What is the Difference Between Trust, Section-8 Company & Society?

It is important to choose the right legal structure when participating in charitable and non-profit activities in India. Of the several organizational forms available for such purposes, some of them are the Trusts, Section 8 Companies and Societies. All three forms are meant primarily to further charitable or social purpose but differ greatly in legal aspect, governance and operational aspects. Therefore, let us know about the difference between trust, Section-8 company & society.

What is a Trust?

• It is set up for the advantage of the public. It can encompass diverse interests including the education, the animal welfare, the religion, etc, but it must be established with involvement of property, like constructing schools or hospitals.
• The Trust is set up as a legal entity by a first-party. The first party grants the assets to the second party for the advantage of the third party. The first party is the Trust creator or Trustor; the second party is the Trustee. 
• The Trustor assigns the properties to the Trustee on behalf of the third party. The application refers to the property of the trust as Trust Property, while the document of the trust covering those terms is called as the Trust Deed. Trusts are managed by the Indian Trust Act of 1882. 
• They apply across India, all except the Jammu & Kashmir. 

What is a Section 8 Company?

• A Section 8 company registration provides limited liability. It is established to promote trade, artistic work, or religion. 
• The profits generated by the Section 8 company cannot be distributed. 
• They can use the earnings to promote and support the efforts. 
• It can be formed with 2 persons, (Indian or international). It must have at least two directors who are not required to be members.

What is a Society?

• We can register a society as per the Indian Society Act of 1860. It possesses an appropriate governing body and administrative council that implements and upholds its principles.
• Society consists of people who are in connection with one another to achieve a common goal or to work for a collective purpose. Such a goal may pertain to the creation of any charitable projects or research studies.
• It requires at least seven members to be involved for the set up. There has to be the execution of the Memorandum of Association to register with the Registrar of Companies. Hence, under the Societies Registration Act (1860) the society gets registered.

What is the Difference Between Trust, Section-8 Company & Society?

Advantages and Disadvantages of Trust, Section-8 Company & Society

Trust

Advantages:

• Ease of Formation: Quite easy to set up and relatively inexpensive.
• Asset Protection: Ensures that the assets will only be lodged for the specific charitable purposes.
• Perpetual Existence: The public trust is usually perpetual, unless annulled.

Disadvantages:

• Limited Flexibility: Trust deeds cannot be changed once it is registered.
• Less Regulation: Less compliance requirements may sometime create misuses.

Section-8 Company 

Advantages:

• Credibility: More professional and transparent than trust and societies. 
• Tax Benefit: Enjoys exemption benefits under Sec. 12A and Sec. 80G of the Income Tax Act. 
• Perpetual Existence: The entity will continue to exist even on changes in membership or management. 
• Limited Liability: Liability of its members limited to the share of capital in the company. 

Disadvantages: 

• Complex Formation: Registration and compliance are rigorous. 
• High Costs: The annual compliance and auditing make it costlier to operate. 
• Strict Governance: Subject to very strict regulatory operations including that of MCA for all its reporting.

Society

Advantages: 

• Simple Structure: It is simple to form and simple to operate. 
• Flexibility: The amendments to the bylaws need to be approved by every member. 
• Tax Benefits: The tax benefit is exempted under the Section 12 of the Income Tax Act.

Disadvantages: 

• Limited Credibility: It is less professional unlike the Section 8 Companies. 
• State Laws: The compliance requirements change from state to state.
• No Limited Liability: Members may find them to be responsible for certain debts personally.

Conclusion

The goals, governance decisions, and compliance capabilities of your business will determine if you should choose a Trust, Section 8 Company, or Society. This detailed comparison is a useful resource to streamline your decision-making process and makes sure that you choose the most appropriate legal structure for your charitable or non-profit entity.

Your decisions must relate to your business and business objectives, and with your ability to comply with mandates of a legal nature. It is eminently advisable to seek recommendations from legal and financial experts about the legal implications before making these types of decisions.