As long as we can remember, contributing to social causes has always been a part of our lives.
It gets expressed in various ways:
- Teaching poor kids without any charges
- Distributing useful things to an orphanage
- Providing free medical care
- Contribution to disaster relief activities
- Sponsoring food and education through another charity organisation
- Becoming an activist for our rights
- Forming a group to push institutional reforms or environmental issues
While there are several institutions that exist and work towards these noble objectives, you may also want to start one of your own.
You may have a unique idea or perspective or a very specific niche that you want to nurture and share with the society to bring about improvements. And of course, it has to stay a social venture, not a profit seeking one.
And you also want to put it in an organisation structure, so that it keeps going on, beyond you.
But how should you?
This is what I will try and address through this post.
A fair assumption that we are making is that you intend to create a non profit structure.
In India, such non-profit organisation can be registered either as
- A Trust, or
- A Society, or
- A Section 8 Company.
In this article, you will know the basic concepts and the difference between a Trust or a Society or a Section 8 Company.
Let’s begin.
What is a Trust?
A Trust is an entity where a person entrusts management of a property such as an immovable property or money to another person for a benefit of an individual or a group of individuals. A trust can be created for any lawful purpose including charitable, educational or social purpose.
- The person who entrust a property is called an author of the trust or settler of the trust.
- The person who accepts the responsibility of management of property is called a trustee.
- The person from whose benefit the property is managed is called a beneficiary.
- The property is called the trust property and the trustees work as per the trust deed.
Section 3 of the Indian Trusts Act defines a trust as “an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by him for the benefit of another or of another and the owner.”
A trust will have the word “Trust” in its name. A Trust can be a public trusts or a private trust.
As the name suggests, a public trust is set up for public at large or public in general. There is no definite number for the beneficiaries of the trust. E.g. Trusts formed for religious purpose. Registration of a public trust is mandatory.
On the other hand, private trust is set up for a particular beneficiary or a private group of beneficiaries. The beneficiaries are defined and known. E.g. Trust formed for benefit of employees of a company. Registration of private trust is not mandatory.
Trusts are governed by Indian Trust Act, 1882. Indian States may also have their own acts to govern the public trusts. For Maharashtra and Goa, the public trusts are governed by The Bombay Public Trust Act, 1950.
The Trust deed has to be registered with the Charity Commissioner of the State or the Sub-Registrar’s office.
A trust has more to do with the management of property or money for the beneficiaries. If you are looking to form a trust for a social cause, you should get it registered as a Public Trust.
What is a Society?
Society is an organisation where a group of people come together for any literary or scientific or charitable purpose and become members. A society does not have settler or author but has a Board of governing members to take care of the management.
In India, Societies are governed by the Societies Registration Act, 1860. In Maharashtra and Gujarat State, all Societies registered under the Act of 1860 are also required to get registered as a trust under the Bombay Public Trust Act, 1950.
Seven or more people are required to form a Society in India. These members become the subscribers to the Memorandum of Association (MoA) of the Society. A society also has a document for rules and regulation along with MoA.
A Society has a concept of membership wherein persons can be invited to become members and can pay membership fees periodically. This concept is not present in a Trust or a Company.
A society will have the words “Welfare Society” or “Foundation” or “Association” in its name.
So, if you are looking to invite members and receive membership fees, you can get your entity registered as a society.
What is a Section 8 company?
Section 8 Company (Section 25 company under the Companies Act, 1956) is a company registered under the Companies Act, 2013 for non-profit motive. Section 8 company has to be registered with the Registrar of Companies.
It can be formed by a person or association of persons for the purpose of promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other objective. Even a private company or a public company can be a promoter of a Section 8 Company.
Section 8 Company will have the shareholders (promoters) who will be the owners of the company and will have directors to manage the company.
A Section 8 Company may also have the words “Foundation” or “Association” or “Forum” in its name.
You must have of heard of various listed companies having their foundations for CSR activities. These Foundations can be Section 8 companies.
One point to note here is that the Income Tax treats a Trust or a Society or a section 8 Company in the same manner. All of them get tax benefits and tax exemptions of same nature.
Here is table of key differences between a Trust, a Society and a Company.
Conclusion
If you do not want to incur high costs and also there is management of property (immovable or cash) you can go for registration of Trust.
But given the framework in which a trust, society and a Section 8 company work, it is recommended to float a section 8 company for the following reasons:
- The operations of Section 8 Company are easier to manage
- There is more transparency w.r.t. working of a section 8 Company
- From point of view of receiving government subsidy or foreign contribution, Section 8 Company is preferred due to its transparency in working.
Have you every though of forming a non-profit organisation? If you have further queries or want to register a non-profit organisation, you can write to me at kruti@cskruti.com.