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Unit II Law relating to Societies and Trusts for Legal Aspects Of Business MCOM sem 2 Delhi University

Unit II Law relating to Societies and Trusts for Legal Aspects Of Business MCOM sem 2 Delhi University

This article describes the various laws related to non profit organisations in India. A non profit organisations can be registered in India as a Society, under the Registrar of Societies or as a Trust, by making a Trust deed, or as a Section 8 Company, under the Companies Act, 2013. Unit II Law relating to Societies and Trusts for Legal Aspects Of Business MCOM sem 2 Delhi University.

Unit II Law relating to Societies and Trusts for Legal Aspects Of Business MCOM sem 2 Delhi University

Whether a trust, society or Section 8 company, the Income Tax Act, 1961 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. Unit II Law relating to Societies and Trusts for Legal Aspects Of Business MCOM sem 2 Delhi University.

For an organisation to be termed as charity it requires Income tax clearances under 12 A Clause of Income Tax Act. Section 2(15) of the Income Tax Act defines ‘charitable purpose’ to include ‘relief of the poor, education, medical relief and the advancement of any other object of general public utility’. A purpose that relates exclusively to religious teaching or worship is not considered as charitable

In India non profit / public charitable organizations can be registered as trusts, societies, or a private limited non profit company, under section-25 companies. Non-profit organizations in India (a) exist independently of the state; (b) are self-governed by a board of trustees or ‘managing committee’/ governing council, comprising individuals .

who generally serve in a fiduciary capacity; (c) produce benefits for others, generally
outside the membership of the organization; and (d), are ‘non-profit-making’, in as much as they are prohibited from distributing a monetary residual to their own members. Unit II Law relating to Societies and Trusts for Legal Aspects Of Business MCOM sem 2 Delhi University.
Section 2(15) of the Income Tax Act – which is applicable uniformly throughout the
Republic of India – defines ‘charitable purpose’ to include ‘relief of the poor, education, medical relief and the advancement of any other object of general public utility’. 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. Organizations which lack the public element – such as trusts for the benefit of workmen or employees of a company, however numerous – have not been held to be charitable. As long as the beneficiaries of the organization 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 organization’s ‘public’ 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. CAF would like to clarify that this material provides only broad guidelines and it is recommended that legal and or financial experts be consulted before taking any important legal or financial decision or arriving at any conclusion. Unit II Law relating to Societies and Trusts for Legal Aspects Of Business MCOM sem 2 Delhi University.

Formation and Registration of a Non -Profit organisations in India

1) Trust
2) Society
3) Section-25 Company
Additional Licensing/ Registration

I. Trusts

A public charitable trust is usually floated when there is property involved, especially in terms of land and building.
Legislation : Different states in India have different Trusts Acts in force, which govern
the trusts in the state; in the absence of a Trusts Act in any particular state or territory the general principles of the Indian Trusts Act 1882 are applied.
Main Instrument : The main instrument of any public charitable trust is the trust deed, wherein the aims and objects and mode of management (of the trust) should be enshrined. In every trust deed, the minimum and maximum number of trustees has to be specified. Unit II Law relating to Societies and Trusts for Legal Aspects Of Business MCOM sem 2 Delhi University.
The trust deed should clearly spell out the aims and objects of the trust, how the trust
should be managed, how other trustees may be appointed or removed, etc. The trust deed should be signed by both the settlor/s and trustee/s in the presence of two witnesses. The trust deed should be executed on non-judicial stamp paper, the value of which would depend on the valuation of the trust property.
Trustees : A trust needs a minimum of two trustees; there is no upper limit to the number of trustees. The Board of Management comprises the trustees. Unit II Law relating to Societies and Trusts for Legal Aspects Of Business MCOM sem 2 Delhi University.
Application for Registration :
The application for registration should be made to the official having jurisdiction over the region in which the trust is sought to be registered. After providing details (in the form) regarding designation by which the public trust shall be known, names of trustees, mode of succession, etc., the applicant has to affix a court fee stamp of Rs.2/- to the form and pay a very nominal registration fee which may range from Rs.3/- to Rs.25/-, depending on the value of the trust property. The application form should be signed by the applicant before the regional officer or superintendent of the regional office of the charity commissioner or a notary. The application form should be submitted, together with a copy of the trust deed. Two other documents which should be submitted at the time of making an application for registration are affidavit and consent letter. Unit II Law relating to Societies and Trusts for Legal Aspects Of Business MCOM sem 2 Delhi University.

II.Society
According to section 20 of the Societies Registration Act, 1860, the following societies
can be registered under the Act: ‘charitable societies, military orphan funds or societies
established at the several presidencies of India, societies established for the promotion of science, literature, or the fine arts, for instruction, the diffusion of useful knowledge, the diffusion of political education, the foundation or maintenance of libraries or reading rooms for general use among the members or open to the public, or public museums and galleries of paintings and other works of art, collection of natural history, mechanical and philosophical inventions, instruments or designs.’

Legislation : Societies are registered under the Societies Registration Act, 1860, which is a federal act. In certain states, which have a charity commissioner, the society must not only be registered under the Societies Registration Act, but also, additionally, under the Bombay Public Trusts Act. Main Instrument : The main instrument of any society is the memorandum of association and rules and regulations (no stamp paper required), wherein the aims and objects and mode of management (of the society) should be enshrined.
Trustees : A Society needs a minimum of seven managing committee members; there is no upper limit to the number managing committee members. The Board of Management is in the form of a governing body or council or a managing or executive committee

Application for Registration : Registration can be done either at the state level (i.e., in the office of the Registrar of Societies) or at the district level (in the office of the District Magistrate or the local office of the Registrar of Societies).(2) The procedure varies from state to state. However generally the application should be submitted together with:

(a) memorandum of association and rules and regulations;

(b) consent letters of all the members of the managing committee;

(c) authority letter duly signed by all the members of the managing committee;

(d) an affidavit sworn by the president or secretary of the society on non-judicial stamp paper of Rs.20-/, together with a court fee stamp; and

(e) a declaration by the members of the managing committee that the funds of the society will be used only for the purpose of furthering the aims and objects of the society. All the aforesaid documents which are required for the application for registration should be submitted in duplicate, together with the required registration fee. Unlike the trust deed, the memorandum of association and rules and regulations need not be executed on stamp paper.

III. Section-25 Company
According to section 25(1)(a) and (b) of the Indian Companies Act, 1956, a section-25
company can be established ‘for promoting commerce, art, science, religion, charity or
any other useful object’, provided the profits, if any, or other income is applied for
promoting only the objects of the company and no dividend is paid to its members.
Legislation : Section-25 companies are registered under section-25 of the Indian
Companies Act. 1956.
Main Instrument : For a section-25 company, the main instrument is a Memorandum and articles of association (no stamp paper required)
Trustees : A section-25 Company needs a minimum of three trustees; there is no upper limit to the number of trustees. The Board of Management is in the form of a Board of directors or managing committee
Application for Registration :
1. An application has to be made for availability of name to the registrar of companies,
which must be made in the prescribed form no. 1A, together with a fee of Rs.500/-. It is advisable to suggest a choice of three other names by which the company will be called, in case the first name which is proposed is not found acceptable by the registrar.

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