The societies & the trust


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The societies & the trust

  2. 2. STRUCTURE OF A NON PROFIT ORGANIZATION IN INDIA In India non profit organizations can be registered as: 2 Trusts Societies Section 25 Companies  The Income Tax Act gives all categories equal treatment, in terms of exempting their income and granting 80G certificates, whereby donors to non- profit organizations may claim a rebate against donations made. Foreign contributions to non-profits are governed by FC(R)A regulations and the Home Ministry.
  3. 3. MEANING OF ‘TRUST’ A trust is a relationship in which :  a person or entity (the trustee) holds legal title  to certain property (the trust property or trust corpus), but is bound by a fiduciary duty to exercise that legal control  for the benefit of one or more individuals or organizations (the beneficiary), who hold ‘beneficial’ or ‘equitable’ title.  The trust is governed by the terms of the (usually) written trust agreement and local law.  The entity (one or more individuals, a partnership or a corporation) that creates the trust is called the settlor. 3
  4. 4. TYPES OF TRUSTS  Bare Trust  Constructive Trust  Resulting Trust  Discretionary Trust.  Fixed Trust.  Hybrid Trust.  Expressed Trust.  Implied Trust.  Intervivos Trust  Testamentary Trust  Irrevocable Trust  Revocable Trust 4
  5. 5. HOW TO FORM A TRUST - LAW & PROCEDURE  Essentials of a Trust  Who can form a trust ?  Capacity to create a Trust.  Who can be a trustee ?  Who can be a beneficiary ?  Instrument of Trust. 5
  6. 6. ESSENTIALS OF A TRUST 6  The existence of the author/settlor of the trust or someone at whose instance the trust comes into existence.  Clear intention of the author/settlor to create a trust.  Purpose of the Trust.  The Trust property  Beneficiaries of the Trust.  There must be divesting of the ownership by the author / settlor of the trust in favour of the beneficiary or the trustee. Unless all these requisites are fulfilled a trust cannot be said to have come into existence.
  7. 7. WHO CAN FORM A TRUST ?  As per section 7 of the Indian Trusts Act, a trust can be formed –  by every person competent to contract, and  by or on behalf of a minor, with the permission of a principal civil court of original jurisdiction.  Besides individuals, a body of individuals or an artificial person such as an association of persons, an institution, a limited company, a Hindu undivided family through it's karta, can also form a trust.  It may, however, be noted that the Indian Trusts Act does not apply to public trusts which can be formed by any person under general law. Under the Hindu Law, any Hindu can create a Hindu endowment and under the Muslim law, any Muslim can create a public wakf. Public Trusts are essentially of charitable or religious nature, and can be constituted by any person. 7
  8. 8. CAPACITY TO CREATE A TRUST  As a general rule, any person, who has power of disposition over a property, has capacity to create a trust of such property. According to section 7 of the Transfer of Property Act, 1882, a person who is competent to contract and entitled to transfer the property or authorized to dispose of transferable property not his own, either wholly or in part and either absolutely or conditionally, has 'power of disposition of property'.  Thus, two basic things are required for being capable of forming a trust  power of disposition over property; and  competence to contract. 8
  9. 9. WHO CAN BE A TRUSTEE ?  Every person capable of holding property can become a trustee. However, where the trust involves the exercise of discretion, he can accept or act as a trustee only if he is competent to contract.  No one is bound to accept trusteeship. Any number of persons may be appointed as trustees.  However, no trust is defeated for want of a trustee. Where there is no trustee in existence, an official trustee may be appointed by the court and the trust can be administered. An executor of a Will may become a trustee by his dealing with the assets under the provisions of the Will. 9
  10. 10. WHO CAN BE A BENEFICIARY ?  In a private trust the beneficiaries are one or more ascertainable individuals.  In a public trust the beneficiaries are a body of uncertain or fluctuating individuals and may consist of a class of the public or the whole public. 10
  11. 11. SUBJECT MATTER OF TRUST  Any property capable of being transferred can be a subject matter of a trust.  Section 8 of the Indian Trust Act, however, provides that mere beneficial interest under a subsisting trust cannot be made the subject matter of another trust.  In the case of J.K. Trust vs. CIT (1957) 32 ITR 535 (S.C.), the Supreme Court had held that the word " property" under the Trusts Act is of the widest import and a business undertaking will undoubtedly be a property so that a running business can be made a subject matter of trust. This view has been followed in the case of in CIT vs. P. Krishna Warriar (1964) 53 ITR 176 (SC). 11
  12. 12. INSTRUMENT OF TRUST  The instrument by which the trust is declared is called instrument of Trust, and is generally known as Trust Deed.  It is well settled that no formal document is necessary to create a Trust as held in Radha Soami Satsung vs. CIT- (1992) 193 ITR 321 (SC). But for many practical purposes a written instrument becomes necessary under following cases –  When the trust is created by a will irrespective of whether the trust is public or private or it relates to movable or immovable property. This is because as per Indian Succession Act, a will has to be in writing  When the trust is created in relation to an immovable property of the value of Rs.100 and upwards, in case of a private trust. In case of public trusts, a written trust deed is not mandatory, even in respect of immovable property, but is optional.  Where the trust/association is being formed as a society or company, the instrument of trust; i.e., the memorandum of association, and Rules and Regulations has to be in writing. 12
  13. 13. PROCEDURE FOR REGISTRATION: The following documents are required to be filed for registration of a Trust: 1. Covering Letter 2. Application Form in Form –Schedule II under rule 6 duly notarised 3. Court fee stamp of Rs. 2/- to be affixed on application form 4. Certified copy of the Trust Deed 5. Consent letter of Trustees. 13
  14. 14. INSTRUMENT OF TRUST  A written trust-deed is always desirable, even if not required statutorily, due to following benefits :  a written trust deed is a prima facie evidence of existence of a trust ;  it facilitates devolution of trust property to the trust;  it clearly specifies the trust-objectives which enables one to ascertain whether the trust is charitable or otherwise;  it is essential for registration of conveyance of immovable property in name of the Trust;  it is essential for obtaining registration under the Income-tax Act and claiming exemption from tax;  it helps to control, regulate and manage the working and operations of the trust;  it lays down the procedure for appointment and removal of the trustee(s), his/their powers, rights and duties; and  it prescribes the course of action to be followed under any eventuality including dissolution of the trust. 14
  15. 15. TYPES OF INSTRUMENT OF TRUST  Trust deed, where a trust is declared intervivos; i.e., by settling property under Trust.  A will, where a trust is declared under a will;  A memorandum of association along with rules and regulations, when the association/institution is being formed as a society under the Societies Registration Act, 1860.  A memorandum and articles of association where the association /institution is desired to be formed as a Company. 15
  16. 16. ESSENTIALS OF A VALID CHARITABLE OR RELIGIOUS TRUST  There are four essential elements of a valid charitable or religious trust  Charitable or Religious Object : The object or purpose of the trust must be a valid religious or charitable purpose according to law ;  Capacity to create Trust : The founder or settlor should be capable of creating a trust and dedicating his property to that trust;  Certainty of Object and Dedication thereto : The settlor should indicate precisely the object of the trust and the property in respect of which it is made. The property should be dedicated to the trust and the owner must divest himself of the ownership of that property.  Concurrence with the law : The trust or its objects must not be opposed to the provisions of any law for the time being in force. 16
  17. 17. INFORMATION TO BE SUBMITTED FOR 80G As per Form No. 10G, the following information needs to be submitted.  Legal status of the institution/ fund  Objects and geographical area of activities  Name & Address of trustees  Status of approval under 12A / 10(23)  Status of last approval under 80G  Change in objects if any since last approval  Details of assessments, arrear taxes, accumulations  Details of investments, business income, violations of section 13 etc.  Notes on activities for last 3 years alongwith accounts. 17
  18. 18. SOCIETY Meaning of Society: A society may be defined as a company or an association of persons (generally unincorporated) united together by mutual consent to deliberate, determine and act jointly for same common purpose. As per the Societies Registration Act, 1860, (see Annexure 2, VI), a society can be formed by minimum seven (or more) persons, eligible to enter into a contract. 18
  19. 19. PURPOSE OF FORMING SOCIETY 1. Grant of Charitable assistance; 2. Creation of military orphan funds; 3. Promotion of science, literature or the fine arts; 4. Instruction and diffusion of useful knowledge, diffusion of political education, 5. Foundation or maintenance of libraries or reading rooms for general use of the members or the public, public museums and galleries of paintings and other work of art, collections of natural history, mechanical and philosophical inventions, instruments or designs Besides, the State Governments are empowered to add more objects to the above list. 19
  20. 20. DOCUMENTS OF SOCIETY 1. Memorandum of Association: It is the charter of a society. MOA depicts and describes the objects of a society’s existence and its operation. 2. Rules and Regulations: The rules and regulations of a society are framed to guide members of the governing body and to regulate the functions of the society and its internal management. 20
  21. 21. PROCESS OF REGISTRATION OF SOCIETY Society is required to be registered under the Societies Registration Act, 1860. 1. Place of Registration. 2. Signing of Memorandum of Association. 3. Signature on Rules & Regulations. 4. Payment of Registration Fees. 5. Registration Certificate. 21
  22. 22. FOREIGN CONTRIBUTION: The Foreign Contribution (Regulation) Act, 1976 (FCRA) requires all Indian NGOs that receive foreign contributions to receive clearance from the Ministry of Home Affairs, in the form of either permanent FCRA registration or prior permission on a case-to-case basis. 22
  23. 23. THE STATUTORY PROVISION OF FCRA Under Section 6 of FCRA, it is clearly provided that any organisation having a definite cultural/ social/ educational/ religious/ economic object shall only accept foreign contribution after satisfying two conditions : (i) It must register itself with the Central Government. (ii) It must agree to receive foreign contribution only through one specific bank account. 23
  24. 24. SECTION-25 COMPANY  Section 25(1)(a) and (b) of the Indian Companies Act, 1956 are  formed for the sole purpose of promoting commerce, art, science, religion, charity  any other useful object .  that have been granted a license by the central government recognizing them as such. 24
  25. 25. PURPOSE OF SEC-25 COMPANY  Its objects should be only to promote commerce, art, science, religion, charity or any other useful object.  It should intend to apply its profits or other incomes only in promoting its objects.  Central government should have granted a license to such a company recognizing them as such. 25
  26. 26. WHY SEC 25 COMPANY Section 25 companies have the most reliable, strongest organisational structure:  Indian Trusts have no central law.  Indian Societies have different legal and institutional frameworks from state to state.  Indian Companies (incl. Sec 25 companies), have one uniform law across the country - Companies Act 1956. 26
  27. 27. COMPARISON AMONG TRUST, SOCIETY & SECTION 25 COMPANY 27 Points of Differences Trust Society Section 25 Company Statute / Legislation Relevant State Trust Act or Indian Trust Act, 1882 Societies Registration Act, 1860 Indian Companies Act, 1956 Jurisdiction Deputy Registrar/Charity commissioner Registrar of societies (charity commissioner in Maharashtra). Registrar of companies Registration As trust As Society In Maharashtra, both as a society and as a trust As a company u/s 25 of the Indian Companies Act. Registration Document Trust deed Memorandum of association and rules and regulations Memorandum and articles of association. and regulations Stamp Duty Trust deed to be executed on non-judicial stamp paper, vary from state to state No stamp paper required for memorandum of association and rules and regulations. No stamp paper required for memorandum and articles of association. Members Required Minimum – two trustees. No upper limit. Minimum – seven managing committee members. No upper limit. Minimum three .No upper limit. Board of Management Trustees / Board of Trustees Governing body or council/managing or executive committee Board of directors/ Managing committee Mode of Succession on Board of management Appointment or Election Appointment or Election by members of the general body Election by members of the general body
  28. 28. THANK YOU. 28