Section 8 Company may convert itself into any other kind of company according to section 8(4) (...
Any organization that devotes its funds to welfare is not for profit organization. This includes schools, colleges, hospitals, religious organization (NGO’s). There are three common forms of NGOs– Trust, Society and Section 8 Company. Which one should you choose? We have discussed each of them in this article.
Let’s discuss trust first. Trust is the oldest form of charitable organization. There are private, or Public Trusts that are primarily created for the benefit of family members or a very small set of known persons. A Private trust comes under the Indian Trust Act 1882. Trust Act is not applicable to the public trust.
In Maharashtra and Gujarat, public charitable trust must be formed and registered under the Bombay Public trust Act 1950. In other states, public Trust are mostly governed by common law.
Trust is the easiest to form and Operate. However, as there is no regulatory oversight, disputes have to go to the court. The trust deed can also be modified only by the settlers, and if he is not available, you need to go to court or to change the trust deed there are no regulatory requirements for governance or public filing of accounts.
Societies are a relatively modern form. Therefore people opt for Society Registration. Seven persons come together for a common purpose in a general body. These may be Indian or foreigners. You can add more members. Each public body members has one vote.
Societies in many states are governed by the Societies Registration Act 1860 in its original or amended form. Its Memorandum says so. Governance and public filing requirement vary from one state to another. In general, every society has to file a list of governing body members annually. Many states ask for the filing of audited accounts as well. Societies Registration Act, 1860 itself does not have any provision for filing of audited accounts. Except for Tamil Nadu states, members and office bearers can also be paid employees of the society. It is more difficult than trust but easier than a company. This form works best for people with state-level objectives, who want to focus on their formalities
These are limited companies established under the Companies Act. The Government grants them an exclusive license under Section 8 Company Registration. There are three conditions for this.
It can be formed with only two members who may be Indian or foreigner and it should have at least two directors, who need not be a member.
These forms can be used for Non-profit Work, just like a truck can be used for carrying passengers & bicycle for carrying almost anything. Each form has its own advantages and disadvantages. A Trust is easy to form and run –but when it comes to changing objects or setting disputes you can choose a trust if you are dedicating your own property to public good.
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 or Section 8 Company. A charitable purpose is defined under Section 2 (15) of Income-tax act “Charitable purpose “includes relief for the poor, education, Yoga, medical assistance, Preservation of environment (Incl. watersheds, forests, and wildlife) and preservation of monuments or places or objects of artistic or historical.
Interest and the advancement of any other object of general public utility “Charitable purpose do not include the purpose that relates exclusively to religious teaching or worship. While selecting the form in which it should be registered non-profit making, the entity must evaluate the objects and the area of operation, persons involved in its constitution and the sources of income to achieve its purpose.
Income Tax Act gives equal treatment for exempting their income and granting an 80G certificate, whereby donors to non-profit organizations may claim a rebate against donations made. Foreign contribution to non-profits is governed by FC(R) regulations and the Home Ministry.
CAF would like to clarify that this material provides only broad guidelines and it is recommended that legal and or financial experts be consulted before taking any important legal or financial decision or arriving at any conclusion.
In case you are looking for an elected body to manage, then consider forming a Society. If more than one family member is running the business and you want privacy in activity and flexibility in benefits division, then consider Trust Registration. In case the purpose is to perform wide range of activities, consider forming a Section 8 Company.
The primary instrument of any public charitable trust is the trust deed, wherein the aims and objects and mode of management (of the Trust) should be enshrined. In every trust deed, the minimum and a maximum number of trustees have to be specified. The Trust deed should be signed by both the settlers & trustee/s in the presence of two witnesses. The trust deed should be executed on judicial stamp paper, the value of which would depend on the valuation of the trust property.
The application for Trust Registration should be made to the official having jurisdiction over the region in which the trust is sought to be registered.
The applicant has to affix a court fee to the form and pay a registration fee which may range differently, depending on the location and value of the trust office and trust property
The applicant should sign the application form before the registrar, sub-registrar, deputy registrar, Regional officer or superintendent of the local office of the charity commissioner or authorized registrar. The application should be submitted, together with a copy of the trust deed.
There are two more documents to be submitted at the time of making a request for registration:
The primary instrument of any society is the memorandum of association and rules and regulation (no stamp paper required), wherein the aims and objects and mode of management (of the society) should be enshrined
Registration can be done either at the state level (i.e. in the office of the Registrar of societies) or at the districts (In the office of the District Magistrate or the Local office of the Registrar of Societies)
The procedure varies from state to state. However, generally, the application should be submitted together with the following:
All the previous documents which are required for the application for registration should be submitted in duplicate, together, with the necessary registration fee. Unlike the trust deed, memorandum of Association & Rules and Regulation need not be executed on stamp paper.
For a section 8 company, the primary instrument is a Memorandum & Articles of Association. (No stamp paper required)
Let us help you in Comparison between Trust, Society and Section 8 Non-Profit Organization:
|SR. NO||TITLE||SECTION 8 COMPANY||TRUST||SOCIETY|
|1||Minimum members required||Two||Two||Seven|
|3||Transfer of Ownership||Transfer of shares||Not permissible||Member Resolution|
|5||Stamp Duty||Not applicable||Non-Judicial Stamp||Not applicable|
|7||Time for formation||30-40 days||15-20 days||15-20 days|
|8||Payments to members and directors||Only for Actual Work||Allowed||Allowed|
|10||Post Formation and directors||Strict guidelines & compliances||No major statutory compliances||Moderate compliances|
In India, a Trust, Society and Section 8 Company have a lot of significance as they are formed with an objective to promote social welfare and social development and also for other charitable purpose. However they are not the same. In case you want a comprehensive article on each of them, then go through our blogs.
Read our article:Step by Step Process for Society Registration