TRUST & SOCIETY REGISTRATION
TRUST, SOCIETY OR COMPANY?
There are three different ways in which one can share good fortune with others in an organized and enduring manner and receive legal protection as well as tax benefits.
One can set up either a Public Charitable Trust, a Registered Society, or a Section 8 Company (a trust corporation).
The choice between a trust, society, or company depends on the specific goals and objectives of the organization, as well as the resources available for setting up and managing the organization. It is important to consult with legal and financial experts before deciding on the appropriate structure for the organization.
If a person wishes to set apart either property or money for a charitable purpose so that the income may be devoted in perpetuity for the fulfillment of the charitable activity, and wants to limit control over the disposal of that income to persons whom he knows and trusts, then it is best to set up a public charitable trust. A public charitable trust can be set up under the Bombay Public Charitable Trusts Act 1950 in Maharashtra or Gujarat. Elsewhere in the country it can be set up under the general law, i.e., by registration of the trust deed with the registrar. But a private trust whose beneficiaries generally are relatives or friends and not society at large does not enjoy tax benefits.
A minimum of only 2 persons are required to form a trust which can be set up by executing a trust deed on non-judicial stamp paper worth 4 % of the value of the trust property, with either the charities commissioner in Maharashtra or Gujarat or with the registrar of documents elsewhere. The trust deed enshrines the aims and objects and mode of management of the trust. The management rests with the board of trustees who can remain so for life, and need not stand for election. Changes in the composition of the board are usually by invitation and not election. This ensures that the trust is managed by those approved by the original donor/s or trustee/s who cannot be removed by election as in the case of a society. Thus, there is minimum danger of a takeover by persons not approved by the trustees or settler.
One can set up a registered society under the Societies Registration Act of 1860 or its versions in force in different states. Unlike trusts, a society has a more democratic set up with membership and an elected body to manage the society. The original members of a society can continue to remain in control as long as they are elected to the managing committee, but at the same time can opt out of the society if they wish, which trustees cannot. The society can exist as long as the members wish, but there is always a possibility of complete renewal of members and objects can be modified easily. It is easier to wind up a society than it is to wind up a trust. A minimum of seven members are required to form a society. They have to file a memorandum of association on non-stamp paper, setting out the objectives of the society before the registrar of societies in the state in which the society is set up. The legal requirements are much simpler than in the case of a trust or Section 8 companies. But the main disadvantage is that due to democratic procedures, the society can be taken over by elements opposed to the founding members.
A company is a legal entity that is registered under the Companies Act, 2013. Companies can be either private limited or public limited, and they have limited liability protection for their shareholders. The main advantage of a company is that it provides limited liability protection to its shareholders, and it has greater flexibility in terms of management and funding. However, setting up a company can be time-consuming and expensive, and it is subject to greater regulatory compliance requirements. Only two members are required to set up a nonprofit company. The main instrument is the memorandum and articles of association filed on non-stamp paper before the registrar of companies.