In India, establishing a non-profit organization could be done primarily in three legal forms either a Section 8 Company, Society or a trust. Society and Trust is the most commonly preferred legal forms out of these three forms for carrying out charitable, religious, educational activities. Both Society and trust serve the purpose of social services but operates under different legal frameworks and governance models. This article provides an insight on the process and requirements for forming a society or trust in accordance with the prevailing laws in India and major differences between society and trust registration.
What is a Society- Meaning
A “Society” is a voluntary association formed by a group of individuals who comes together to promote a common cause either charitable, educational, cultural or any other social activities. In India, Societies are incorporated under the Societies Registration Act, 1860 or under the respective state laws.
Societies are characterized by the following features:
- Membership: Composed of individuals sharing similar aspirations and social goals
- Non-Profit Objective: Aimed at promoting social welfare rather than generating profits
- Structured Governance: A society is managed by an elected committee or governing body
What is a Trust- Meaning
A “Trust” is a legal arrangement in which a person (the settlor) transfers property to another person (the trustee) for the benefit of a third party (the beneficiary). In India, Trusts are governed by the Indian Trusts Act, 1882 and are registered with the Office of the Sub-Registrar or Charity Commissioner’s Office. Trusts can be classified into two:
- Public Trusts: Trusts which ate established for the welfare of the public or a specific community
- Private Trusts: Trusts which are established for the benefit of particular individual/ individuals.
Difference between Society and Trust
Let’s have an overview of trust vs society:
Legal Framework
If society is operating PAN India, the Societies Registration Act, 1860 is applicable. In other cases, State-wise Society Act shall apply. For example, for society having its operational area in Rajasthan, Rajasthan Society Registration Act, 1958 shall apply.
Public Trusts are registered and governed by the Trust Act of the respective states in which the jurisdiction of the trust falls. Private Trusts are governed by Indian Trusts Act, 1882.
Registration Authority
In every state, Registrar of Societies is the authority for registering and administering societies. In most of the states, application for registration of a society can be made online through State Government Portal. However, registration of a trust could be done by executing trust deed with Sub-registrar and/or Charity Commissioner of the concerned area where trust is situated.
Constitution Document
Registration process of a trust involves drafting and executing a “Trust Deed” with the jurisdictional sub-registrar. Trust Deed defines the objectives of the trust, beneficiaries, property in respect of which trust is settled, management structure, dissolution clause, arbitration clause etc.
Whereas in case of a society, Memorandum of Society and its byelaws are framed and submitted to the Registrar of Societies. Memorandum and byelaws outline name and registered address of society, membership procedure, election mechanism of governing body, objectives of society, arbitration and dissolution clause and other regulations relating to day-to-day working of the society.
Minimum Members required
Minimum two trustees are required to form a trust. For forming a society, minimum seven members are required for a state-level society. To form a national-level society, eight members are needed from different states in which the society is intended to operate. These members should be individuals only.
Management
Management of a trust is done by “Board of Trustees” whereas the management of a society is done by a management committee or governing body duly elected by the members of the society.
Liability and Ownership
A society is a separate legal entity distinct from its members. Therefore, members of the society are not liable for the debts of the society. A society can acquire properties in its own name. In society, members are liable only towards unpaid membership or subscription fee.
Whereas in case of a trust, the trustees possess the legal title to the trust property but do not have beneficial interest in that property. The beneficiaries are the actual owners of the trust assets and also get the benefits outlined in the trust deed.
Taxation and Annual Compliances
In case of trusts, there are no mandatory annual compliances except the Income Tax Return Filing. In case, the trust is obtaining tax exemptions under the Income Tax Act, the trust shall be required to get its accounts audited from a practicing Chartered Accountant.
A society is required to get its accounts audited and file such audit report along with annual return with Registrar of Societies every year. The society is mandated to submit the list of names, occupation and address of the managing committee members of the society to the Registrar annually in addition to the ITR filing.
Acceptability and Suitability
Both society and trusts are allowed to get registration under section 12A of the Income Tax Act. Both are eligible for FCRA registration also. However, a society has a higher global acceptance in comparison of a trust. Societies are generally suitable where a group of individuals comes together to serve any social or charitable cause with their collective efforts in a more democratic manner.
Continuity and Succession
A society can exist for a perpetual period beyond the lifetime or membership of founders or current members. Whereas a trust has a limited life based on the terms outlined in the trust deed.
Choosing between Society vs. Trust Registration in India
Each set of organization structure whether society or a trust have distinct registration procedure, legal structure, governance model and compliances. Wrong selection could lead to non-compliances, possible penalties and other legal aftermaths which could severely affect the operations and existence of the organization.
Therefore, it is important to identify the goals, aspirations and the scale of operations before choosing between society or a trust. The governance and management of societies is made in a more democratic manner namely through an elected governing body. Thus, if a large group of individuals is involved, society formation is preferred legal structure. If external funding is intended, a society has a better recognition as compared to trust. If you are concerned about compliances and annual compliance cost, trust will be better in comparison to society. In simple words, not a single factor will be a deciding factor for you. Rather all the factors as detailed in the article should be taken together to decide between a trust or a society.
Conclusion
In summary, understanding the differences between societies and trusts is crucial for anyone looking to establish a non-profit organization in India. Each structure has its own legal framework, registration process, and operational requirements. By carefully evaluating their objectives, founders can make informed decisions about the appropriate structure for their initiatives. Seeking legal guidance can also ensure compliance with all regulatory requirements, paving the way for successful and sustainable operations.
