05 Nov Starting Your Non-Profit: Trust, Society or Section 8?
Establishing a non-profit organisation is a noble endeavour, but the decision to register it can be complex. One of the crucial considerations is selecting the appropriate legal structure for your NPOs. In many countries, common options for registering non-profits are as a Trust, a Society or under Section 8 of the Companies Act. Let us dive deep into the differences between these structures to help you make an informed decision.
What is a Trust?
A Trust is a legal arrangement in which a founder (or settlor) entrusts property or assets to a trustee for a specific purpose or a charitable cause. The trustees are legally bound to manage these assets for the welfare of the beneficiaries, who are typically members of the public or a specific group. Trusts are recognised by various names worldwide, such as foundations or endowments.
A trust is called a Public Trust when it is constituted wholly or mainly for the benefit of Public at large, in other words beneficiaries in the Public trust constitute a body which is incapable of ascertainment. The Public trusts are essentially charitable or religious trusts and are governed by the general Law.
Advantages of Trust Registration:
1. Autonomy: Trustees have considerable autonomy in managing the trust’s assets and pursuing the stated objectives.
2. Continuity: Trusts can have perpetual existence, ensuring that the charitable purpose endures.
3. Exemption: Trusts may qualify for tax exemptions, making donations tax-deductible for donors.
What is a Society?
A Society, often referred to as a non-governmental organisation (NGO) or a club, is a group of individuals united for a shared social, cultural, or charitable objective. A society is governed by a group of managing committee members elected by its members.
Advantages of Society Registration:
1. Democratic Structure: Societies operate democratically with elected members making decisions.
2. Flexibility: Societies are adaptable in terms of their objectives and activities.
3. No Minimum Capital: Unlike Section 8 companies, societies have no minimum capital requirement.
Section 8 Company
What is a Section 8 Company?
Section 8 of the Companies Act in many countries allows for the incorporation of companies with limited liability, primarily for promoting art, science, commerce, sports, education, research, social welfare, religion, charity, or protection of the environment.
Advantages of Section 8 Company Registration:
1. Limited Liability: Members’ liability is limited to their contribution, protecting personal assets.
2. Credibility: Section 8 companies often enjoy a higher level of credibility and public trust.
3. Tax Benefits: These organisations may be eligible for tax exemptions.
Choosing the Right Structure: Key Considerations
When deciding which structure is best for your non-profit organisation, consider the following factors:
1. Purpose: The nature and scope of your organisation’s charitable purpose will influence your choice.
2. Legal Formalities: Understand the legal requirements and compliance obligations associated with each structure.
3. Governance: Consider how you want your organisation to be governed, whether by trustees, committee members, or a board of directors.
4. Longevity: Determine if you want your organisation to have perpetual existence or a fixed term.
5. Tax Implications: Examine the tax benefits and exemptions available under each structure.
6. Public Perception: Think about the credibility and trustworthiness that each structure may convey to potential donors and partners.
Choosing the right structure for your non-profit organisation is a pivotal decision that can significantly impact its operations, governance and success. Each of the options (Trust, Society or Section 8) has its unique advantages and considerations. It’s essential to carefully weigh these factors and consult with legal experts to ensure that your organisation’s legal structure aligns with its mission and goals, ultimately leading to the positive impact you aim to achieve in your community and beyond.