Difference between trust society and section 8 company

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Reading Time: 3 minutes| (Last Updated On: December 9, 2017)

Difference between trust society and section 8 company

In India, a non-profit organization for a charitable purpose can be registered under the different authorities. It could be registered as a trust, society and section 8 company. A charitable purpose is defined under Section 2(15) of Income Tax Act “charitable purpose” includes relief of the poor, education, yoga, medical relief, Preservation of environment (including watersheds, forests, and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility” Charitable purpose does not include the purpose that relates exclusively to religious teachings or worship. While selecting the form in which it should be registered a non-profit making entity must evaluate the object and the area of operation, persons involved in its constitution and the sources of income to achieve its object. In order to facilitate the decision making a comparative analysis of a different form of registration available for non-profit making entities i.e. Trust, Society & Section 8 Company
in a tabular form: –

S. No. Basis of Difference

Trust

Society

Section 8 Company

1. Statute/Legislation Indian Trust Act, 1882 is applicable. Society can be a State level society or a National level society in case of state-level society State Acts are applicable, whereas, for the societies operating all over India Societies Registration Act, 1860 is applicable. Section 8 Companies are governed by Indian Companies Act.
2. Regulating Authority Deputy Registrar of the relevant area is authorized to regulate and register a Trust. Society comes under the jurisdiction of State Divisional Magistrate of a particular area in which society premises is located. Registrar of the Companies of the State in which the Section 8 companies registered office is located will have the authority to register it.
3. Constitution Document Trust Deed Memorandum of Association & Rules and Regulations Memorandum & Article of Association
4. Stamp Duty Non-Judicial Stamp duty is required as per the State Stamp Act. The stamp duty can depend on the value of the Trust property if any. No Stamp duty is required. No Stamp duty is required.

5. Members Required Minimum two persons are required. These persons could be the artificial person created under the law or a foreigner serving in this capacity. Minimum seven persons are required for State-level society. Eight members from different states are required to form a national level society, these persons should be the individuals only. Minimum two persons are required for a private limited company. Seven persons for a public limited company
6. Management Trust is managed by their Trustee or Board of Trustee. Societies are governed by Managing Committee or by Governing Council. Board of Directors is solely responsible for the management.
7. Ownership Trust properties are owned by the Trustees. All the properties of the society are held by society itself in its own name. Company is the absolute owner of the property.
8. Dissolution Generally, public trust cannot be dissolved. A society may be dissolved with the approval of 3/5th members of the society. A Section 8 company may be winded up as prescribed under the Companies Act.
9. Annual Compliance Annual return filing about the working of the trust is not required Society is must file the annual return with the registrar of the societies as prescribed in Societies Registration Act. A Section 8 Company is required to file an annual return and annual accounts with the Registrar of companies.
10. From the point of view of Grant of subsidy by the government  Preferences is less Preferences is less Preferred mostly
11. From the point of view of Foreign Contribution Regulation Act, (FCRA) registration Less preferred Less preferred Most preferred
12. Transparency in working Low Low Working is highly transparent as everything is into public domain.
13. Change in the board of directors/ trustees Members It’s very easy in case of a Trust if the testator is there. Society functions through the governing council and any change are to be as per the constitution documents, so changes are complex. Easy
14. Change of Registered office Difficult Complex Easy
15. Cost factor Low Medium High
Time Period involved in registration/ formation 10-15 days 30-45 days 60-75 days

Once a particular form of doing non-profitable activities is chosen by the applicant and the same is registered either as a trust, society, and section 8 Company, in addition to the said registration, a non-profit entity engaged in certain activities requires following licenses:
1. To open an office and employ people, the entity must be registered under Shops & Establishment Act, of the concerned state where the office is located.
2. To employee any foreign staff’s, non-profit entity must have FCRA Registration and also obtain a no objection certificate for employing such foreign individual coming to India on a work visa.
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