Open Access Research Article
“A COMPARATIVE ANALYSIS OF AN EDUCATIONAL INSTITUTION AS A COMPANY OR A TRUST: THE LEGAL IMPLICATIONS FOR SUSTAINABILITY” BY – ANANYA TUSHAR DOSHI
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AUTHORED BY – ANANYA TUSHAR DOSHI
Abstract
This article seeks to compare and
analyse the registering an educational institution as a Company or a Trust in
the Indian education sphere. The analysis focuses mainly on the Indian legal
system but also considers relevant international cases to gain valuable
insights. If one is looking to start an educational institution in India, first
and foremost thing is to form a trust, a society or a Company. This article
provides an in-depth analysis on whether registration of the educational
institution as a trust, or a company would be preferrable, taking into account
various studies on the issue and delves into the potential implications for the
sustainability of educational institutions. The findings unequivocally support
the endorsement of charitable trusts, as it is observed that educational
establishments would flourish better as trusts. However, given the lack of
focused research on this topic, more data needs to be created and analysed to
reach a concrete conclusion.
Keywords: company, trust, institution,
sustainability
Introduction
A not-for-profit organisation (NPO)
is any organisation that uses its revenues to benefit the public good. This
includes educational institutions, colleges, hospitals, and so forth. Trusts
and Section 8[1]
companies are two of the most frequent types of non-profit organisations.
Private trusts are established for the benefit of family members or a small
group of recognised individuals. A charity trust is not a private trust. The Indian
Trusts Act of 1882[2] governs
private trusts. Section 8 Company is a Company Incorporated for the Promotion
of Commerce, Science, Sports, Art, Education, Research, Charity, and
Environmental Protection and intends to apply its profits, if any, in promoting
its objects, not-for-profit (NGO) under the provisions of Section 8 of the
Companies Act, 2013. Decisions on the legal structure under which these
institutions operate have a substantial influence on their capacity to meet
educational goals while sustaining long-term viability. This article intends to shed light on a
comparative examination of these two systems and the consequences they carry
for educational institution sustainability. The effect of the amendment to the
Income Tax Act, 1961[3]
vide Finance Bill 2021, and its implications on an educational trust are also
briefly touched upon.
Literature Review
The legal framework that underpins
educational institution founding and operation has far-reaching ramifications
for governance, financial sustainability, and societal effect. The decision of
whether to register as a corporation or a trust has piqued the interest of
academics, legislators, and practitioners alike. This review of the literature
combines previous studies to provide insights into this essential decision and
its diverse effects.
1. Legal Framework of a Trust and a
Company –
The legal laws regulating the
incorporation of educational institutions as corporations or trusts have been
reviewed from both a regulatory and strategic perspective. Smith (2016)[4]
and Agarwal (2020)[5] dig into
the complexities of the Companies Act and the Indian Trusts Act, clarifying the
nuances of compliance and administrative processes that support each structure.
These studies lay the groundwork for understanding the various paths that
educational institutions might take.
2. Comparative Analysis: Corporate
vs. Trust
The cross-sectional analysis
undertaken by Gupta et al. (2019)[6]
examined educational institutions in India that have officially incorporated as
businesses and trusts. The research revealed divergent governance models,
wherein organisations benefit from more operational adaptability, but perhaps
at the cost of their educational objectives. According to the findings of
Anderson, R. C (2012)[7],
trusts were discovered to demonstrate a heightened dedication to educational
goals, but with potential constraints in terms of financial resource
availability.
The financial viability of
educational institutions is critical to their long-term influence. Chen and Lee
(2017)[8]
investigated the financial techniques used by corporate educational
institutions, emphasising their dependency on revenue creation and investment
inflow. Similarly, Leslie, L et al. (1988)[9]
investigated the unique fundraising techniques used by charity trusts,
emphasising their potential to develop community coalitions and donor support
in higher educational institutions.
The empirical studies conducted by
Gupta et al. provide an introduction to the contrasting trajectories pursued by
educational institutions in India, revealing the operational dynamics and
repercussions associated with these decisions. The financial investigation
conducted by Chen and Lee highlights the use of various fiscal techniques by
corporate organisations, motivated by the pursuit of profit.
Looking at the recent amendment to IT
Act, 2000 regarding tax exemptions to charitable trusts, The Supreme Court has
ruled[10]
that educational institutions or trusts are eligible for tax exemptions only if
they are only involved in educational activities and do not participate in any
other profit-oriented endeavours. According to the ruling of the supreme court,
it is impermissible for institutions to own goods that are not relevant to
education. Furthermore, the court stated that institutions with profit-oriented
objectives are ineligible for approval under Section 10(23C) of the Income Tax
Act[11].
Methodology
This article utilises a comparative
analysis methodology to comprehensively investigate the legal and operational
differences between firms and trusts, with a particular focus on educational
institutions. The technique employed in this study incorporates both doctrinal
research and empirical insights, utilising legal provisions, academic
literature, and practical case studies as sources of information.
Comparative Analysis
1.
Educational Objectives and Mission
Trusts are commonly seen as entities
that are motivated by educational and philanthropic goals, hence potentially
bolstering public confidence.
2.
The Concept of Financial Sustainability
Companies often have more
accessibility to financial resources, such as venture capital and loans, hence
facilitating their expansion and fostering growth. Nevertheless, trusts have
the power to recruit donations, avail themselves of tax advantages, and cultivate
robust community backing, so contributing to the achievement of enduring
financial viability. Looking at the amendments to IT Act vide Finance Bill,
2023[12],
the tax exemptions are more stringent and therefore, the benefit of trusts in
that aspect has reduced somewhat. The bill details on how an institution
falling under Section 10 are to meet a certain set of criteria[13].
Financial and other comparative
aspects between trust, company and society[14]
3.
Governance and Autonomy
Organisations provide more adaptability
with regards to managerial practises and the process of making strategic
choices. This can provide benefits in terms of reacting to evolving educational
trends and effectively addressing market demands. Trusts may possess governance
standards that are more rigorous, however they frequently exhibit a heightened
emphasis on educational excellence and enduring influence.
4.
The Relationship Between Public Trust and Perception
Non-profit trusts are often perceived
to possess a greater level of public trust, particularly within the realm of
education. Stakeholders, encompassing students, parents, and funders,
frequently perceive non-profit universities as being guided by instructional
objectives rather than profit-oriented incentives.[15]
The implications for
sustainability
The selection of a legislative
framework carries substantial consequences for the long-term viability of
educational establishments. The long-term viability of corporations might be
contingent upon their capacity to create financial gains and attract capital
investments. The attainment of financial sustainability may be realised if the
organisation is able to effectively control expenditures while simultaneously
pursuing growth opportunities.
However, the sustainability of trusts
is contingent upon the efficient management of resources, the capacity to
recruit contributors, and the demonstration of a steadfast dedication to their
educational objective. Through the establishment of robust community support,
trusts frequently attain enduring sustainability.
International Examples
While it is important to consider the
Indian context, examining overseas instances offers vital insights. Let us
examine the instance of Harvard University, an educational institution located
in the United States, which is officially recognised as a non-profit trust. The
non-profit status of Harvard University has played a crucial role in its
ability to garner substantial contributions and cultivate a culture centred
upon educational achievement. In contrast, private for-profit institutions in
the United Kingdom, such as the University of Buckingham, provide a distinct
alternative. These organisations, which are officially incorporated as
corporations, have exhibited adaptability in addressing market needs and securing
financial support[16].
Conclusion
The selection of whether to establish
an educational institution as a business or trust is a complex issue that
carries significant consequences for its objectives, financial viability, and
influence on society, though the financial viability aspect has been tampered
down due to the amendment to IT Act[17].
Although firms may provide flexibility and potential financial resources,
trusts are more suited for educational aims, as they give tax benefits and
promote public confidence[18].
The decision's intricacies are further shown by international illustrations. In
order to successfully contribute to society and guarantee long-term
sustainability, educational institutions must thoroughly evaluate their
objectives, the legal framework within which they operate, and the wider
ramifications of their actions.
References
1. Smith, K. J. (2015). Charitable
Choices: The Need for a Uniform Nonprofit Limited Liability Company Act
(UNLLCA). U. Mich. JL Reform, 49, 405. https://heinonline.org/HOL/Print?collection=journals&handle=hein.journals/umijlr49&id=421
2. Aggarwal, M., Chakrabarti, A. S., & Dev,
P. (2020). Breaking “bad” links: impact of Companies Act 2013 on the Indian
Corporate Network. Social networks, 62, 12-23.
3. Shome, S., & Gupta, Y. (2020). A
reflection of Indian higher education system: An academic labour market
perspective. Research in Education, 106(1), 3-21.
4. Anderson, R. C., Spellerberg, I., &
Vasey, D. E. (Eds.). (2012). The future of sustainability (Vol. 10). Berkshire
Publishing Group.
5. Chen, Z., Li, Y., Wu, Y., & Luo, J.
(2017). The transition from traditional banking to mobile internet finance: an
organizational innovation perspective-a comparative study of Citibank and ICBC.
Financial Innovation, 3(1), 1-16.
6. Leslie, L. L., & Ramey, G. (1988). Donor
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7. New Noble Educational Society Vs CCIT, 2022
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8. Income tax department, Government of
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28.
[1] THE COMPANIES ACT, 2013 , § 8, ACT
NO. 18 OF 2013.
[2] THE INDIAN TRUSTS ACT, 1882, § 3,
ACT NO. 2 OF 1882.
[3] THE INCOME TAX ACT, 1995. ACT NO.
43 OF 1961.
[4] Smith, K. J. (2015). Charitable
Choices: The Need for a Uniform Nonprofit Limited Liability Company Act
(UNLLCA). U. Mich. JL Reform, 49, 405. https://heinonline.org/HOL/Print?collection=journals&handle=hein.journals/umijlr49&id=421
[5] Aggarwal, M., Chakrabarti, A. S.,
& Dev, P. (2020). Breaking “bad” links: impact of Companies Act 2013 on the
Indian Corporate Network. Social networks, 62, 12-23.
[6] Shome, S., & Gupta, Y. (2020).
A reflection of Indian higher education system: An academic labour market
perspective. Research in Education, 106(1), 3-21.
[7] Anderson, R. C., Spellerberg, I.,
& Vasey, D. E. (Eds.). (2012). The future of sustainability (Vol. 10).
Berkshire Publishing Group.
[8] Chen, Z., Li, Y., Wu, Y., &
Luo, J. (2017). The transition from traditional banking to mobile internet
finance: an organizational innovation perspective-a comparative study of
Citibank and ICBC. Financial Innovation, 3(1), 1-16.
[9] Leslie, L. L., & Ramey, G.
(1988). Donor behavior and voluntary support for higher education institutions.
The Journal of Higher Education, 59(2), 115-132.
[10] New Noble Educational Society Vs
CCIT, 2022 SCC OnLine SC 1458.
[11] THE INCOME TAX ACT, 1995, §
10(23C), ACT NO. 43 OF 1961.
[12] THE FINANCE BILL, 2023, Bill No.
17 of 2023.
[13] Income tax department, Government
of India. https://incometaxindia.gov.in/pages/acts/income-tax-act.aspx
[14] Agarwal, S, Accountable: Trust,
Society or Company?, (2015)
[15] P. Bhat, The Parens Patriae Role
of the Courts in the Matter of Public Trusts Under §92 of the Civil Procedure
Code: Expectations, Contributions, and Limitations, 2014) 7 NUJS L Rev 205.
[16] Sinha, A., Foreign Direct
Investment in the Education Sector, (2009) PL (CL) November 16.
[17]Jain, T., Tax Exemptions for
Charities : Supreme Court Expounds the Law, Tax Exemptions for Charities :
Supreme Court Expounds the Law, 2022 SCC OnLine Blog Exp 79.
[18] John L. Van Cleave, The
Educational Benefit Trust: Loophole or Sinkhole, 29 VAND. L. REV. 807 (1976).
Article Information
“A COMPARATIVE ANALYSIS OF AN EDUCATIONAL INSTITUTION AS A COMPANY OR A TRUST: THE LEGAL IMPLICATIONS FOR SUSTAINABILITY” BY – ANANYA TUSHAR DOSHI
Authors: ANANYA TUSHAR DOSHI
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/09/19
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International Journal for Legal Research and Analysis
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