If you’re planning to set up a non-profit organization in India, it’s crucial to know the difference between trust, society and section 8 companies. These three entities serve similar purposes but differ in legal structure, formation process, and compliance requirements.
A Trust is usually created by families or individuals to do charitable work and is governed by the Indian Trusts Act.
A Society is made by a group of people who want to work together for causes like education, art, or health, and is registered under the Societies Registration Act.
A Section 8 Company, also called as a Non-profit Company, can be incorporated under the provisions of the Companies Act, 2013. It is often chosen by larger NGOs and organizations that want better funding options, and strong legal status. Each option has its own process for registration, management, and compliance.
This article will help you understand the differences so you can choose the best type as per your goals and needs.
TRUST
According to Section 3 of the Indian Trust Act, 1882, a trust is defined as an obligation attached to the ownership of property, arising from a confidence placed in and accepted by the owner, or declared and accepted by him, for the benefit of another person—or for the benefit of both another person and the owner.
In simpler terms, a trust involves the transfer of property by one person, known as the settlor, to another person called the trustee. The trustee holds and manages this property for the benefit of a third party, referred to as the beneficiary.
To create a valid trust, the settlor must legally transfer ownership of the assets to the trustee, who is then responsible for administering the trust according to its terms and for the benefit of the beneficiary.
Key Features of Trusts:
- Settlor (Grantor): The person who creates the trust by transferring assets to the trustee.
- Trustee: The individual or institution responsible for managing the trust assets according to the terms set out by the settlor.
- Beneficiaries: The Trust is bound by a fiduciary duty to exercise that legal title for the benefit of any one or more individuals or groups of individuals or organizations, who are known as the Beneficiaries
- Trust Property: The assets (money, real estate, investments, etc.) placed in the trust by the settlor.
- Trust Deed: A legal document that outlines the terms, conditions, and purposes of the trust.
- Revocable vs. Irrevocable:
- Revocable Trust: The settlor can change or revoke the trust during their lifetime.
- Irrevocable Trust: Once established, the settlor cannot alter or revoke the trust without the consent of the beneficiaries.
- Purpose of the Trust: Trusts can be created for various purposes, such as estate planning, asset protection, charitable purpose, or tax reduction.
- Trust Duration: A trust can exist for a specific period or until the fulfillment of a specific condition.
- Tax Implications: Exemptions available to Trusts are primarily governed by the provisions of the Income Tax Act, 1961. The taxation of a trust depends on its type and jurisdictionwhether the Trust is a Public Charitable Trust, Private Trust, ReligiousTrust, etc.
While trusts are easier to form, understanding the difference between trust, society and section 8 company will help to assess out which one fit as per your goals.
SOCIETY
A society is a group of individuals who voluntarily come together to work towards a common purpose.
Under Section 1 of the Societies Registration Act, 1860, any seven or more persons who have come together for any legal pursuits, including literary, scientific, charitable or social pursuits, may subscribe their names to a memorandum of association and file the same with the Registrar and form themselves into a society under this Act. Societies are registered under the Societies Registration Act, 1860.
Key Features of Societies
- Requires at least seven members to register.
- Cost of compliance is low.
- Subject to annual compliance and meeting requirements.
- Donations made to a registered society are eligible for tax rebates under the Income Tax Act, provided the society has obtained approval under Section 80G.
- The process of formation and registration is simple.
- Tax Exemptions.
To evaluate the difference between trust, society and section 8 company, note that societies offer collective decision-making but may involve more bureaucracy.
SECTION 8 COMPANIES
A Section 8 Company, also called as a Non-profit Company, can be incorporated under the provisions of the Companies Act, 2013 having the status of limited company without the addition to its name of the word “Limited” or “Private Limited” for the purpose of promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object.
Key Features of Section 8 Companies
- Governed by the Companies Act, 2013
- Minimal share capital
- Improved Credibility
- Access to Tax benefits
- Zero Stamp Duty
- Separate legal entity
Some notable Section 8 companies in India include Reliance Foundation, Infosys Foundation, TATA Foundation, and Reliance Research Institute.
Among the difference between trust, society and section 8 company, Section 8 companies enjoy the highest level of governance and recognition but come with more regulatory obligations.
Trust vs Society vs Section 8 Company – Which One to Choose?
| Feature | Trust | Society | Section 8 Company |
| Governing Law | Indian Trusts Act/state laws | Societies Registration Act, 1860 | Companies Act, 2013 |
| Registration Authority | Sub-Registrar | Registrar of Societies | Registrar of Companies (RoC) |
| Compliance Requirement | Low | Moderate | High |
| Suitable For | Family, religious causes | Community-based projects | Corporate-style NGOs |
| Minimum Members | 2 Trustees | 7 Members | 2 Directors |
| Governance Document | Trust Deed | MoA and Rules & Regulations | MoA and AoA |
| Preference in registration under FCRA | Low Preference | Low Preference | Preferred |
| Transparency | Low | Low | High |
| Registration Period(approximately) | 15-20 days | 15-20 days | 5-7 days |
| Grants and subsidies from the government | Not much | Not much | Preferred |
| 80G and 12A Registration | Possible | Possible | Possible |
Which One Should You Choose?
To decide the best option, you must understand the difference between trust, society and section 8 company:
- If you want minimal compliance, go for a trust.
- If you prefer community participation and transparency, choose a society.
- If you plan to work with international donors or large-scale projects, opt for a Section 8 company.
Conclusion: Key Difference Between Trust, Society, and Section 8 Company
Knowing the difference between trust, society and section 8 company is essential for any individual or group intending to start a non-profit in India. Each entity has its own advantages and disadvantages, and the choice depends on your scale of operation, funding plans, and governance structure. It is advisable to consult legal experts to make a good decision.
