Difference between Trust and Society - PowerPoint

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					     Presentation on
     Approach to Setting Up
     an NPO


     02-12-2008




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Agenda   A.   Features of NPO
         B.   Choice of Forms of NPO
         C.   Registration Procedure to form NPO.
         D.   Tax Exemption & Procedure of Registration
         E.   Other Benefits & Specific Approvals
         F.   NPO as a vehicle for CSR




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         Features of NPO



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Features of
              NPOs in India
NPO           A. exist independently of the founding entity;
              B. are self-governed by a board of trustees or managing
                 committee/ governing council, comprising individuals who
                 serve in a fiduciary capacity;
              C. are for the “Charitable Purpose”, and
              D. are ‘non-profit-making’, and are prohibited from distributing
                 profits (if any) to their own members.


              [Section  2(15) of the Income Tax Act defines ‘charitable purpose’ to
              include ‘relief of the poor, education, medical relief and the advancement
              of any other object of general public utility’.]




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         Forms of NPO



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Choice of
Forms of
NPO                 Legal Structures for NPO in India




                                                        Section-25
            Trust                 Society
                                                         Company




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Choice of     Legislation        a) Different states in India have different Trusts
Forms of                            Acts in force, for governing the Trusts.
NPO - Trust                      b) General principles of the Indian Trusts Act
                                    1882 are applied in their absence.
              General Purpose    Public charitable trusts can be established for the
              of Establishment   following purposes:
                                       relief of poverty
                                       education
                                       medical relief
                                       provision of facilities for recreation, and
                                       any other object of general public utility.
              Main Instrument    Main Instrument is Trust Deed; where the objects
                                 and mode of management are enshrined.
              Trustees           A trust needs a minimum of two trustees; there is
                                 no upper limit.
              Management         The management rests with the Board of Trustees.
              Registration of    Trust deed should be registered.
              trust deed


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Choice of   Legislation        Societies are governed by Andhra Pradesh
Forms of                       Societies Registration Act , 2001.
NPO -       General Purpose    Societies are membership organizations that may
            of Establishment   be registered for the following purposes:
Society                              Charitable purpose,
                                     Promotion of Science, Literature, Fine Arts,
                                     Promotion of education and
                                     Public Art Museums and Galleries.
            Main Instrument    The main instrument of any society is the MOA
                               and Rules & Regulations.
            Members            A Society needs a minimum of seven managing
                               committee members; there is no upper limit.
            Management         Society is managed by a Governing Council or a
                               Managing Committee.
            Registration       MOA and Rules & Regulations should be
                               registered with Registrar of Societies.




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Choice of    Legislation        Sec 25 (not for profit) Company are governed by
Forms of                        Indian Companies Act, 1956.
NPO - Sec    General Purpose    A Section-25 company can be established for
             of Establishment   promoting:
25 company                            Commerce,
                                      Art,
                                      Science,
                                      Religion,
                                      Charity or any other useful object
             Main Instrument    The main instrument of a Sec 25 Company is the
                                MOA and AOA.
             Members            A Section-25 Company needs a minimum of three
                                members; there is no upper limit.
             Management         Sec 25 companies are usually managed by Board
                                of Directors/ Managing Committee.
             Registration       License to be obtained from the Regional Director
                                to register a Sec 25 company and MOA & AOA
                                should be registered with Registrar of Companies.


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            Particulars         Trust          Society         Sec-25 Company
Forms of
           Legislation    Indian Trusts   AP Societies         Companies Act,
NPO – A                   Act, 1882       Registration Act ,   1956
                                          2001 .
Summary    Main           Trust Deed      MOA & Rules and MOA & AOA.
           Instrument                     Regulations
           To be          Inspector       Registrar of         Registrar of
           Registered     general of      Societies.           Companies.
           with           Stamps.
           Min. No. of    Two             Seven                Three
           Members
           Management     Board of        Governing            Board of
                          Trustees        Council/ Mgt.        Directors/ Mgt.
                                          Committee            Committee
           Audit          Audit is        Audit is             Audit is
           Requirement    compulsory      compulsory           compulsory
                          only under      under Societies      under the
                          the IT Act.     Act and also the     Companies Act
                                          IT Act.              and also IT Act.


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               Particulars
Alternatives                   Trust        Society               Sec 25 Company
               Registration    Simple to It is simple, but Complex
to set up an   Process         register  not as simple as
                                         trust
NPO…1          Management      Mgt.      by Mgt. may be Mgt.           may  be
                               Board     of distinct from its distinct from its
                               Trustees.    members.          members.
               Borrowing       Only from Only from          its From       members
                               the Author Members               and also from
                                                                Banks         and
                                                                Institutions.
               Voting Rights   Not          Equal     Voting Voting rights are
                               Applicable   Rights  to    all proportionate to
                                            members           the share capital
               Capacity to Suits can be     Suits by or against   Suits    by   and
               sue/be sued instigated       a society should      against       the
                           by         or    be filed in the       company can be
                           against the      name      of   the    instigated against
                           trustees.        president             the company



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Alternatives
               a) Trust is the simplest of the three forms, but is too rigid as a
to set up an      legal structure for management as it places onerous
                  responsibility on the trustee(s) as to governance.
NPO…2
               b) Society is more flexible than trust, but does not provide
                  much independence to its governing body in the context of
                  decision making.
               c) A Sec 25 company offers more independence to its governing
                  body, has more credibility, but is complex.


               The following alternatives are available to set up a NPO.
                   i. Set up a trust initially and convert it to sec 25 company
                       later.
                   ii. Incorporate Sec 25 company.




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         Registration Procedure
          Sec 25 Company
          Charitable Trust




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Registration
               a) An association of members can apply for grant of license
of Sec 25         under Section-25 of the Indian Companies Act 1956.
Company..1     b) A Sec 25 company can be incorporated as a Private or Public
                  Limited company.
               c) It is exempted from having the suffix of “Limited” or “Private
                  Limited” in its name.
               d) There is no requirement of minimum paid up capital.
               e) Any person (including partnership firm in its own capacity)
                  can become a member of Sec 25 Company.




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Registration
               f) An association desirous of getting the status of Sec 25
of Sec 25         Company …
Company..2         i. have to obtain license from the Regional Director
                   ii. after obtaining license, the proposed company has to be
                       incorporated with the ROC.
               g) For the purpose of getting license, the association need to
                  make an application to the Regional Director (RD) of Ministry
                  of Corporate Affairs in e-form 24A.
               h) Once license is granted, changes can be made to MoA & AoA,
                  only with the prior approval of the RD.
               i) The license granted can be revoked by the RD at any time on
                  grounds of non compliance with objectives of company or
                  contravention of the act.




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Registration
               Generally, the following documents are annexed to the
of Sec 25      application :
                  
Company..3            3 copies of Memorandum of Association
                     3 copies of Articles of Association
                     Declaration as per annexure V of the Companies
                      Regulation Act, 1956.
                     Declaration by prescribed person, that MOA and AOA
                      confirms to the provisions of the Companies Act.
                     3 copies of details of the promoters and proposed
                      directors of the company.
                     A list of names, addresses, descriptions and occupations
                      of its directors, managers or secretary.
                     Also a list of other associations or companies in which
                      they hold above positions.
                     Statements of grounds on which the application is made.




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Registration
               a) The application for registration should be made to the official
of                having jurisdiction over the region in which the trust is
                  sought to be registered.
Charitable
               b) The applicant has to affix a court fee stamp to the form and
Trust..1          pay a very nominal registration fee which may range
                  depending on the value of the trust property.
               c) Form should be signed by the applicant before the regional
                  officer or superintendent of the regional office of the charity
                  commissioner or a notary.
               d) Form should be submitted, together with a copy of the trust
                  deed.
               e) Affidavit and consent letter should also be submitted




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         Tax Exemption & Tax
         Registration Procedure



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Tax Impact                                      Tax Impact
on
participants
of NPO                      NPO                                      Donor


                   Donations are classified into:
               • General Donations                               Donations are
               • Specific Donations                              eligible for
                                                                 exemption
               General Donations are in the nature of            under 80G &
               income and are exempt subject to                  Sec 35(1)(ii)
               conditions of Sec 11.
               Specific Donations are exempt.

               Income of the NPO is exempt subject
               to conditions U/s 11.


               The legal structure of NPO is immaterial for availing the benefits
               under Income Tax Act, 1961.


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Eligibility   Conditions to claim exemption u/s 11:

for Tax       Registration         The trust must be registered         with   the
Exemption                          Commissioner of Income-Tax.
              Activities           The activities of the charitable trust should be
                                   confined within India.
              Application of       Not less than 85% of such income shall be
              Income               applied for charitable purposes within the same
                                   financial year. It can be accumulated for a
                                   period of 5 years.
              Audit                If the total income before claiming exemption
                                   exceeds Rs.1,10,000, the accounts should be
                                   audited.
              Investments          Unapplied income should be invested in
                                   specified deposits. Corpus donations are not
                                   considered as income but as capital receipt.
              Agricultural         Will not form part of the Total Income for the
              Income               purpose of computing the application of 85% as
                                   laid down u/s 11.

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Registration   Conditions for registration of a Charitable Trust U/s 12 A:

of NPO         Application            Application should be made in the prescribed
Under IT                              Form 10A.

Act            Time Limit             Application to be submitted within one year
                                      from the date of creation of trust.
               Prerequisite           Such trust must be registered with IT
               condition              commissioner as per the procedure U/s 12 AA.
               Audit                  If the total income before claiming exemption
                                      exceeds Rs.1,10,000, Audit Report should be
                                      filed in the prescribed Form 10B.
               Effective date of      Income of the Trust shall be exempt from the
               exemption              assessment year immediately following the
                                      financial year in which such application is made.




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Donor      The following are the benefits available to Donor:

Benefits   General deduction     The contribution made by the donors shall be
                                 allowed as deduction under 80G while
                                 computing income under IT Act.
           Limit of deduction    Deduction available under 80G is to the extent of
                                 100% / 50% of donation, subject to a maximum
                                 of “10% of Adjusted Total Income” of the donor.
           Contribution to 100% of Donations made to any institute carrying
           trust for R&D R&D activity shall be exempt U/s 35 (1)(ii).
           activity




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     Other Benefits & Specific
            Approvals



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Other      The following benefits are available to the NPO irrespective of its
Benefits   legal structure:
           a) Imports for relief work and in the distribution of relief supplies
               to the needy are 100% exempt from customs duty.
           b) Exemption from customs duty for scientific/technical
              equipment and components intended for research institutes.
           c) Recognition by apex        bodies in education and scientific
              research.
           d) Recognition by Income Tax Department for granting exemption
              U/s 12A.




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             In addition to registration, a non-profit organisation engaged in
Specific     certain activities might also require special license/permission.
Approvals.   Some of these include (but are not limited to):
                                                     Special License/Permission
             A place of work in a restricted   Ministry of Home Affairs or by the
             area                              relevant local authority
             To open an office and employ      The Shop and Establishment Act
             people
             To employ foreign staff           FCRA registration and also obtain a
                                               No objection Certificate. The
                                               intended employee also needs a
                                               work visa.
             A foreign NPO to set up office    The RBI
             in India
             Foreign contributions to NPOs     are governed by FC(R)A regulations
                                               and the Home Ministry.




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     NPO as a vehicle for CSR



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NPO as CSR   a) Corporate Social Responsibility (CSR) agenda of a corporation is
Tool            reflective of its social conscience and commitments to the
                community and society at large within which it operates.
             b) More and more Companies have increasingly realized that it is
                an investment with multiple benefits for the corporate sector.
             c) A NPO can be used as a tool to fulfill CSR of a corporate as the
                objectives of NPO are similar to CSR.




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            Name of the        Founding               Activity Focus
Examples    CSR arm          Corporate/(s)
of CSR      Dr. Reddy’s   Dr.         Reddy’s • Upliftment of economically
            Foundation    Laboratories Ltd.     backward youth.
Arms of                                       • School Community
Corporate                                       Partnership for focusing on
                                                quality education.
            Satyam        Satyam Computer • Health care
            Foundation    Services Ltd.   • Supporting education
                                            through adopting schools.
                                              • Environment protection
                                              • Empowering Persons with
                                                Disability
            Infosys       Infosys             • Health care
            Foundation    Technologies Ltd.   • Rural Upliftment & Social
                                                Rehabilitation.
                                              • Learning & education
                                              • Upliftment of
                                                underprivileged artists.

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            Name of the         Founding                Activity Focus
Examples    CSR arm           Corporate/(s)
of CSR      Aditya Birla   Aditya Birla Centre • Sustainable development
            Group          for Community         and      livelihood   and
Arms of                    Initiatives and Rural agriculture and watershed
                           Development           development
Corporate
                                                • Health and family welfare
                                                • Infrastructure development
            Biocon         Biocon Ltd.          • Providing              Quality
            Foundation                            Healthcare    and      Health
                                                  education.
            Bharti         Bharti Airtel Ltd.   • Helping    underprivileged
            Foundation                            children and young people
                                                  of our country realize their
                                                  potential
            GMR            GMR Industries Ltd   • Collaborates with the Govt.
            Varalakshmi                           in promoting quality of
            Foundation                            pre-school and school
                                                  education.



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         Discussion Floor



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