For charitable organizations in India, trusts and societies are common setups. An individual can choose between setting up a trust or a society according to his or her preference for an organizational structure. In this article, we will examine what trusts and societies are, their differences, and some of the purposes for which they can be formed.
Section 3 of the Indian Trusts Act, 1882 defines a trust as an arrangement in which obligations are attached/annexed to a property owned by the trust (trust property) under a confidence vested in the trustholder and accepted by him for his benefit (beneficiary).
There are two types of trusts, public trusts and private trusts. The settlor/author forms the trust by bequeathing property to the trustee for the benefit of a particular person or groups of persons. Under the Indian Trusts Act, 1882, private trusts are governed. Unless the trust is set up for the benefit of a specific individual (e.g. Minor children), it is classified as a private trust, and if it is established for the benefit of the community at large, it is classified as a public trust. Under state laws such as Bombay Trust Act, 1950, or common law, public trusts are covered.
An Indian Succession Act, 1925 governs a trust created through a will or trust deed executed by the settlor.
Creating a trust
- An effective trust deed specifies the trust settlor/author, trustees, beneficiaries, trust property, the purpose of the trust, how it will be managed, and how trustees will be appointed and removed. In addition to the name of the trust, the trust fund, and the address of the trust. Evidently, the trust deed should define the trust in its entire form and meaning.
- It depends on the value of the trust property how much stamp duty will be charged on the trust deed.
- It is necessary to register the trust deed with the Registrar of Trusts.
It is the Society Registration Act of 1860 that governs societies. Society can be defined as an association or company of people united by mutual consent for the purpose of deliberating, determining, and acting together on a common objective [i]. As different definitions suggest, society is a group of individuals who come together to voice out a common intention. All for One, One for all is the motto. The Act specifies the categories of societies to which it will apply, including charitable, scientific, and literary organizations.
A society’s formation[ii]
This document contains:
- The Societies Registration Act, 1860, requires a letter requesting the registration of a society
- An association memorandum, including the proposed governing body and the Desires Persons (founder members), should be signed by seven members in each set. There should (in any case) be at least seven people who are desirable or who are subscribing to the memorandum. A minimum of eight individuals from different states of the Indian Union must sign the memorandum if the society is to have an all-India character.
The society is governed by two sets of Rules & Regulations.
- A statement regarding the name and title of the Society, signed by its president or secretary on non-judicial stamp paper for Rs. 10/-
- Members of the society must provide documentation of their residence
- A NOC from the owner of the proposed office premises on Rs. 10/- non-judicial stamp paper and proof of lawful possession of the premises
- An official copy of the General Meeting’s report regarding the formation of the Society
- The name of the society
- Cash registration fee of Rs. 50/- is to be paid after the above-prescribed procedure has been completed.
In a trust, the settlor through the trust deed provides the entire foundation for the workings of the trust, including the assets, funds, management and rules, trustees, etc. A trust functions relatively smoothly because the trustees are trustworthy individuals appointed by the Settlor. In contrast, in a society, the first people have to lay the foundation for the society to exist, including members, funds, rules and regulations, etc. In short, it can be stated that formation and governance of society are difficult compared to a trust. The society may have difficulty obtaining the minimum of seven members to establish itself because they may be reluctant to contribute to its fund and may wish to have less formalities involved in the formation process.
In many ways, society is similar to a bus full of pilgrims driven by one of the passengers. Arguments may break out over who pays for fuel and repairs, arguments over where and how long to stop at each shrine may break out. Sometimes the driver is impeached. In order to avoid this, most societies limit membership to a minimum and raise funds from outsiders.”
It is irrevocable for a trust to dissolve if the trustees disagree or mismanage the trust, so the Charity Commissioner instead takes over the trust. In contrast, a society can be wound up when 3/5ths of its total members desire so that it brings an abrupt end to the society, even if the trustees have ill-intent. This ensures that the settlor’s intention is not disrupted by the trustees’ ill-intent. In general, trust deed disputes cannot be arbitrated, depending on the arbitration agreement [iv].
The summary is as follows:
- It is best to create trusts for charitable purposes, family or self-interest purposes, such as trusts for minor children, daughters and grandchildren. As a result, you don’t need outside funds to vest family property for the benefit of a particular individual. In India, trusts are widely used to vest family properties for the benefit of a particular individual. Family members can be appointed as trustees. A trust outlines the settlor’s intent concerning what should be done with an asset/property and how.
- Trying to get as close as possible to the meaning of Cypress doctrine. This doctrine is applicable to trusts implying that when on account of negligence on the part of the trustees or due to other unavoidable reasons the trust cannot work, then the trust’s objects can be changed to the next most proximate cause. Consequently, the settlor’s charitable intent is preserved even though it isn’t the same as it was originally intended. It is important to note that when a society dissolves, its specific objective also dissolves. Its funds and property are transferred to another organization with a similar goal.
- Societies are best suited for work that involves equal participation from all of the people and strive to have a democratic system where all members can participate. However, it is advisable to limit and trust the members since then work and decision-making could be delayed. In the same way, trade associations and unions serve to protect the interests of traders, labourers and workers. A society is a group of people whose opinions and grievances are expressed by its governing or executive committee. Another type of society is a society formed by the apartment or house owners in a particular community or residential area. Representatives of these societies or associations take their members’ grievances to builders or various governmental forums, and are also authorized to contest cases filed against them or by them.
In accordance with the Income Tax Act, 1961, trusts and societies are both treated equally.
The conception, management, and structure of a trust and society are often the same to a layman, but they differ in several ways. Trusts are most appropriate when formed to benefit a specific person or the general public, while societies are better suited to serve a particular section of society or a specific group.