We briefly mentioned that files have a user and group associated with them. Originally, it was just the user and group of whoever created them. But originally, a user could be in only one group at a time. BSD introduced the concept that a user could be in multiple groups simutaneously. So in BSD, which group was used? BSD decided to use the group of the directory that contained the newly created file.

Many modern versions of unix try to have it both ways. A newly created file gets the group of the user unless the directory has the setgid bit. In that case, the newly created file gets the group of the directory.

And there is an exception to that! Changing the owner or group of a file has security concerns. For that reason, some versions of unix will, optionally, prohibit a user other than root from changing the owner of a file. Additionally, a user is prohibited from changing the group of a file unless he is a member of the new group. This restriction will override the setgid bit on a directory if needed.