What is difference between Trust and Section 8 Companies in India

Private Trusts are incorporated for the advantage of family members, or a very small set of known individuals

What is NGO and types of NGO Registration in India?

A Non-Governmental Organization (NGO)is an establishment that is neither part of government nor a for profit industry. As a substitute, it is highlighting commonly environmental, on human rights, improving health, or development work. That said, many NGOs may also be fronts for political or religious interests. In India, an NGO can be registered as a trust, section 8 Company or a society.  A Non Profit Organizations can be registered in India as a Society, under the Registrar of Societies or as a Trust, by making a Trust deed. Another option is registration as a Section-8 Company under the Companies Act, 2013.

Section 8 Companies

These are limited companies formed under the Companies Act. The Government grants them a special NGO license under sec. 8 to drop the words ‘Private Limited’ or ‘Limited’ from their name.

There are 3 conditions for this:

1. The Company must be formed for charitable objects.
2. Income and profits should be applied towards these objects.
3. It should not pay any dividend to its members.

Such a company can operate in any state without additional formalities.

Trusts Registration

Trusts Registration under trust Act are the oldest form of charitable organizations. These may be private or public.

Private Trusts are incorporated for the advantage of family members, or a very small set of known individuals. A private trust is not a charitable trust. Private trusts are governed by Indian Trusts Act, 1882. This Act does not apply to public trusts.

Public trust is ideal when a individual needs to dedicate their own property to exact cause for all times to come. It is not so appropriate when one want to raise funds from the public for the trust’s activities.

In general, trusts are the easiest to form & run. A charitable trust registered wherever in India can function in all the states. However, as there is no governing oversight, arguments have to go to law court. There are no controlling requirements for governance or public filing of accounts.

Trust Registration versus Section 8 Company registration 

Particulars	Trust	Section 8 Company
Statute/Legislation	Trusts governed by the Indian Trust Act, 1882.	Section 8 Companies are Governed by the Indian Companies Act, 2013.
Jurisdiction	The trusts are under the Jurisdiction of Deputy Registrar/Charity commissioner of the relevant area.	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 Trust main instrument is Trust deed.	For registration of section 8 Company main instrument is Memorandum and Articles of Association.
Stamp Duty	Trust deed to be executed on non-judicial stamp paper, vary from state to state.	No stamp duty required for Memorandum and Articles of Association.
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	Minimum 2 for a private company and 7 for a public limited company
Board of Management	Trusts are governed by their trustees or by board of trustees.	It is managed by the board of directors.
Mode of Succession on Board of Management	Appointment or Election.	Election by members of the general body.
Law full Heading	Law full name of the property of a trust vests in the hands of trustees	In section 8 Company, all properties are held in the name of Company.
Revocable/ Irrevocable	Indian public charitable trusts are generally irrevocable.	A section 8 Company may be dissolved.
In case of In activeness	If a trust becomes inactive due to the negligence of its trustees, the Charity Commissioner may take steps to revive the trust. Additionally, if it develops 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 granters 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.	However if the dissolution & after settlement of all debts & 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 no requirement of annual return filing.	There is requirement of annual compliance by filing of annual accounts and return of company with the Registrar.
Online filing facility	Online filing facility in not available. Compliance are more complicated & time consuming	Online facility is available. The Compliance, 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.
Registration with Income Tax u/s. 12A & 80G as NGO	At par with society & Section 8 Company	At par with trust & Society.
From the point of view of Grant of subsidy by the government	Less preferred	Most preferred
From the point of view of Foreign Contribution Regulation Act, (FCRA) registration	Less preferred	Most preferred
Transparency in working	Low	High as everything is available online.
Change in board of directors/ trustees Members	Easy	Easy
Change of Registered office	Difficult	Easy