INTRODUCTION
Education forms the backbone of any society. Legislation concerning the registration of educational institutions from one country to another differs. Educational institutions are firms or trusts in some countries. The structure of registration affects the institution’s ownership and accountability. A corporation is a distinct corporate identity from its owners. Decision-making flexibility is higher in companies because the owners are capable of transferring ownership with ease. When in financial distress, corporations are under limited liability, so owners are safe under this protection. Management normally vests with the board of directors, which is responsible for the policy formulation and decisions that were to be made concerning the future of the company.[1]
Registering educational organizations under a trust structure means giving founders’ ownership rights to trustees who manage these assets and ensure smooth operations. Being fiduciaries, the trustees have to work in the best interest of the trust, which enhances accountability. Normally, the deed of trust stipulates the aim and objectives of the trustee, his powers, and duties. Tax exemptions help trusts save money on taxation.[2]
While registration of the educational institution in a company or trust may sound easy, a host of factors come into play when the decision-making process is undertaken. Therefore, through this research article, an evaluation of the legal framework and the implications for sustainability in establishing an educational institution under the company or trust structure is carried out. To achieve this objective, the research article will first review the literature on the legal framework of educational institutions and their implications for sustainability. The second aspect this paper will compare is the legal frameworks of different countries in regard to the system of registering an education institution either under a company or trust structure. Thirdly, the paper compares the legal frameworks and finds out the implications of choosing one registration framework against the other. Then it gives the policy recommendations to the policymakers when making legal frameworks that would encourage the establishment of educational institutions and ensure their sustainability.
LITERATURE REVIEW
The present literature review is based on certain selected, recent, and well-cited articles regarding the issues determined by the researcher. The literature review identifies gaps and lacunae in present literature with respect to the issues and problems posed by the researcher.
- ‘Educational institutions under trust and its taxation: A critical analysis,’ by “Dokania Yashraj,” published by “Indian Journals.com”. This paper aims at analyzing the trust-operated educational institutions about their taxation. All the tax structure, laws, and the loopholes in them are dealt with in this paper. The problem of tax compliance also vexes the educational institutions. The research report emphasizes a more complete and open system of taxation that will help the institution as well as the government. It concludes with some suggestions regarding how administrators and legislators could make compliance easier and more effective.[3]
- ‘Start a Trust / Society / Section 8 Company for School’ by “Abhiney Singh,” published by “Teach Club.” It gives information on how to form a trust, society, or Section 8 corporation for an Indian school. All legal and procedural requirements, pros and cons of each structure, and steps to set up and run the organization are covered. This is very important to every owner, administrator, and educator who desires to formalize the institution’s legal standing and wants the institution to survive and grow. [4]
CRITICAL ANALYSIS
Great education shapes and advances society through educational institutions. The legislative framework of the educational institutions ensures quality, compliance with government requirements, and sustainability. In this connection, the research article first present the literature on educational institutions’ legal framework and their sustainability implications. The educational institutions in India get registered as companies or trusts. The sustainability of an educational institution registered under either category is affected. [5]
Company incorporation and operation in India are governed by the Companies Act, 2013. Companies under this act are profit and equity-owned. Educational institutions registering themselves as companies need to make profits. The board of directors of such educational institutions focuses on return on investment of shareholders. This paradigm prioritizes profit over education quality which could hurt an educational institution’s sustainability.[6]
However, trusts are formed under The Indian Trusts Act, 1882. Trusts are organizations oriented to a cause without profit motive. The prime and predominant objective of the trust-based educational institution is quality education, not profit. Trusts are managed by trustees to perpetuate the same. [7]
The judicial decision in Unnikrishnan v. State of Andhra Pradesh comes into the eye of examination regarding the registration either as a company or as a trust of an educational institution, wherein private unaided educational institutions imposed an excessively high fee structure. This leads to undue discrimination against low-income families who cannot afford such an expensive rate. It has the highest connotation of sustainability regarding improving access to education among people who belong to marginalized communities.[8]
Conclusively, the registration laws of educational institutions affect sustainability. The companies that run schools may prioritize profit at the cost of quality and long-term viability. However, trust-based educational institutions aim to deliver quality education and ensure long-term viability. Accordingly, the effects of legislative frameworks on educational institutions must be considered before establishment and operation.[9]
The second half of the article makes a comparison of the legal framework governing registration of corporate or trust structures of educational institutions in various countries. In each of the countries of the United States, Canada, and Australia, one may establish educational institutions as for-profit or nonprofit institutions. If it is established as a for-profit corporation, it would be subject to all corporate legislation of the country. Nonprofit organizations often extend tax exemptions to their donors and sponsors through the avenue of their registration as nonprofit entities under relevant tax legislations.[10]
One can either establish an educational institution in the UK as a charitable trust or as a company. If the organization had been incorporated as a business, then it would have had to abide by The Companies Act of 2006[11]. If it were formed as a charitable trust, the Charities Act, 2011[12], would apply to the organization.[13]
Educational institutes in India can be incorporated either as a Section 8 company or as a trust. Section 8 companies come under the Companies Act, 2013, and such companies are exempt from income tax and are also non-profitable companies.[14] Trusts were formed under the Indian Trust Act, 1882, which is under state law. There are advantages and disadvantages to both arrangements that may have consequences for an institution’s ability to survive in the long term. [15][16]
The selection of the appropriate legal framework for registration as a company or trust forms the root of its sustainability in the long run. Therefore, institutions should ideally do an exhaustive comparison across the available legal frameworks within a country before settling on any.
The paper concludes with policy suggestions that policymakers may use to develop legislative frameworks that support the development of educational institutions and guarantee their long-term viability. Indeed, policy makers could use tax incentives to encourage the establishment of educational institutions and support their financial sustainability. Secondly, to enable these institutions to transparently and responsibly carry out their governance and management, policy makers should develop transparent norms and laws. Last but not least, mechanisms of performance-based regulation authorities may wish to establish in order to ensure that educational institutions attain some defined quality standards and foster innovation in the education sector.[17][18]
CONCLUSION AND SUGGESTIONS
In summary, the choice of registering an educational institution either as a business or a trust is based on many factors, including the type of institution, purposes of the institution, available resources, and legal setting. Both have advantages and disadvantages, as has been shown in this essay, and this must be carefully balanced before one chooses one over the other. [19]
The Indian legal regime provides clear guidelines regarding the registration of educational institutions. Regarding sustaining a perpetual and supportive policy environment for education, there indeed are gaps, and the stakeholders need to work together for bridging them. Thus, the government is expected to provide more incentives and support as well to the education sector, especially the educational institutions working in backward areas or concerning people with disadvantages.
Both models—the corporate and the trust models—are plausible for the sustainability of educational institutions. At the same time, the basic objective of offering high-quality education \ must be pressures.
It will also have to constitute within itself very good governance practices, openness of financial management, strong leadership, and involvement of stakeholders to maintain sustainable operations.[20]
They should entrench good governance processes and give prominence to the sustainability of their business operations. The gaps in the legislative framework, which encourage better incentives and support for education, are to be filled with collaboration from all stakeholders: government, civic society, and the commercial sector.
The stakeholders must make an informed decision while considering the possibilities and the implications involved in registration of the educational institutions as a business or as a trust. An educational institution can shape the future of society only if the proper framework prevails and the question of sustainability seriously taken into consideration.[21]
Author : Apurva Ranjan, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at IIPRD
REFERENCES:
- Bhagat, R., & Kumar, R. (2020). Company vs Trust: The Legal Structure of an NGO. International Journal of Social Science and Economic Research, 5(3), 369-377
- Rajan, S. (2021). Legal Framework of Educational Institution in India. Journal of Humanities and Social Science Research, 3(1), 31-37
- Klumpes, P. (2013). Education and the not-for-profit sector: A comparative analysis of the UK and India. Journal of Comparative Law, 7(1), 147-165
- https://www.legislation.gov.uk/ukpga/2006/46/contents
[1] Pulkit Goyal, https://www.legalwindow.in/how-to-start-an-educational-institution-school-in-india/
[2] Educational Trust Registration, http://trust-registration.in/educationaltrustreegistration.php
[3] Dokania Yashraj, Educational institutions under trust and its taxation: A critical analysis, Indian Journals.com, https://www.indianjournals.com/ijor.aspx?target=ijor:vjit&volume=8&issue=1&article=005
[4]Abhiney Singh , ‘Start a Trust / Society / Section 8 Company for School,’ Teach Club, https://brightoninternational.in/teachclub/start-a-trust-society-section-8-company-for-school/
[5]Educare India, For starting anew school – Trust, Society, Section 8 Company to be setup?, https://www.indiaeducare.com/for-starting-a-new-school-trustsocietysection-8-company-to-be-set-up/#:~:text=In%20India%2C%20educational%20institutions%20are,within%20the%20territory%20of%20India.&text=Society%20%E2%80%93%20It%20is%20formed%20when,for%20a%20common%20charitable%20purpose
[6] Educare India, For starting anew school – Trust, Society, Section 8 Company to be setup?, https://www.indiaeducare.com/for-starting-a-new-school-trustsocietysection-8-company-to-be-set-up/#:~:text=In%20India%2C%20educational%20institutions%20are,within%20the%20territory%20of%20India.&text=Society%20%E2%80%93%20It%20is%20formed%20when,for%20a%20common%20charitable%20purpose
[7] The Indian Trusts Act, 1882
[8] Unnikrishnan v. State of Andhra Pradesh, 1993 AIR 217
[9] F. L. CUTHBERT and O. KONIG, Relationships between Industry and Educational Institutions, https://www.jstor.org/stable/24114843, Vol. 8, No. 3 (MAY 1965), pp. 169-182 (14 pages)
[10] https://www.legislation.gov.uk/ukpga/2006/46/contents
[11] The Companies Act, 2006
[12] The Charities Act, 2011
[13] https://www.gov.uk/set-up-limited-company
[14] Section 8, The Companies Act, 2013
[15] https://www.mca.gov.in/mcafoportal/enquire_Fees.html
[16] Klumpes, P. (2013). Education and the not-for-profit sector: A comparative analysis of the UK and India. Journal of Comparative Law, 7(1), 147-165
[17] Bhagat, R., & Kumar, R. (2020). Company vs Trust: The Legal Structure of an NGO. International Journal of Social Science and Economic Research, 5(3), 369-377
[18] Rajan, S. (2021). Legal Framework of Educational Institution in India. Journal of Humanities and Social Science Research, 3(1), 31-37
[19] Das, A. (2014). Should Educational Institutions be Allowed to Register as a Company? Maharashtra Law Journal, 9(1), 73-84.
[20] Jha, S. K. (2019). Socio-Economic Implications of Conversion of Educational Trusts into Companies in India. Journal of Business and Management, 21(4), 43-56
[21] Bhagat, R., & Kumar, R. (2020). Company vs Trust: The Legal Structure of an NGO. International Journal of Social Science and Economic Research, 5(3), 369-377