which is better a Trust or Section 8 Company?

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Trust and section 8 Company are different from one another. But people still may get confused on the basis of the difference and the reason of difference. Lets find out the difference between trust and section 8 company. All of them are governed by the different act :

Trust:-

A trust is a structure where a trustee carries out the business on behalf of the trust’s members (or beneficiaries). A trust is not a separate legal entity.

Statute/Legislation:  Trusts governed by the Indian Trust Act, 1882.

Jurisdiction:  The trusts are under the jurisdiction of Deputy Registrar/Charity commissioner of the relevant area.

Registration Document:  For Registration of Trust main instrument is Trust deed.

Stamp Duty:  Trust deed to be executed on nonjudicial stamp paper, vary from state to state.

Members Required:  At least two trustees are required to register a public charitable trust. In general, Indian citizens serve as trustees, although there is no prohibition against non-natural legal persons or foreigners serving in this capacity.

Board of Management:  Trusts are governed by their trustees or by board of trustees.

Legal Title:  Legal title of the property of a trust vests in the hands of trustees.

Revocable/ Irrevocable:  Indian public charitable trusts are generally irrevocable.

In case of nactiveness:  If a trust becomes inactive due to the negligence of its trustees, the Charity Commissioner may take steps to revive the trust. Furthermore, if it becomes too difficult to carry out the objects of a trust, the doctrine of cy pres, meaning “as near as possible,” may be applied to change the objects of the trust. Thus, it appears that grantors can feel fairly secure that the charitable nature of a trust will be honored, even if the original, specific purposes of the trust cannot be carried out.

Annual Compliance:  There is no requirement of annual return filing.

Online filing facility:  Online filing facility in not available. Compliances are more complicated & time consuming.

Time Period involved in registration/ formation:  10-15 days.

Cost factor:  Low

Registration with Income Tax u/s. 12A & 80G as NGO:  Less preferred

From the point of view of Foreign Contribution Regulation Act, (FCRA) registration:  Less preferred

Transparency in working:  Low

Change of Registered office:  Difficult

Section 8 Company:-

A Company which has main objective as Promotion of arts, science, commerce, sports, education, religion, charity or such other objectives, uses its profit for promotion of its objectives and doesn’t pay any dividend to its members. In simple words it is a Company with no intention to make a profit.

Statute/Legislation:  Section 8 Companies are governed by the Indian Companies Act, 2013.

Jurisdiction:  The power to register a section 8 Company lies in the hand of Regional Director & Registrar of Companies of concerned state.

Registration Document:  For registration of section 8Company main instrument is Memorandum and Articles of Association.

Stamp Duty:  No stamp duty required for memorandum and articles of association.

Members Required:  Minimum 2 for a private company and 7 for a public ltd company.

Board of Management:  It is managed by the board of directors.

Legal Title:  In section 8 Company, all properties are held in the name of Company.

Revocable/ Irrevocable:  A section 8 Company may be dissolved.

In case of nactiveness:  Upon dissolution and after settlement of all debts and liabilities, the funds and property of the company may not be distributed among the members of the company. Rather, the remaining funds and property must be given or transferred to some other section 8 Company, preferably one having similar objects as the dissolved entity.

Annual Compliance:  There is requirement of annual compliance by filing of annual accounts and return of company with the RoC.

Online filing facility:  Online facility is available. The Compliances, like annual filing, appointment & removal of directors, shifting of registered office, increase in capital, change in object clause & others can be done online at MCA portal. It is very easy, time saving and transparent process.

Time Period involved in registration/ formation:  60-75 days

Cost factor:  High

Registration with Income Tax u/s. 12A & 80G as NGO:  Most preferred

From the point of view of Foreign Contribution Regulation Act, (FCRA) registration:  Most preferred

Transparency in working:  High as everything is available online.

Change of Registered office:  Easy

 

 

 

 

 

  • Founder and Editor at "Knowledge Portal.co.in"

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