Starting a school in India is a commendable and rewarding activity that contributes to educational and social progress in the country. Citing increased demand for quality education in many parts of the country, would make for a very profitable and lasting investment. However, this requires good planning, interest in compliance with the law and the infrastructure set in, as well as compliance with certain standards of education. Registration of a school under a non-profit entity like a Trust, Society, or Section 8 Company is a must. Selection of the legal entity is the vital initial step in determining the governance, operation, and criteria for various benefits of the school.
What is a Trust?
A trust is a legal contract wherein one individual (the settlor) conveys property or rights of property to another individual (the trustee) for the advantage of a third party or a group of individuals (the beneficiaries). Trusts in India are typically established for religious, educational, social, or charitable reasons.
The Indian Trusts Act, 1882, addresses private trusts, whereas public charitable trusts are addressed under some state laws. To create a trust, a legal document called the Trust Deed is prepared. It mentions the objects and purposes of the trust, the names of the trustees, their responsibilities, rights, powers, and the procedure for working in the trust.
A Charitable Trust is one of the most prevalent structures adopted for the governance of schools, hospitals, orphanages, old age homes, and other such social welfare organisations. It must be a not-for-profit organisation, i.e., its revenues must be only used for promoting its avowed charitable objectives.
It is relatively easy to establish and administer trusts. They afford long-term stability since trustees are normally appointed for life or until they decide to resign. Trusts are less versatile than societies, but they allow for concentrated control, so founders wanting strong direction in the running of an educational or charitable organisation will find them appropriate.
What is a Society?
A society is a non-profit organisation formed by a group of people working towards a common goal, which can be education, culture, social welfare, science, or philanthropic activities. In India, societies are governed by the Societies Registration Act, 1860, in addition to certain state-specific regulations related to registration.
To form a society, there is a minimum requirement of seven members who can belong either to the same or different states for registration at the national level. The two primary documents on which the society’s foundation stands are the Memorandum of Association (MoA), which contains the name, objectives, and structure of the society, while the Rules & Regulations contain the administration procedures.
Societies operate democratically, having a governing body or an executive committee that is elected from their members. Decisions are made through meetings, resolutions, and voting. They need to hold periodic meetings, keep accurate records, and make annual reports and financial statements to the Registrar of Societies.
Societies are advantageous for initiatives that require public participation, openness, and development, such as schools, universities, hospitals, and NGOs. Their formal compliance and public accountability make them more appealing to government agencies and contributors seeking funding, promotion, and co-optation. Societies allow for rules to be amended or expand their purposes.
Which is Better, Trust Or Society, For Starting a School?
In order to open a school in India, the school would be required to be registered as a legal non-profit organisation, and the two most well-known forms that such an organisation can assume are a Trust or a Society. Both are legally empowered to run schools, but whether either one of them is to be assumed would depend on the nature of the structure, compliance requirements, geographical location, and long-term vision. Following is an in-depth comparison to allow you to select the one that is more suitable for a school:
1. Legal Framework and Formation
Trust
Trusts are governed by the Indian Trusts Act, 1882 (in private trusts) or State Trust Acts (in public charity trusts).
- Should have a Trust Deed with trustees, purposes, property, and powers.
- Normally requires a minimum of two persons (in most states).
- Generally simpler and faster to register than a society.
- It would be more stable once established.
Society
- Under the Societies Registration Act, 1860 (or the appropriate state acts).
- Has a requirement for a Memorandum of Association (MoA) and Rules and Regulations.
- State-level registration necessitates a minimum of seven members from the same state, while national registration necessitates a minimum of seven members from various states.
- Multiple members’ makeup can lead to delayed registrations.
2. Transparency and Accountability
Trust
- Less formal reporting and compliance system.
- Annual filing is state-specific and less regulated than in societies.
- Preferred by founders who need privacy and control but may not be perceived as transparent.
Society
- Mandatory meetings, resolutions, elections, and yearly submission of reports and audited accounts to the Registrar of Societies.
- More transparent and credible in the eyes of the public, donors, and government agencies.
- Better prepared when donations, grants, or partnerships are expected.
3. Management and Control
Trust
- Controlled by the Board of Trustees.
- The founder or settlor typically has high control and may name successors.
- Preferably, when the desire is to have stable, long-term leadership.
- Decision-making is typically quicker as a result of fewer members.
Society
- Governed by a Governing Body or Executive Committee, chosen from among members.
- More democratic decisions, including voting and member meetings.
- Applicable to institutions where collective leadership and public participation is desirable.
4. Geographic Scope
- The operation of a trust is generally restricted to the state in which it is enrolled. Operation outside the home state may require additional registration or licensure.
- Societies can be formed as national organizations with members from several states, enabling expansion across the nation, particularly for large educational networks.
5. Tax Advantages and Recognition
Both Trusts and Societies can seek:
- 12A registration for income tax exemption
- 80G certification to grant tax relief to donors.
- FCRA License for receiving international donations.
But,
- Societies following systematic compliance and disclosure are likely to be recognised by the government, receive funding, and get NGO registration.
- Properly maintained trusts are legally valid for receiving benefits.
6. Ease of Modification
- For trusts, it is difficult to modify objectives or organisation after registration. Amendments to trustees or objects usually need court sanction or lengthy legal procedures.
- On the contrary, societies are flexible and dynamic, and there is a capability to amend the Memorandum of Association (MoA) and regulations through decisions. Additional members may be joined or expelled through formal voting and record-keeping.
7. Perception and Preference in the Education Sector
Religious, family, or educational foundations most often use trusts. Charitable trusts are also often used by reputable private universities and schools. They are most appropriate for groups, communities, or NGOs with the objective of managing several institutions, coordinating across states, or setting up public-private partnerships.
So, What is the Best Way to Start a School?
Both Trusts and Societies are in India legally capable of creating and managing schools. The choice, however, depends on your vision:
Select a Trust if your preference is
- Governance over a long period with fewer members
- Faster registration process
- Lesser compliance requirements
- Family or individual-initiated programs
Select a Society if your taste is:
- Democratic participation with greater involvement
- Transparency and credibility in finance
- Flexibility to function across many states
- Greater ease of adapting in the long term
If the objective is to form one school with easy management, a Trust may suit better. However, if one wants to form a group of schools, collaborate, or provide far-reaching outreach, a Society is more flexible and widely recognised.
Trust Vs Society: Key Considerations Before Starting a School
1. Control and Management
- Centralised management with a smaller group promotes trust, making it ideal for family or personal businesses.
- Society: Democratic structure with elected members, ideal for group or community ventures.
2. Number of Members
- Trusts require a minimum of two trustees.
- Societies need at least 7 members at the state level or from different states at the national level.
3. Registration & Setup
- A Trust Deed supports faster and easier registration.
- Society: Follows a formal process with a Memorandum of Agreement, together with rules and regulations.
4. Compliance & Reporting
- Trust: Has fewer reports to make on an annual basis and fewer stringent compliance requirements.
- Society requires frequent meetings, elections, and yearly submissions.
5. Transparency & Public Trust
- Limited public participation may lead to an absence of transparency and trust.
- Transparency and accountability regarding grants and public funding are stressed by society.
6. Flexibility
- Trust: Difficult to change or reorganize.
- The flexibility of Society permits easy rule and membership modifications.
7. Geographical Expansion
- Trust: Outside of state boundaries, there might be restrictions.
- National registration simplifies operations across states.
8. Long-Term Vision
- Trust: Great for projects driven personally in one school.
- Excellent for missions focused on growth and a multischool environment.
Conclusion
The decision to form a Trust or a Society for a school is not based on your management style, long-term plans, or vision. Trusts are simple to manage, have centralised control, and are stable, making them ideal for institutions headed by founders. A Society, on the other hand, has democratic leadership, greater transparency, and flexibility, making it ideal for institutions that are community-oriented or oriented towards expansion. Both forms are recognised by law and are eligible for tax benefits. A careful consideration of your objectives will assist you in selecting the most suitable framework for your learning goals.
