NGOs: Society or Trusts What to Choose? 1

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1 1 Society and Trusts are the most popular and easiest way of doing social work. One can form private trusts also for specific purposes. Which form to choose from among the two, needs careful consideration and thought after giving due consideration of the nittygritties involved in their legal form and structure. In the forthcoming paragraph, we analyse the basic requirements of forming Society and Trust and their respective limitations and key differences between a Society and a Trust. 9 February 2016 Bhuta Shah & Co LLP, 2016 A: , Regent Chambers, Nariman Point, Mumbai T F bhutashah.com 1 This document does not constitute professional advice. Readers are advised to seek their own professional advice before taking any course of action or decision based on this publication. While all reasonable care has been taken in preparation of this document, we accept no responsibility for any errors it may contain or for any omissions or otherwise or for any loss, howsoever caused or sustained, by the person who relies on it.

2 CHAPTER 1: SOCIETY In India, societies are governed by a central act called Societies Registration Act, All the states in India have adopted this act (with or without modifications) to create authorities at state level that register non-profit societies. The main documents in the registration of a society are Memorandum of Association (MOA) and Rules and Regulations (RR). These two documents are to be executed on plain paper. No stamp paper is required. The MOA must mention: a. Name of the Society b. Address of the registered office (NOC required from owner) c. Names, designations, addresses & occupations of the members of first governing body d. Objectives of the society Most important part of the MOA is the objectives of the Society, which needs special attention. For smooth functioning of the society, writing down objectives clearly is a must. Minimum people are required to form a society. There is no upper limit on the number of members. Societies can function only within a specified geographical area. However, to make an all India level society, one would need at least members, of which should be from different states. These members have various designations that can be decided among themselves. Common designations are President, Secretary, Treasurer etc. These members are collectively called the Governing Body. This body directs and controls the functioning of the society. Related people (i.e. belonging to the same family) cannot be part of the governing body. All the members of society are elected for a specific period (which should be mentioned in the MOA). After expiry of this period, the post is filled through elections in which members of the Governing Body take part. Because of the involvement of election process societies are more democratic than trusts. But at the same time through election politics, it is possible to remove the person who had initiated the society in the first place. Members of the Governing Body cannot draw any remuneration from the society funds. While executing their duties as members, expenses incurred by the members of the Governing Body can be reimbursed from the society funds.

3 CHAPTER 2: TRUST A Trust can either be a private trust or a public charitable trust. Private Trusts Private trusts, as the name suggests are set up for private purposes, which include running a private estate or institution. Private Trusts in India are governed by the Indian Trusts Act,. Being private, these trusts are not given any tax benefits by the Government of India. Public Trusts For carrying out some form of charitable work for general public, one can set up a public charitable trust. Unlike private trusts, India does not have a national level law to govern charitable trusts. However, a few of the states have enacted Public Charitable Trusts Acts, for e.g., Bombay Public Trusts Act, Trusts are registered using a document called Trust Deed. This document contains all the information about the Trust and is executed on plain paper. One needs to attach a Rs. 100 Non Judicial stamp paper. All the Trustees and witnesses will have to give thumb impressions and signatures on these papers. At the time of registration, only the Settlor and witnesses are required to be present in front of the Sub-registrar under whose jurisdiction the registered office address comes. A fee of Rs for this process is payable. One can receive a certified copy of the Trust Deed after 7-10 days of registeration process. Following elements must be mentioned in the Trust Deed document: a. Name and address of the Settler who is setting up the trust b. Name(s) and address(es) of the other trustees c. Name of the trust d. Minimum and maximum number of trustees the trust can have e. Address of the registered office of the trust (NOC may be required f. Objectives of the trust g. Rules and Regulations of the trust Most important part of the Trust Deed is the objectives of the, which needs special attention. For smooth functioning of the trusts, writing down objectives clearly is a must. For registering a trust you need minimum trustees (i.e. one settler and another person). You can decide the maximum number of trustees and this number must be mentioned in the trust deed. All the trusts are allowed to work on all India level. All the trustees together are called Board of Trustees. This board collectively governs the trust. Board of Trustees can also have various designations for

4 trustees, e.g. Chairperson, Managing Trustee, Treasurer, etc. In case of trusts, all or some of the trustees can be related persons. Trustees are usually lifelong members or their tenure is specified in the deed. Electoral process is not involved in the appointment of trustees. Trustees cannot draw any remuneration from the trust fund. However, they may take reasonable compensation for the professional services they provide to the Trust. Profits earned by the Trust (e.g. interest gained from bank) cannot be distributed among the trustees. Trusts are irrevocable i.e. the trust cannot be wound up, unless mentioned in the trust deed.

5 KEY DIFFERENCES BETWEEN A SOCIETY AND A TRUST To summarise, following are the key differences between a Society and a Trust: Particulars Society Trust Legislation Governed by Societies Registeration Act, 1860 Private Trusts Indian Trust Act, Public Trusts No central law, but some states have them. Incorporation Documents Memorandum of Association Rules and Regulation Trust Deed Objectives Has to be very specific Can be general Minimum Number Members of (8, in case operations across India, with at least 5 from different states) Governance Governing Body Key Decisions Electoral Mode democratic decision making Board of Trustees Key Decisions One Person Control Settler Amendments Procedure is long and tenuous Both key documents needs to be amended Single document to be changed which can be done through a supplementary deed Winding up 60% majority required for winding up Generally irrevocable, unless otherwise specified Geographical Area Separate registeration required for operations across India No such restriction Names Since societies are registered with a central body, names given to other existing societies may not be available. One can choose any name, all are easily available. Restriction Relatives on Family members cannot be part of governing body No such restriction