Difference between “Section 8 Company” and “Trust”

Section 8 Company and Trust are both Non-Governmental Organizations which are usually also referred to as Non-Profit Organizations. These organizations are generally formed to promote social welfare, social development, and other charitable purposes. These both are not the same, They have different purposes and uses depending upon what you intend to achieve through the establishment of the organization. In this blog, Startupportal experts guide the basic difference between Section 8 company and Trust that helps to take decisions.

Let’s dive in

7 Major Differences between "Section 8 Company" and "Trust"

Governing Legislation:

Section 8 Company: Section 8 Companies are governed by the Companies Act, 2013, and the relevant rules and regulations under the act.
Trust: Trusts in India are primarily governed by the Indian Trusts Act, 1882.

Registration Process:

Section 8 Company: To form a Section 8 Company, one must obtain a license from the Registrar of Companies (ROC) by submitting the required documents, including the Memorandum of Association (MOA) and Articles of Association (AOA). Registration cost under Companies Act is cheaper than Trust registration under Trust Act.
Trust: The creation of a Trust involves drafting a trust deed, which outlines the objectives, rules, and regulations of the trust. It requires the settlor (person creating the trust) to transfer assets to the trust and appoint trustees.

Structure:

Section 8 Company: A Section 8 Company is structured similar to any other company, with members/shareholders and a board of directors. It has a separate legal identity distinct from its members.
Trust: A Trust does not have shareholders or directors. It consists of a settlor, trustees, and beneficiaries. The trustees are responsible for managing the trust’s affairs and fulfilling its objectives.

Objectives:

Section 8 Company: The primary objective of a Section 8 Company is to promote charitable or non-profit activities for the advancement of fields such as education, art, science, research, social welfare, etc. The profits generated are used for furthering these objectives.
Trust: Trusts can be created for various charitable or religious purposes, including education, healthcare, poverty alleviation, promotion of religion, etc. The income or property of the trust is utilized to achieve the stated objectives.

Tax Exemptions:

Section 8 Company: Section 8 Companies are eligible for tax exemptions under Section 12A and 80G of the Income Tax Act, 1961, subject to meeting specific conditions and obtaining necessary approvals from the tax authorities.
Trust: Trusts can also avail tax exemptions under Section 12A and 80G of the Income Tax Act, subject to meeting the eligibility criteria and obtaining relevant approvals.

Compliance Requirements:

Section 8 Company: Section 8 Companies have to comply with various statutory requirements, such as maintaining proper books of accounts, conducting annual general meetings, filing annual financial statements with the ROC, and adhering to other corporate governance norms.
Trust: Trusts have fewer compliance obligations compared to Section 8 Companies. They are generally required to maintain proper accounts, file income tax returns, and adhere to the provisions mentioned in the trust deed.

Minimum Members Required:

Section 8 Company: A minimum of two individuals is required to form a Section 8 Company. These individuals can act as the directors of the company and are responsible for its management and operations.
Trust: A minimum of two trustees is required to form a Trust in India. These trustees are responsible for administering the trust and ensuring its objectives are met. It’s important to note that a single individual can act as both the settlor and trustee, effectively fulfilling the minimum requirement.

If the above inputs are taken into account, it would be easier for a non-profit organization to register in the appropriate manner based on its function. It is important to consult with legal professionals or experts familiar with Indian laws and regulations to understand the specific requirements, benefits, and compliance obligations associated with forming and operating a Section 8 Company or a Trust in India.

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