In this blog post, Harshita Agarwal, an Advocate at the Delhi High Court and a student pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes and differentiates on the formation of a trust and the formation of a society.

Trusts and societies in India are common setups for charitable organisations. A person can either set up a trust or a society based on the organisational structure they want for the administration. This article shall briefly discuss what a trust and society are, their differences and certain purposes for which they can be set up.

Trust

A trust as defined under Section 3 of the Indian Trusts Act, 1882 is basically an arrangement where under obligations are attached/annexed to the ownership of property (trust property) which arise out of a confidence vested in and accepted by the owner but for the benefit of another (beneficiary).

The trust is formed by the settlor/author who intends to create the trust by bequeathing the property to the trustee for the benefit of a particular person or a group of persons. There are two types of trusts, public and private trust. Private trusts are governed under the Indian Trusts Act, 1882. If the purpose of the trust to be settled is for the benefit of a particular individual (ex. Minor children), then it is a private trust, and if the purpose is to the public at large or community, then it is a Public Trust. Public trusts are covered under their respective state laws like Bombay Trust Act, 1950 or else under common laws.

A trust is brought into existence by a trust deed or a will executed by the settlor. A trust created through a will shall be governed by the Indian Succession Act, 1925.

Formation of a Trust

1. Trust Deed- Specifying the Settlor/Author, Trustees, Beneficiary, Trust Property, intention or purpose of the trust, mode of management, appointment and removal of the trustees. Other specifications of a trust like the name of the trust, trust fund and address. Evidently, the trust deed has to define the whole trust in its true sense and form covering each and every aspect.
2. Stamp Duty- The stamp duty charged on the trust deed depends on upon the value of the trust property.
3. Registration- The trust deed is required to be registered with the Registrar.

Society

Societies are governed under the Society Registration Act, 1860. The Act itself attributes no definition of society. A society can be defined as “an association or company of persons united by mutual consent, to deliberate, determine, and act jointly for a common purpose”[i]. Society is guided by the motto “one for all, all for one”. As different definitions suggest society is a group of people who come together to voice out a common intention. Section 20 of the Act states the categories of the societies to which the Act shall apply and includes charitable, promotion of science, literature, etc.

Formation of a Society[ii]

• Documents-

1. Request letter to register a society under Societies Registration Act, 1860
2. Two sets of a memorandum of Association including List of Proposed governing body & list of Desire’s Persons (founder members of the society) – All pages to be signed by at least seven members. Desirous persons or the person subscribing the names of the memorandum should not be (in any case) less than seven. If it is proposed to give all India character to the society, there must be a minimum of eight different persons from different States of Indian Union to the memorandum.

• Two sets of Rules & Regulations framed for the functioning of the society.

1. An affidavit of Rs. 10/- non- judicial stamp paper from the President or Secretary of the Society regarding the name/title of the Society
2. Documentary proof of residence of all members of the society
3. Proof of lawful/legal possession of the proposed office premises and an NOC from the owner of the office premises on Rs. 10/- non- judicial stamp paper

• A copy of the report of the General Meeting where the formation of the Society was resolved
• Name of the Society
• Registration Fee- After due completion of the above-prescribed procedure, a registration fee of Rs. 50/- is to be paid in cash.

Differences

The basic and the foremost difference between the two is that a trust is created when there exists an asset/ property of which the ownership is vested in another person to look after and administer it for the benefit of another (beneficiary which may be public at large or a specific individual). Whereas intention of furtherance of a common objective/ cause forms the basis of the existence of a society and brings together people, who have the common intention for a cause/ purpose to join hands.

	Trust	Society
Governing Law	Private Trusts under Indian Trusts Act, 1882 & Public Trusts under respective state laws	Societies Registration Act, 1860
Purpose/ Objective	Vesting the asset/ property to the trustees for management for the benefit of another (public or private) General Objective	Furtherance of a common intention/objective/cause like for literary, music, art, etc Specific Objective
Registration and time took to form	Easy, around 1 week	Difficult, 1-2 months
Registering Document	Trust Deed on a stamp paper or a will	Memorandum of Association and rules and regulations not required on stamp paper
Jurisdiction/Registering Authority	Deputy Registrar/ Charity Commissioner	Registrar of Societies
Minimum Number of persons	Minimum- Two Maximum- No upper limit	Minimum- 7 (8 in case of national society) Maximum- No upper limit
Management	Trustees/ Board of Trustees	Governing body/ Executive or Managing Committee
Property	Held in the name of the trustees	Held in the name of the society
Members of Family	No such restriction.	Members of the family cannot be members of society.
Term of Trustees/Members	Trustees generally hold the position for a lifetime provided the trust deed states otherwise.	Members of the governing or executive committee hold office for a limited period of time but are eligible for r re- election
Area of Operation	Can operate throughout India	When registered in a particular state then their operations are limited to that state but when registered as a national society then can operate throughout India. (A national society shall require 8 members from different states)
Filing of Documents	No annual reports or any other document is required to be submitted to any authority. But they shall maintain their account statements, minutes of a meeting, board resolutions, relevant documents, etc.	Required to file a list with the Registrar of Joint Stock Companies of names, addresses and occupations of the Governor, council, director or committee or any other governing body entrusted with the management of the Society as per the Section 4 of the Societies Registration Act, 1860.
Transfer of Membership/ Trusteeship	No such provision exists.	Cannot be transferred
Remuneration to Trustees/ Members	As per the trust deed.	Members can get remuneration depending on approval by the Executive Committee.
Winding Up	A trust is generally irrevocable	Can be wound up if 3/5th of the total members desire so

Comparison

In a trust, the settlor through the trust deed provides the whole foundation for the working of the trust inclusive of the asset, funds, management and rules, trustees, etc. The functioning of a trust is comparatively smooth because the trustees are trustworthy persons appointed by the Settlor. Whereas in a society the first people have to provide the foundation for the society to come into existence including members, funds, rules and regulations, etc. In short, it can be stated that formation and governance of society are difficult in comparison to a trust. For the society to come into existence, the basic need of minimum seven members may be difficult to bring together as they may hesitate in contributing to the fund of the society and may wish to be hampered less by the formalities involved.

Society can be described as ” society is somewhat like a bus full of pilgrims, driven by one of the passengers. Arguments may break out over who pays for the fuel and for repairs. There might be quarrels about where to go and how long to stop at each shrine. The driver may be impeached every now and then. To avoid this, most societies restrict membership to a minimum, and raise funds from outsiders.”[iii]

Trusts are irrevocable so, in the case of a dispute/ difference between the trustees or mismanagement on their part, the trust does not dissolve and is instead taken over by the Charity Commissioner. This ensures that the intention of the settlor is not disrupted even by the ill- intentions of the trustees whereas a society can be wound up when 3/5^th of its total members desire so bringing an abrupt end to the society. But issues arising a trust deed are generally not arbitrable depending upon the arbitration agreement[iv].

It can be summarised as follows:

• Trusts are best suited when created for the management of the property for the benefit of charitable purposes, family or self like trust created for the minor children, daughter, grandchildren, etc. as you don’t require funds from the outside. Trust is a widely used tool in India for vesting family property for the benefit of a particular person because family members can be appointed as trustees. Under a trust, the settlor’s intention is very clear as to what is to be done with the asset/ property and how it should be done.
• The doctrine of Cypress meaning as near as possible. This doctrine is applicable to trusts implying that when on account of negligence on the part of the trustees or due to other unavoidable reason the trust is not able to work then the objects of the trust can be altered to the next most proximate cause and therefore the settlor’s general intention of charitable purpose is not defeated and continues though not for the very same initial purpose. Whereas with the dissolution of the society, its specific objective also dissolves. And the funds and the property of the society are transferred to some other society with the similar objective.
• Society is best suited for work which involves equal participation from all the people and wants to have a democratic setup where all the members have a say. But it is advisable that the members should be trusted and limited because then work and decision making may be delayed. Like trade associations and trade unions whose main objective is to look after the interest of the traders, labourers or workers. The governing or the executive committee voice out the common opinions and grievances of their members. Another common example of a society is societies which are formed by the flat/house owners in a particular society or a residential area. Such societies or associations’ representatives take the grievances of their members to the builders or various governmental forums also authorising them to contest cases filed against the society or by the society.

One thing common to both a trust and society is that they are equally treated under the provisions of the Income Tax Act, 1961.

Conclusion

Though a trust and society are often considered same by a layman but there are different in terms of their conception, management and structure. A trust is best suited when formed for the benefit of a specific person or public at large and societies opt for the benefit of a particular section of society or a specific group.

References:

[i] Black’s Law Dictionary, 9^th Edition, Pg No. 1518

[ii] http://delhi.gov.in/wps/wcm/connect/doit_industry/Department+of+Industries/Home/Public+Service/

[iii] AccountAble, AccountAble 1: Trust, Society or Company? Page 2 http://www.accountaid.net/Periodicals/AccountAble/01_Organisation.pdf

[iv] Shri Vimal Kishor Shah & Ors v Mr Jayesh Dinesh Shah & Ors., Supreme Court, Civil Appeal No. 8164 of 2016