A Comparative Analysis On Trust, Section 8 Company, And Society

Forming a nonprofit or benevolent organization requires negotiating a number of legal frameworks, each with its own functions. Trusts, Section 8 Company Registration, and Societies are three prevalent frameworks that people and organizations frequently take into account when seeking to support social causes. We will give a thorough description of each structure in this blog, including its construction procedures, essential traits, and regulating laws. Having a basic understanding of these elements will enable people to select the best solution for their charitable endeavors with knowledge.

Difference Between Trust, Section 8 Company, and Society:

Trust

A trust is a legal entity created for the benefit of the public, often focusing on varied interests such as education, animal welfare, religion, or recreational activities. The establishment of a trust involves property, such as the construction of schools or hospitals.

A trust involves three parties: the Trustor (the person creating the trust), the Trustee (the person entrusted with managing the trust), and the Beneficiary (the person benefiting from the trust). The trust’s assets, known as the Trust Property, are managed according to the terms specified in the Trust Deed. Trusts are governed by the Indian Trusts Act of 1882, applicable across India except for Jammu & Kashmir.

Forming and controlling a trust is relatively straightforward. However, due to the lack of regulatory oversight, any disputes must be resolved in court. Additionally, only the settlers can amend the trust deed. In their absence, one must seek court intervention to make changes. There are also no mandatory governance or public account filing requirements for trusts.

Society

A society can be registered under the Indian Society Act, 1860, and requires a governing community and managing council to operate according to its principles.

A society consists of a group of individuals united by a common goal or mission, often related to scholarly, philanthropic works, or academic research. The formation of a society requires at least seven individuals to associate and sign a Memorandum of Association (MoA), which is then submitted to the Registrar of Companies (ROC). This formalizes the society under the Societies Registration Act, 1860.

The MoA contains the society’s name, its stated purpose, and the names, addresses, and occupations of its governing body members. The governing body is responsible for managing the society's affairs.

Section 8 Company

A Section 8 Company, characterized by limited liability, is typically formed to promote commerce, art, recreation, or religion. Unlike other business entities, Section 8 Companies must reinvest their profits solely to further their objectives, without distributing dividends to their members.

Section 8 Registration requires a minimum of two individuals (either Indian or international), with at least two directors who do not necessarily have to be members. The registration process ensures that the company aligns with its mission and adheres to legal requirements.

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Law & Jurisdiction:

The governance of these entities varies:

• The Registrar of Trusts oversees the regulation of trusts.
• Societies fall under the jurisdiction of the Registrar of Societies.
• Section 8 Companies are overseen by the Registrar of Companies and the state commissioner.

Relevant Documents:

The documentation required for registration differs for each entity:

• Trust: Requires a Trust Deed.
• Society: Needs a Memorandum of Association and rules and regulations.
• Section 8 Company: Requires a Memorandum of Association and Articles of Association.

Number of Members:

The membership requirements for each entity are as follows:

• Trust: At least two trustees.
• Society: Minimum of seven members for a state-level society and eight for a national-level society.
• Section 8 Company: At least two members for a private limited company and seven members for a public limited company.

Management:

The management structures of these entities also differ:

• Trusts: Managed by trustees.
• Societies: Managed by a governing council committee.
• Section 8 Companies: Governed by a board of directors.

Time Period for Registration:

The registration timelines vary:

• Trust: Up to 20 days.
• Society: Up to 45 days.
• Section 8 Company: Up to 75 days.

Formation and Legal Entity:

Trust: A trust is formed through a trust deed, a document that outlines the trust's objectives, the responsibilities of the trustees, and the management of the trust property. Trusts do not constitute a separate legal entity, meaning they do not enjoy a distinct legal status from their trustees.

Society: Societies were created under the Societies Registration Act of 1860. The formation process involves drafting a Memorandum of Association (MoA) and submitting it to the Registrar of Societies. Societies are distinct legal entities, separate from their members, providing a clear legal status.

Section 8 Company: Section 8 Companies are registered under the Companies Act, 2013. The Section 8 Company Registration process includes preparing a Memorandum of Association (MoA) and Articles of Association (AoA), which define the company's objectives and the rules for its management. Section 8 Companies are distinct legal entities, enjoying a separate legal status from their directors and members.

Membership and Management:

Trust: Trusts require a minimum of two trustees to manage the trust's affairs. The trustees are responsible for ensuring that the trust's objectives are met and that its property is used appropriately.

Society: A society must have at least seven members for state-level registration and eight members for national-level registration. The management of a society is overseen by a governing body or managing council, which is responsible for the society's operations and compliance with its objectives.

Section 8 Company: A Section 8 Company Registration requires at least two members for a private limited company and seven members for a public limited company. The company's management is handled by a board of directors, who are responsible for overseeing the company's activities and ensuring compliance with legal requirements.

Governance and Regulation:

Trust: The Indian Trusts Act of 1882 governs trusts. The governance structure includes a board of trustees, who manage the trust's property and ensure that its objectives are met.

Society:  The Societies Registration Act of 1860 establishes regulations for societies. The governance structure includes a governing body or managing council, which oversees the society's operations and ensures compliance with its objectives.

Section 8 Company: The Companies Act of 2013 governs Section 8 companies. The governance structure includes a board of directors, who oversee the company's activities and ensure compliance with legal and regulatory requirements.

Registration Authority:

Trust: Trusts are registered with the Registrar of Trusts, who oversees their formation and ensures compliance with the Indian Trusts Act of 1882.

Society: Societies are registered with the Registrar of Societies, who oversees their formation and ensures compliance with the Societies Registration Act of 1860.

Section 8 Company: Section 8 Registrations are authorized by the Registrar of Companies, who oversees their formation and ensures compliance with the Companies Act, 2013.

Auditing and Tax Benefits:

Trust: There are no statutory requirements for auditing trusts, though it is recommended. Trusts enjoy tax exemptions under the Income Tax Act, provided they comply with the necessary conditions.

Society: Annual audits are recommended for societies to ensure financial transparency. Societies can also benefit from tax exemptions under the Income Tax Act, subject to compliance with the requisite conditions, ensuring that their operations align with their stated objectives.

Section 8 Company: For Section 8 Companies, annual audits are mandatory to ensure financial accountability and transparency. These companies can also avail themselves of tax exemptions under the Income Tax Act, provided they comply with the relevant provisions and conditions.

Use of Surplus Funds:

Trust: Surplus funds in a trust must be used strictly for charitable purposes as outlined in the trust deed. This ensures that the resources are directed towards the trust's objectives without benefiting the trustees personally.

Society: Similarly, any surplus funds in a society must be utilized to promote the society's objectives, as specified in the Memorandum of Association. This reinvestment helps in furthering the society’s mission without providing financial gains to individual members.

Section 8 Company: Section 8 Companies are required to reinvest their surplus funds back into the company to further their objectives. These funds cannot be distributed as dividends to the members or directors, ensuring that all resources are used to promote the company’s social, cultural, or scientific goals.

Conclusion

Choosing the appropriate legal structure for a non-profit organization is crucial for its success and sustainability. Trusts, Societies, and Section 8 Companies each offer unique advantages and serve different purposes:

• Trusts are suitable for charitable purposes involving property, offering simplicity in formation but requiring court intervention for dispute resolution and amendments.
• Societies are ideal for groups aiming to promote scholarly, philanthropic, or research activities, benefiting from a formal governance structure but requiring at least seven members for registration.
• Section 8 Company Registration provides a robust framework for organizations focused on promoting commerce, art, science, or religion, with mandatory auditing and reinvestment of surplus funds to ensure transparency and alignment with their objectives.

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