Comparative Analysis of Trusts, Societies & Section 8Companies

BRIEF INTRODUCTION:

India’s social consciousness is deeply engraved with the generosity of social service, which have evidently existed in various forms since ages, like the concept of daana, dakshina, bhiksha etc. There are many different ways through which individuals, companies etc. can
help bring wellbeing, prosperity to one’s life as well as society at large. There are innumerable ways for providing social benefits it is not restricted only to single individuals but individual altogether as society at large can contribute and take active part, the most
common structures for providing social benefit is forming a Non-Profit Organization such as Trust, Society and Section 8 Companies. These organizations are set up for providing social welfare, hence considered as Not for Profit Organization, this includes schools, colleges, religious organizations, hospitals etc.

One might think, if all the three above specified organization have similar objects, then what is the difference between them ??? how to choose which organization is the best amongst themselves???

Before deciding on various questions as to, how/ which/what, it is important to understand all of them step wise:

BIRD’S – EYE VIEW:

1. TRUST:

Trust is the first and oldest form of not-for-profit organization, these are regulated as per the provisions given under the Indian Trust Act, 1882. There are several categories of trusts such as; public trusts and private trusts, discretionary & non-discretionary, testamentary & non testamentary etc. Public trust means trust formed for the benefits of public at large, whereas private trust are formed for the benefits of limited number of person limited to some individuals, families etc.

A Private trust comes under the Indian Trust Act, 1882. Whereas the same does not apply to public trust as Indian Trust Act is not valid to the public trust.

Trust can be formed with minimum 2 individuals, no statutory requirement for annual return/ documents filling, hence is easy to form and operate. But, as there is no regulatory oversight, it is difficult to wind up the trust, as trust are generally irrevocable, however according to the trust deed can be wound up.

2. SOCIETY:

Societies are comparatively considered to be in modern form. Seven individuals from one state/ and Eight individuals in case of different states come together for a common resolution in a general body. They might be Indians or foreigners. More members can be added. Each
general body member has one vote. The main instrument of any society are the Memorandum & Bye Laws.

In many states, societies are governed by the Societies Registration Act, 1860 or its versions in force in different states. Governance and public filing vary from each state. Unlike trusts, a society has a more democratic set up with membership and an elected body to manage the society. In general, every society has to file a list of governing body members every year. Some states ask for the audited accounts filing also. This form generally works best for individuals with state-level objectives, who are interested in focusing on their formalities.

3. SECTION 8 COMPANY:

Section 8 companies are governed by Companies Act 2013. The Government grants these companies an exclusive license under Section 8 Company. These companies can be limited by shares/ guarantee, having/not having share capital. The members of a company who are
limited by guarantee are bound by a guarantee in the articles of association of the company, which requires them to pay the company debts up to a fixed sum. There are three main conditions for this.

1)The company should form for the charitable trust

2) Income and profits should be used towards these objects

3) The company should not pay any dividend to its members

Section 8 companies are authorized to undertake micro finance activities wherein small-scale loans of somewhat Rs. 50,000 for rural areas and Rs. 1,25,000 for urban areas are allowed by section 8 companies, it is the simplest way to register a microfinance company, as per RBI circular RBI/2015-16/15 DNBR (PD) CC.No.052/03.10.119/2015-16 Dated July 01 2015, exempted section 8 companies to obtain Certificate of Registration from RBI to carry on any non-banking financial business, but within the limits prescribed by RBI.

4. COMPARATIVE ANALYSIS:

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