Section 8 (Companies Act, 2013) company will become Holding Entity and other entity will become its subsidiary.

Holding entity will do all the marketing, fundraising, financial, future planning for whole group.

This process involves member restructuring, change in authorise signatories with banks and government authorities.

Now the main issues related to restructuring of these entities are:

Administrative cost payment, Staff payment in different parts of the country,

Consolidation of accounts, Remittance under one combined group,

Registration under FCRA, Registration under 80G, Registration under 12A ,

Remuneration to Director, Location based issue.

The three types of organisations that are about to be discussed within this article are Non-Governmental Organisation a.k.a NGO’s. NGO’s are usually also referred to as Non-Profit Organisations. These organisations are generally formed to promote social welfare, social development and other charitable purposes.

In India, such an organisation may be established as a Trust, a Society or a Section 8 Company. Bear in mind that these are not the same. They have different purposes and uses depending upon what you intend to achieve through the establishment of the organisation.

 

When To Consider Forming a Society?

  • It is the ideal organisational body if you want an elected body to manage it.
  • If the members do not want to be bound in perpetuity to it, a society allows for an easy exit of its members.
  • If your choice is dependent upon which one of the three is easiest to wind up, then you should go for forming a society. Comparatively a society is easier to wind up than booths trusts and Section 8 companies.

When To Consider Forming a Trust?

  • In case more than one family member is running the business.
  • If you want the trustee to hold office for his or her lifetime without the need for an election.
  • Privacy in activity as well as flexibility in the division of benefits.

Reasons For Forming a Section 8 Company

  • If the purpose is for executing a wide range of activities.
  • To gain reliability and credibility as it is an approved establishment by the central government.
  • To achieve the legal structure of a company without the need for high capital.

Difference Between Society, Trust, and Section 8 Company

In the table below we will bring out the differences between the three different forms of organisation.

Particulars  Trust Society  Section 8 Company
Meaning  It is considered to be the oldest form of charitable organisations. It is, in essence, an arrangement between parties whereby one party holds ownership over property on behalf of another person It is formed when a collection of people come together for a common charitable purpose. But it is not limited to charitable purposes but may extend to multiple other fields. It is a company established with the purpose has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object and whereby they apply any profits into furthering the objective.
Governing Legislation  A trust is established under and governed by the Indian Trust Act, 1882 for private trusts. General law is applied for public trusts except in a few states such as Gujarat and Maharashtra, which have their own state laws. Societies Registration Act,1860. Companies Act, 2013
Registered as NGO/NPO NGO/NPO NGO/NPO. But they enjoy all the privileges of a limited company without the need for them needing to add Pvt. Ltd. to the name.
Document of constitution Trust Deed MOA (memorandum of association) and rules and regulations MOA and AOA (articles of association)
Registration Authority  Deputy Registrar of the state Registrar or Deputy Registrar of the particular state in which it is to be registered. Registrar of Companies (ROC) or Regional Director
Minimum members required  2 trustees minimum 7 members minimum (5 for Jammu and Kashmir and Telangana) 2 directors and 2 shareholders. It should be noted that the directors may also be the shareholders.
Annual compliances There are no mandatory yearly compliance to be met by a trust The society must file the list of names, occupations and address of the managing committee members of the society to the Registrar annually The company must file the annual returns and accounts with the ROC.
Cost factor Low  Medium  High 
Grants and subsidies from the government Not much Not much Considerable (possible)
Preference in registration under  FCRA  Low preference  Low preference  Preferred 
Registration under The Income Tax Act, 1961 Allowed  Allowed  Allowed 
Transparency  Low  Low  High
Legal right over the property Held by the trustee Held in the name of the society  Held in the name of the company
Registration period (approximately) 15-20 days 20-25 days 30-45 days
Stamp duty Dependent upon the state stamp duty Act a well as the total worth of the property involved in the matter. None  None