Introduction

Choosing the right legal structure—Section 8 Company, Trust, or Society—is crucial for anyone looking to launch a not-for-profit organization in India. Though all three structures provide a legal framework to address social objectives, they differ significantly in governance, compliance, fundraising, and credibility. This comprehensive guide explores:

1. Definitions & legal frameworks

2. Comparison across key parameters

3. Real-world examples

4. Taxation & audit implications

5. Pros & cons

6. Setting up guidance

7. FAQs

1. Understanding the Basics

A. Section 8 Company

• Legal Framework: Incorporated under Section 8 of the Companies Act, 2013.
• Objective: Promotion of commerce, art, science, sports, education, charity, etc., without profit.
• Governance: Strong regulatory control; board of directors; Articles & Memorandum of Association.
• Licensing: Requires license from Central Government.

B. Trust

• Legal Framework: Governed by respective State Trust Acts (e.g., Indian Trusts Act, 1882, and state charity acts).
• Objective: Promoter/trustees hold property for beneficiaries (charitable or private).
• Governance: Trustees, no shareholders; trusts deed defines objectives.
• Licensing: Registration under state trust act; no central license.

C. Society

• Legal Framework: Registered under the Societies Registration Act, 1860 (for older states) or state society acts.
• Objective: Promotes literature, science, fine arts, etc.—primarily nonprofit.
• Governance: Governing council (members); constitution; AGM requirements.
• Licensing: Registration with state registrar of societies.

2. Head-to-Head Comparison Table

3. Deeper Comparison

3.1 Legal Identity & Formation

• Section 8 Company: Incorporated via MCA portal, requiring license, Board resolution, MoA/AoA.
• Trust: Created on trust deed registration with stamp duty; few approvals needed.
• Society: Requires minimum 7 members and society bye-laws; state registration process.

3.2 Governance & Operational Control

• Directors vs Trustees vs Members/Council.
• Section 8 Companies have formal mechanisms—AGM, EGM, quorum, minutes.
• Trusts rely on deed and trustee discretion; fewer formalities.
• Societies: democratic—members elect governing council but risk instability with frequent elections.

3.3 Compliance, Reporting & Audit

Section 8:

• Annual ROC filings, Board meetings, annual general meeting.
• Compulsory audit (CA audited financials).

Trust:

• Audit only if income ≥ ₹10 lakh (threshold varies).
• Half-yearly returns for public trusts (state variations).

Society:

• Audit threshold usually income ≥ ₹10 lakh.
• Annual filing to state registry and mandatory AGMs.

3.4 Fundraising & Credibility

• Section 8: Highest donor confidence; can issue CSR receipts; easier FCRA.
• Trust: Good with property donation, real-estate trusts; FCRA possible but compliance-heavy.
• Society: Popular for NGOs, community groups; FCRA yes but less preferred by large donors.

4. Real-Life Examples

A. Section 8 Company

Teach for India (TFI)

• Works in education equity; highly structured, corporate style governance.
• Raises CSR and donor funding, encloses solid financial reporting.

Goonj Foundation

• Initially a society, later operated through Section 8; recognized for rural development.

Pratham Education Foundation

• Registered as Section 8; successful in boosting learning in underprivileged schools.

B. Trust

Tata Trusts

• Among India’s oldest philanthropic trusts; funds health, education, rural development.

Azim Premji Foundation

• Focused on education reform; assets held in a trust for long-term philanthropic mission.

Bajaj Foundation

• Trust for community welfare; benefits from flexibility in fund allocation.

C. Society

The Art of Living

• Registered society promoting cultural/spiritual activities; governing council with large membership base.

Indian Council for Cultural Relations (ICCR)

• Autonomous society under Ministry of External Affairs; fosters India’s cultural diplomatic outreach.

New India Foundation

• Society supporting Indian writing in vernacular; grants, fellowships.

5. Taxation & Audits

Tax Exemptions

• All three can apply under Section 12A for income tax exemption.
• 80G certificates enable donors to claim tax benefits.
• FCRA is essential for accepting foreign donations.
• TDS exemptions may apply under certain sections for donations or payments.

Audit Requirements

• Section 8: Mandatory annual audit by Chartered Accountant.
• Trust and Society: Audit required if turnover/income > ₹10 lakh (varies by state).
• Trusts also prepare half-yearly returns (for public charitable trusts).

6. Advantages vs Disadvantages

Section 8 Company

Advantages

• High credibility with stakeholders
• Access to CSR & institutional partnerships
• Legally robust governance
• Perpetual succession, no change with member changes

Disadvantages

• Costly setup & renewal
• Heavy compliance burden
• Time-consuming licensing and ROC filings

Trust

Advantages

• Easy & low-cost formation
• Flexibility in operations
• Ideal for property-holding & simple philanthropy

Disadvantages

• Lower transparency and donor confidence
• Control concentrated in trustees
• Unclear succession if trustees retire/deceased

Society

Advantages

• Democratic with member representation
• Moderate compliance
• Recognized widely among NGOs

Disadvantages

• Frequent elections cause instability
• Less favorable for corporate donors
• Legal disputes can erupt due to old governing rules

7. Step-by-Step Setup Guide

A. Choose the Right Structure

Ask yourself:

• Who are your stakeholders? (corporate donors, community, government)
• How much compliance you’re ready to manage?
• What’s your long-term vision? (growth, trusts, CSR)

B. Register & Incorporate

Section 8 Company

1. Name approval (SPICe+ form).
2. File MOA/AOA, DINs, DSCs.
3. Apply for Section 8 license (Form INC‑12).
4. Incorporation & PAN, TAN, bank account.

Trust

1. Draft trust deed: name, objectives, settlor, trustees.
2. Register at local sub-registrar with stamp duty.
3. Obtain PAN, open bank account.
4. Annual Apply for 12A, 80G, FCRA (if foreign funds).

Society

1. Prepare bye-laws; minimum 7 members.
2. Get society name; register under Societies Act.
3. Obtain PAN, accounts, open bank account.
4. Register under tax exemption/FCRA.

FAQs

Q1: What is a Section 8 Company?
A Section 8 Company is a nonprofit under Companies Act, seeking promotion of art, education, etc., without profit. It enjoys high credibility but requires regular compliance.

Q2: Can trusts issue 80G certificate?
Yes, both public charitable trusts and societies can register under Section 80G, enabling donors to claim tax deductions.

Q3: Which is better for corporate funding—Trust or Society?
Section 8 Companies are generally preferred by corporate donors due to stricter governance, accountability, and transparency.

Q4: How many members does a society need?
Minimum seven members, who form the founding governing council, with democratic elections thereafter.

Q5: What’s the FCRA requirement?
Any NGO (all three types) wanting foreign funds must register with the Ministry of Home Affairs under FCRA and comply yearly.