As said in the previous articles, any Public Legal Entity is created for a public charitable activity with no profit motive and even if there is some profit, it is reinvested in the same Entity to promote its objects and not distributed among the members. We have three kinds of Legal Entities:
- Trust:
A Trust is registered under the Indian Trust Act, 1882/Bombay Public Trust Act, 1950. The Trust Deed is executed on a non-judicial stamp paper and then registered in the Sub-Registrar’s Office of the Registration or Charity Commissioner’s Office, with the Trust Deed and a minimum of three Trustees. It has the Board of Trustees and the executive committee or Managing Trustee. All Trustees have equal power and authority. The Trust Deed is the constitution based on which the Trust is run, whether it is relating to its objects or rules and regulations. Registration under the Trust Act has national validity and hence it can operate throughout India.
Once the Trust is formed, no further document is to be submitted to the registering authority, but the Trust is expected to maintain its Minutes Book, Attendance Register and decisions taken in the form of resolutions. However, if the Trust falls under the authority of the Charity Commissioner, then the Change Report and the Annual Audited Accounts are to be submitted to his office. There is no provision for the transfer of the Trustees, because they are democratically elected or appointed as per the provisions in the Trust Deed. A Trustee cannot receive any payment or any privilege from the Trust or from any of its activities/institutions. However, he may receive payment or honorarium for his professional service or consultancy.
Normally, a Trust cannot be wound up; it is irrevocable. Here the change of Trustees may be easy and the cost factor may be low, but the level of transparency may be low. It may be difficult to change the place of the registered office. On the whole, a Trust is easy to form and run, but difficult to wind up.
- Society:
A Society is registered under the Societies Registration Act, 1860. It is registered in the Registrar’s Office or the Charity Commissioner’s Office, with its constitutional document of the Memorandum of Articles of the Association and Rules and Regulations and a minimum of seven General Body Members and five Governing Body Members. Here the Board Members will have a hierarchy in the execution of their power and authority. The Memorandum of Association and Rules and Regulations (By-Laws) is the constitution based on which the Society is run in relation to its objects or rules and regulations.
The registration of a Society is done in one particular state and hence it can operate only in that state. After forming the Society, it is expected to submit the list of the Governing Body Members to the Registrar every year. Besides, the Society is expected to maintain its Minutes Book, Attendance Register and decisions taken in the form of resolutions. The Governing Body reports to the General Body, which has the supreme power to make or alter any policy decisions. Once formed, the Society functions more democratically and elections are held. There is no provision for the transfer of the Governing Body Members, because they are democratically elected. A Board Member cannot receive any payment or any privilege from the Society or from any of its activities/institutions. However, he may receive payment or honorarium for his professional service or consultancy. A Society can be wound up and its assets can be passed on to another Society with similar objects. Here the cost factor may be low, but the change of the Governing Body members may not be easy and the level of transparency is also low. It may be difficult to change the place of the registered office. On the whole, a Society is a bit difficult to form and run, but easy to wind up.
- Section 8 Company:
A Non-Profit/Section 8 Company is created to promote a particular cause, like a religious cause, child labour cause, environmental cause, helping the old age cause, etc. It is registered under the Companies Act, 2013. It is registered in the Office of the Registrar of Company, with its constitutional document of the Founding Document (Memorandum and Articles of Association) and a minimum of two Directors to form the Board of Directors and five members forming the General Body of Directors. In the Western Region, a company too falls under the jurisdiction of the Charity Commissioner. Here the Board Members will have a hierarchy in the execution of their power and authority. The Founding Document is the constitution based on which the Company is run in relation to its objects or rules and regulations. The registration of a Company is granted by the Central Government, and hence it has validity at the national level. After forming the company, it is expected to submit the change report, annual returns and audited accounts every year to the Charity Commissioner. The Companies Act demands specific provisions to have at least one Annual General Meeting and four Board Meetings every year. Besides, the Company is expected to maintain its Minutes Book, Attendance Register and decisions taken in the form of resolutions. The Governing Body reports to the General Body, which has the supreme power to make or alter any policy decisions. The Governing Body members are elected by the General Body. Once formed, the Company functions with a hierarchy of power and authority. There is provision for the transfer of the Directorship. The General Body of the Company may approve payment to the Directors. A Company can be wound up and its assets have to be passed on to another Company with similar objects. Here the change of Board of Directors may be easy and both the cost factor as well as the level of transparency is high. It may be easy to change the place of the registered office. On the whole, a company is difficult to form and run, but not so difficult to wind up.
Essential Elements:
Whichever type we may choose, all are eligible for 12AA, and they should have these essential elements:
- a) No profit motive: Central to the concept of a Public Charitable Trust is the fact that the Trust, with its entire property and income, exists for the benefit of the public, irrespective of caste, creed, religion, etc., and hence the Trustees have no profit motive at all. This means that at no point of time can the Trustees or their relatives or friends have a share of the profit or income of the Trust, nor can they even avail any of its services free of cost.
- b) Use of the Property and all Income only for the objects of the Trust: Here, the Trustees have an obligation to use the entire property and income of the Trust only on the objects of the Trust, spelt out in the Trust deed, for the benefit of the beneficiaries for whom the Trust has been set up.
- c) Activities in line with the objects: The purpose of the Trust is already spelt out in the form of objects of the Trust in the Trust Deed. This would mean that the Trust can have only those activities which are in line with its objects. Now, according to the recent Finance Bill of 2017, if a Trust modifies its objectives or purpose, it has to get a fresh registration for exemption from income tax.
The next article will deal with matters regarding employees.
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