, compliances, dissolution, foreign contribution, and more. Our ultimate goal is to help you make an informed choice as to which structure suits your needs the best. For full information, read the complete blog.

BRIEF SUMMARY
“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 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, 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 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

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, namely, a trust, a society, and a Section 8 company, 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. Besides registration, a non-profit entity engaged in certain activities requires the following licenses and registrations under the Shops & Establishment Act and FCRA registration for employing foreign staff. Here, at Setindiabiz, we assist in the registration of all types of Non-profit organizations that we have discussed in the blogs. To avail of our services of Trust Registration, Society Registration, or Section 8 Company Registration, simply subscribe to our package or request a callback from our skilled and experienced startup advisors.

Conclusion

FAQs

Q1: What is the primary difference between a Trust, a Society, and a Section 8 Company?

The primary difference between trust, society, and section 8 company lies in their legal underpinnings and operational structures. Trusts, governed by the Indian Trust Act, entrust property for the benefit of designated individuals. Societies, regulated by the Societies Registration Act, operate at state or national levels with a focus on diverse objectives. Section 8 Companies, under the Companies Act, 2013, stand out as non-profit entities owned by individuals or associations, requiring Central Government approval and operating with specific objectives like arts, education, and social welfare.

Q2: How does the ownership structure differ in Trusts, Societies, and Section 8 Companies?

Trusts are owned by trustees, Societies by their members, and Section 8 Companies by their shareholders. It is crucial to understand the minimum ownership requirements (link to minimum membership in the difference table) before starting each type of entity.

Q3: Which NGO type is preferred for government subsidies and foreign contributions?

Section 8 Companies are highly preferred for government subsidies and foreign contributions, while Trusts and Societies are less favored in these aspects. This preference can impact the financial sustainability and growth potential of the organization.

Q4: Which type of NGO is the most transparent in operations?

Trusts and Societies generally exhibit low transparency, whereas Section 8 Companies have highly transparent operations, as all information is in the public domain. Transparency plays a crucial role in building trust with donors and stakeholders.

Q5: Can the board of directors/trustees/members be changed?

Changes depend on the entity type. For the same, trusts follow provisions of the Trust Deed, Societies follow the rules & regulations, and Section 8 Companies adhere to the Articles of Association. Changing these entities’ composition can vary in difficulty, with Section 8 Companies often offering more flexibility.

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