A trust is a legal arrangement in which one party (the settlor or author of the trust) transfers assets to another party (the trustee) to hold and manage for the benefit of a third party (the beneficiary). Trusts are often created for charitable, religious, or private purposes and can be either public or private.
- Legal Structure
- Parties Involved
- Types of Trusts
- Trust Deed
Key Features of a Trust
Legal Structure: A trust is not a legal entity like a company but a legal relationship created by the trust deed.
Parties Involved: The trust involves three key parties—the settlor (who creates the trust), the trustee (who manages the trust), and the beneficiary (who benefits from the trust).
Types of Trusts: Trusts can be public (charitable trusts) or private (family trusts). Public trusts are set up for charitable purposes, while private trusts are set up for specific individuals or families.
Trust Deed: The trust deed is a legal document that outlines the terms and conditions of the trust, including the purpose, the assets involved, and the duties of the trustee.
- Advantages of Forming a Trust
Asset Protection: Trusts provide a way to protect assets from creditors, legal disputes, or mismanagement.
Tax Benefits: Trusts, particularly charitable trusts, may be eligible for tax exemptions under various sections of the Income Tax Act.
Continuity: A trust can continue to operate even after the death of the settlor, ensuring long-term asset management and benefit to the beneficiaries.
Flexibility: Trusts can be tailored to meet specific needs, such as providing for minor children, supporting charitable causes, or managing family wealth.
Privacy: Trusts generally offer greater privacy compared to other legal entities, as they do not require public disclosure of assets or beneficiaries.
Eligibility Criteria for Sec 8 Company Registration
- An Individual or HUF or limited Company is eligible to start a Section 8 company registration in India
- Two or more persons who will act as a shareholder or Director of the company should fulfil all the requirements and compliances of the Section 8 Company registration
- At least one of the directors shall be a resident of India. However, a firm may be a member of the company registered under this section
- The objective should be the promotion of sports, social welfare, the advancement of science and art, education and financial assistance to lower income groups
- The surplus generated must be used for meeting the principal objective of the section 8 company registration
- Founders, members, and directors of the company cannot draw any remuneration
- There should be no direct or indirect distribution of profits to the company’s directors and members
- The business should have a defined three-year project plan and vision.
Parties involved in the Trust Registration Process
The trust registration process involves the following parties:
Trustor:
The trustor is the person who establishes the trust. They are typically the owner of the assets or property being placed in the trust.
Trustee:
The trustee is an individual or entity entrusted with the responsibility of managing and overseeing the trust. They hold and administer the trust property on behalf of the trustor and for the benefit of the beneficiary.
Beneficiary:
The beneficiary is the person for whom the trust is created. They are the intended recipient of the benefits, assets, or property held within the trust. The beneficiary can be a third party, known to both the trustor and trustee, and they are entitled to receive the benefits according to the terms and conditions of the trust.
Mandatory legal requirements for Section 8 Company
The following are the mandatory legal requirements for a Section 8 Company in India:
- Memorandum of Association (MOA): The MOA is a legal document that outlines the constitution of the company. It must contain the following information:
The name of the company - The registered office of the company
- The objects of the company
- The liability of the members of the company
- The association of the members
Articles of Association (AOA): The AOA is a legal document that governs the internal management of the company. It must contain the following information:
- The rights and duties of the members of the company
- The powers of the directors of the company
- The procedures for holding meetings and passing resolutions
- The procedures for winding up the company
Digital Signature Certificate (DSC): A DSC is a digital signature that is used to authenticate electronic documents. All directors of a Section 8 Company must have a DSC.
Types of Trusts
Trusts can be classified into various categories based on the activities they undertake. You need to understand these types to navigate how to register a trust in India. Here are the different types of trusts:
- Private Trust
- Public Trust
- Public Cum-Private Trust
Private Limited Trusts
Private Limited Trusts are established to carry out activities for specific individuals, families, or close associates. These trusts can have beneficiaries closely related to the trust’s founders. Private limited trusts are governed by The Trusts Act of 1882.
Public Limited Trusts
Public limited trusts are typically created to benefit the general public. They are often established for charitable, educational, and religious purposes and are governed by specific statutes such as the Religious Endowments Act of 1863, the Charitable and Religious Trust Act of 1920, or the Bombay Public Trust Act of 1950. Charitable and religious trusts are the most common types of public trusts in India.
Public Cum-Private Trust
This type of trust serves both public and private purposes. It can utilize its income for the benefit of the public and specific individuals or families. The beneficiaries of a public cum-private trust can be a combination of public and private individuals.
Requirements for Sec 8 Companies Registration Online
For Section 8 Company Registration procedure, the following criteria must be fulfilled:
- Governed By: Companies Act, 2013
- Members: Minimum of 2 Directors/Shareholders
- Important Documents: MoA, AoA and financial statements
- Board: Directors
- Property Management: All the properties belonging to a company are vested in the name of the company. These can be sold in conformity to the provisions mentioned in the Companies Act, 2013. The Act says the sale can be done with prior consent of the Company Board of Directors, when they pass a resolution regarding the same.
- Closure or Winding up of a company: The property and funds of the society, upon its dissolution ( as per the society by-laws) and settlement of all liabilities & debts, may not be equally distributed among the company members. Rather, the same can be transferred or given to some other company, preferably with similar objects.
- Annual Compliance: The company must ensure its annual compliance by filing its annual returns and annual accounts with the RoC.
Documents required:
- Trust Deed with the respective stamp value.
- Two photographs of the parties involved in the trust.
- PAN cards of the individuals associated with the trust.
- Address proof of the individuals.
- Identity proof of the individuals.
- Authentication from the partners (if applicable).
- No Objection Certificate for using the premises (if applicable).
- Any form of a utility bill as proof of address.
- Address proof of the trust registered office.
- 12A Registration and 80G Certificates from the respective income tax authorities to claim deductions (if applicable).
Section 8 Company Registration Process
Step 1: Obtaining a Digital Signature Certificate (DSC)
- All proposed directors must acquire a Class 2 or Class 3 DSC for digital signing of incorporation documents.
- DSCs can be obtained from authorized certifying agencies.
Step 2: Applying for Name Approval
- Use the RUN (Reserve Unique Name) form on the MCA (Ministry of Corporate Affairs) portal to check and reserve a unique, available name.
- Names should generally include words like Foundation, Association, or Institution to indicate non-profit status.
Step 3: Applying for License under Section 8
- File Form INC-12 with the Registrar of Companies (ROC), along with:
- Draft MOA (Memorandum of Association)
- Draft AOA (Articles of Association)
- Declaration by subscribers and directors
- Proof of address
- Other relevant documents
- Upon approval, the ROC issues a license under Section 8 in Form INC-16.
Step 4: Filing SPICe+ Form for Incorporation
- Complete and submit the SPICe+ form (INC-32) on the MCA portal, attaching:
- Licensed INC-16
- Approved MOA and AOA
- Director Identification Numbers (DINs) of directors
- PAN card, Aadhaar card, and photographs of directors and subscribers
- Proof of registered office address
- Other required documents
Step 5: Incorporation Certificate
- Upon successful verification, the Certificate of Incorporation is issued by the ROC, marking the company’s legal existence.
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FAQ'S
Frequently Asked Questions
A trust is a legal arrangement in which one party, known as the settlor, transfers property or assets to a trustee, who manages those assets on behalf of beneficiaries. The trust is governed by a Trust Deed, which outlines the terms and conditions of the trust, including the duties of the trustee and the rights of the beneficiaries. Trusts are commonly used for estate planning, charitable purposes, and managing assets for individuals who are unable to manage their own affairs.
Registering a trust provides several key benefits:
- Legal Recognition: Confers formal legal status upon the trust, allowing it to own property, enter into contracts, and engage in legal actions.
- Tax Benefits: Enables the trust to potentially benefit from tax exemptions or deductions, depending on the jurisdiction and the trust’s purpose.
- Credibility: Enhances the trust’s credibility with financial institutions, donors, and beneficiaries.
- Protection of Assets: Ensures that the assets are managed and distributed according to the terms set forth in the Trust Deed.
The process of registering a trust generally involves:
- Drafting the Trust Deed: Prepare a comprehensive Trust Deed that outlines the trust’s objectives, the roles of trustees, and the rights of beneficiaries.
- Applying for Registration: Submit the Trust Deed along with required documents to the relevant registration authority, such as the local charity commission or registrar.
- Verification: The registration authority reviews the application and the Trust Deed for compliance with legal requirements.
- Issuance of Registration Certificate: Upon approval, the authority issues a certificate of registration, formally recognizing the trust.
Essential documents for trust registration typically include:
- Trust Deed: A detailed document specifying the trust’s purpose, trustee roles, and beneficiary rights.
- Identity Proof: Identification documents such as PAN card, Aadhar card, or passport of the settlor and trustees.
- Address Proof: Proof of the registered office address of the trust, such as utility bills or property documents.
- Photographs: Recent passport-sized photographs of the settlor and trustees.
A well-drafted Trust Deed should include:
- Name and Address of the Trust: The official name and address where the trust will be administered.
- Settlor’s Details: Information about the individual or entity creating the trust.
- Trustee’s Details: Names and responsibilities of the trustees.
- Beneficiaries: Names and details of the beneficiaries who will benefit from the trust.
- Trust Objectives: Clear description of the trust’s purposes and goals.
- Asset Management: Guidelines on how the assets will be managed and distributed.
- Amendment Procedures: How changes to the Trust Deed can be made.
Dissolution Terms: Conditions under which the trust can be dissolved.
Registering a trust offers several advantages:
- Legal Framework: Provides a clear legal structure for managing and distributing assets.
- Tax Advantages: Potential eligibility for tax exemptions or deductions based on the trust’s purpose.
- Increased Trustworthiness: Enhances the trust’s reputation with donors, beneficiaries, and financial institutions.
Asset Protection: Safeguards assets and ensures they are used according to the settlor’s intentions
Trustees can be individuals or legal entities who are capable of managing the trust’s assets and fulfilling the responsibilities outlined in the Trust Deed. Trustees must act in the best interests of the beneficiaries and adhere to the terms of the Trust Deed. Typically, trustees should be trustworthy, financially knowledgeable, and able to handle the administrative duties required by the trust.
Compliance requirements for a registered trust generally include:
- Annual Filing: Submitting annual reports and financial statements to the relevant authorities.
- Maintaining Records: Keeping detailed records of trust activities, meetings, and financial transactions.
- Tax Compliance: Filing income tax returns and adhering to tax laws, including any applicable exemptions or deductions.
- Operational Adherence: Ensuring that the trust operates according to the terms set out in the Trust Deed.
Yes, a trust can be dissolved under certain conditions. The dissolution process typically involves:
- Reviewing the Trust Deed: Ensure that the dissolution terms are outlined in the Trust Deed.
- Settling Liabilities: Paying off any outstanding debts and obligations.
- Distributing Assets: Distributing remaining assets according to the Trust Deed or as directed by the relevant authorities.
- Notifying Authorities: Informing the registration authority and completing any required legal formalities.
Yes, a trust can be converted into another type of entity, such as a Society or a Company, by following the legal procedures for conversion. This process involves:
- Assessing Legal Requirements: Understanding the requirements for the new entity type.
- Drafting New Documents: Creating new governing documents (e.g., Memorandum of Association for a Company) and transferring assets and liabilities.
- Filing for Conversion: Submitting the necessary applications and documents to the relevant authorities.
- Obtaining Approvals: Securing approvals from regulatory bodies and completing the conversion process.