Applicable Laws
An association of persons with non profit motive may
be registered under any of the following Indian Acts:
-
As a Charitable Trust
-
As a Society under the
Societies Registration Act
-
As a licensed company
under section 25 of the Companies Act, 1956
Formation
of an NGO as a Trust
Section 3 of the Indian
Trusts Act defines “trust” as an obligation
annexed to the ownership of property, and arising out of
a confidence reposed in an accepted by the owner or declared
and accepted by him for the benefit of another, or of another
and the owner. According to Section 7 of the Indian Trust
Act, a trust may be created by
(a) every person competent to contract and (b) by or on
behalf of a minor.
Trust Deed
The instrument by which
the trust is declared is called the ‘instrument of
trust’ or more popularly as the ‘trust deed’.
Contents of a Trust Deed
A trust may be created
by any language sufficient to know the intention and no
technical words are necessary. A trust deed, generally,
incorporates the following:
- The name(s) of the author(s)/Settler(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.
Registration
In case of public charitable
trusts, whether in relation to movable property of any immovable
property and whether created under a will or inter vivos,
registration is optional but desirable. However, in case
of a charitable trust in relation to an immovable property,
for claiming exemption u/s 11 of the Income Tax Act, it
is essential that the instrument of trust is duly registered.
Registration of Trust
Deed under Indian Registration Act
An instrument assigning
any right, title or interest in an immovable property of
value exceeding Rs.100, is required to be registered under
the Registration Act, 1908. Thus, a trust deed involving
an immovable property must be registered.
Registration of Trust under
Public Trusts Act
A charitable trust is not
required to obtain registration under the Indian Registration
Act. However, in certain States like Maharashtra and Gujarat
there is a Public Trusts Act, which requires such institutions
trusts to get registered as such under the said Act.
Laws Applicable to Trusts
-
Charitable and Religious
Trusts Act, 1920
-
Religious Endowments
Act, 1863
-
Indian Trusts Act, 1882
FORMATION
OF AN NGO AS A SOCIETY
An NGO may be formed as
a 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, for any of the
following purposes:
-
Grant of Charitable
assistance;
-
Creation of military
orphan funds;
-
Promotion of science,
literature or the fine arts; instruction and diffusion
of useful knowledge, diffusion of political education,
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.
The chief advantage of forming
a society are that it gives a corporate appearance to the
organisation, and provides greater flexibility as it is
easier to amend the memorandum and bye-laws of the society
that in case of a 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.
Documents Required
A society for its inception requires –
Memorandum of Association
It is the charter of a society. Memorandum of association
depicts and describes the objects of a society’s
existence and its operation. This document should be drafted
carefully and meticulously as to confer all powers on
the society which will be reasonably required for total
attainment of the objects. A specimen format of Memorandum
of Association of a Society is given in Annexure 2.VII.
The memorandum of association contains the following clauses:
-
The name of the society
-
The registered/principal
office of the society.
-
The objects of the society
-
The names, addresses
and occupations of the members of the governing body
whether called as Governors, Councilors, Directors,
etc., to whom, by the rules of the society, management
of its affairs is entrusted, and
-
The names and addresses
of the persons (at least seven) subscribing to the memorandum.
The signatures of the subscribers should be duly witnessed
and attested by the Oath Commissioner/Notary Public/Gazetted
Officer/Advocate/Chartered Accountant/Ist Class magistrate.
Rules and Regulations
The rules and regulations
of a society are framed to guide the members of the governing
body and to regulate the functions of the society and its
internal management.. The rules and regulations generally
provide for:-
-
The conditions of admission
of members,
-
The liability of members
for fines, forfeitures under certain circumstances;
-
The termination of membership
by resignation or expulsion or upon death;
-
The appointment and removal
of trustees and their powers;
-
The appointment and
removal of the members on the governing body;
-
The requirement as to
notice, quorum etc. for holding meetings and passing
resolutions;
-
The investment of funds,
keeping of accounts and for audit of accounts;
-
The manner of altering
the objects and rules;
-
The matters to be provided
in bye-laws;
-
The dissolution of society
and the manner of utilizing the property upon dissolution;
-
Such other matters as
may be thought expedient with reference to the nature
and objects of the society.
The bye-laws of the society are subsidiary to the rules
and regulations and usually provide for:
-
The business hours of
the society;
-
The activities of the
society in furtherance of its objects;
-
The matters relating
to enrolment of members, their removal, rights, applications
and privileges,
-
The manner in which
the society shall transact its business;
-
The mode of custody,
application and investment of the funds of the society
and the extent and conditions of such investment;
-
The arrangements for
day-do-day transactions, the expenditure to be incurred
therefore, the staff to be employed and condition of
services of such employees;
-
The conduct of the general
meetings and the procedure therefore;
-
Such other matters incidental
to the organisation and working of the society and the
management of its business, as may be deemed necessary.
Registration Procedure
When a NGO is constituted
as a society, it is required to be registered under the
Societies Registration act, 1960. After the Memorandum and
Rules and Regulations of the society have been drafted,
signed and witnessed in the prescribed manner, the members
should obtain the registration of the society.
FORMATION
OF A NGO AS A COMPANY LICENSED UNDER SECTION 25 OF THE COMPANIES
ACT
Under Section 25 of the Companies Act, 1956 (see Annexure
2, XII), an association formed or to be formed:
-
For the purposes of promoting
commerce, art, science, religion, charity or any other
useful object.
-
With intention to apply
its profits or other income for promoting its objects,
and
-
Which prohibits payment
of any dividend to its members, is permitted to be incorporated
without addition of the word “Limited” or
“Private Limited”.
Procedure for obtaining
a license u/s 25 of the Companies Act
For obtaining a license u/s 25 of the Companies act,
an association shall follow the following steps:
-
First, the name availability
has to be ascertained from the Registrar of Companies.
-
After deciding on the
name of the proposed association or company, memorandum
of association (MOA) and Articles of Association (AOA)
are to be drafted.
-
Apply to the jurisdictional
Registrar of Companies for incorporation of the company,
along with Memorandum and articles, prescribed forms
and other documents.
If the Registrar is satisfied that all formalities have
been complied with, he will issue a Certificate of Incorporation
from which date the company comes into existence.
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