Registration as a Trust versus Society

In India non profit / public charitable organisations can be registered as trusts, societies, or a private limited non profit company, under section-25 companies act.

Section 2(15) of the Income Tax Act ΓÇô which is applicable uniformly throughout the Republic of India ΓÇô defines ΓÇÿcharitable purposeΓÇÖ to include ΓÇÿrelief of the poor, education, medical relief and the advancement of any other object of general public utilityΓÇÖ. A purpose that relates exclusively to religious teaching or worship is not considered as charitable. Thus, in ascertaining whether a purpose is public or private, one has to see if the class to be benefited, or from which the beneficiaries are to be selected, constitute a substantial body of the public. A public charitable purpose has to benefit a sufficiently large section of the public as distinguished from specified individuals. Organisations which lack the public element ΓÇô such as trusts for the benefit of workmen or employees of a company, however numerous ΓÇô have not been held to be charitable. As long as the beneficiaries of the organisation comprise an uncertain and fluctuating body of the public answering a particular description, the fact that the beneficiaries may belong to a certain religious faith, or a sect of persons of a certain religious persuasion, would not affect the organisationΓÇÖs ΓÇÿpublicΓÇÖ character.

Whether a trust, society or section-25 company, the Income Tax Act gives all categories equal treatment, in terms of exempting their income and granting 80G certificates, whereby donors to non-profit organisations may claim a rebate against donations made. Foreign contributions to non-profits are governed by FC(R)A regulations and the Home Ministry.

Typically, public charitable trusts can be established for a number of purposes, including the relief of poverty, education, medical relief, provision of facilities for recreation, and any other object of general public utility. Indian public trusts are generally irrevocable.

There is no central law governing public charitable trusts, although most states have ""Public Trusts Acts."" (particularly Maharashtra, Gujarat, Rajasthan, and Madhya Pradesh).

Public charitable trusts, as distinguished from private trusts, are designed to benefit members of an uncertain and fluctuating class. In determining whether a trust is public or private, the key question is whether the class to be benefited constitutes a substantial segment of the public.

At least two trustees are required to register a public charitable trust. In general, Indian citizens serve as trustees, although there is no prohibition against non-natural legal persons or foreigners serving in this capacity.

Procedures of Formation: A Trust may be created by any language sufficient to know the intention and no technical words are necessary. In general, trusts may register for one or more of the following purposes:

Relief of Poverty or Distress;

Education;

Medical Relief;

Provision for facilities for recreation or other leisure -time occupation (including assistance for such provision), if the facilities are provided in the interest of social welfare and public benefit; and

The advancement of any other object of general public utility, excluding purposes which relate exclusively to religious teaching or worship.

A trust deed, generally, incorporates the following:

The name(s) of the author(s)/settlor(s) of the trust;

The name(s) of the trustee(s);

The name(s) if any, of the beneficiary/ies or whether it shall be the public at large;

The name by which the trust shall be known;

The name where its principal and/or other offices shall be situate;

The property that shall devolve upon the trustee(s) under the trust for the benefit of the beneficiary/ies;

An intention to divest the trust property upon the trustee(s);

The objects of the trust;

The procedure for appointment, removal or replacement of a trustee. Their rights, duties and powers etc;

The rights and duties of the beneficiary/ies;

The mode and method of determination of the trust.A charitable trust is not required to obtain registration under the Indian Registration Act. Typically, a public charitable trust must register with the office of the Charity Commissioner having jurisdiction over the trust (generally the Charity Commissioner of the state in which the trustees register the trust) in order to be eligible to apply for tax-exemption.

Responsibility of the Trustees: Legal title of the property of a public charitable trust vests in the trustees. Trustees of a public charitable trust may not, however, in any way use trust property or their position for their own interest or private advantage. Trustees may not enter into agreements in which they may have a personal interest that conflicts or may possibly conflict with the interests of the beneficiaries of the trust (whose interests the trustees are bound to protect). Trustees may not delegate any of their duties, functions or powers to a co-trustee or any other person, except that trustees may delegate ministerial acts. In essence, trustees may not delegate authority with respect to duties requiring the exercise of discretion.

Trustees of religious or charitable trusts are charged with discharging their duties with the degree of care that an ordinarily prudent person would exercise with respect to his personal property. This is a slight variant on the duty of care applicable in many U.S. jurisdictions, which requires directors and officers to act with the degree of diligence, care and skill that ordinarily prudent persons would exercise under similar circumstances in like positions (as opposed to in the management of their personal affairs). Public charitable trusts are highly regulated. For instance, in many states, purchases or sales of property by a trust must be approved in advance by the Charity Commissioner.

Indian public charitable trusts are generally irrevocable. If a trust becomes inactive due to the negligence of its trustees, the Charity Commissioner may take steps to revive the trust. Furthermore, if it becomes too difficult to carry out the objects of a trust, the doctrine of cy pres, meaning ""as near as possible,"" may be applied to change the objects of the trust. Thus, it appears that grantors can feel fairly secure that the charitable nature of a trust will be honored, even if the original, specific purposes of the trust cannot be carried out.

Society: A society may be defined as a company or an association of persons united together by mutual consent to deliberate, determine and act jointly for same common purpose. Minimum seven persons, eligible to enter into a contract, can form society. When an NGO is constituted as a society, it is required to be registered under the Societies Registration Act, 1860.

Societies are governed by the Societies Registration Act 1860, which is an all-India Act. Many states, however, have variants on the Act.

Societies are similar in character to trusts, although there a few essential differences. While only two individuals are required to form a trust, a minimum of seven individuals are required to form a society. The applicants must register the society with the state Registrar of Societies having jurisdiction in order to be eligible to apply for tax-exempt status. A registration application includes the society's memorandum of association and rules and regulations. In general, Indian citizens serve as members of the managing committee or governing council of societies, although there is no prohibition in the Societies Registration Act against non-natural legal persons or foreigners serving in this capacity.

According to section 20 of the Act, the types of societies that may be registered under the Act include, but are not limited to, the following:

Charitable societies;

Societies established for the promotion of science, literature, or the fine arts,

For education;

and Public art museums and galleries, and certain other types of museums.

The governance of societies also differs from that of trusts; societies are usually managed by a governing council or managing committee, whereas trusts are governed by their trustees.

Individuals or institutions or both may be members of a society. The general body of members delegates the management of day-to-day affairs to the managing committee, which is usually elected by the membership. Members of the general body of the society have voting rights and can demand the submission of accounts and the annual report of the society for inspection. Members of the managing committee may hold office for such period of time as may be specified under the bylaws of the society.Societies, unlike trusts, must file annually, with the Register of Societies, a list of the names, addresses and occupations of their managing committee members. Furthermore, in a society, all property is held in the name of the society, whereas all of the property of a trust legally vests in the trustees.

Unlike trusts, societies may be dissolved. Dissolution must be approved by at least three-fifths of the society's members. Upon dissolution, and after settlement of all debts and liabilities, the funds and property of the society may not be distributed among the members of the society. Rather, the remaining funds and property must be given or transferred to some other society, preferably one with similar objects as the dissolved entity.

The chief advantage of forming a society are that it gives a corporate appearance to the organization, and provides greater flexibility as it is easier to amend the memorandum and bye laws of the society than in case of trust, terms of which are strictly manifested in the trust deed.

However, formation of a society requires more procedural formalities than in case of a trust.

Procedures of Formation: A Society for its inception requires:-

I. Memorandum of Association, and

II. Rules and Regulations

For the purpose of registration, following documents are required to be filed with the registrar of Societies:

a) Covering letter requesting for registration stating in the body of the letter various documents annexed to it. The letter is to be signed by all the subscribers to the memorandum or by a person duly authorised by all of them to sign on their behalf.

b) Memorandum of Association, in duplicate neatly typed and pages serially numbered.

c) Rules and Regulations/Bye-Laws, in duplicate, certified by at least three members of the governing body.

d) An affidavit of the president/Secretary of the society, on a non-judicial stamp paper of prescribed value, stating the relationship between the subscribers, duly attested by an oath commissioner, notary public or 1st class magistrate.

e) Documentary proof such as house tax receipt, rent receipt in respect of premises shown as registered office of the society or no objection certificate from the landlord of the premises.

f) An authority duly signed by all members of the managing committee.

g) A declaration by the members of the managing committee that the funds of the society shall be used only for the purpose of furthering the aims and objects of the society.

Courtesy:NGO.NET.IN

Thanks for the valuable information.

Thanks for the valuable information.