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April 3, 2020

Steps for Registration of Public Charitable Trust and important clauses in Trust Deed

by facelesscompliance in Compliance Law, Corporate Law

Steps for Registration of Public Charitable Trust and important clauses in Trust Deed as per Bombay Trust Act 1950

Introduction

A Public trust is an agreement between a group of individuals to manage a property jointly over which they have ownership and control for the benefit of another person called the beneficiaries or for any other charitable purpose. It is created with a written document called the Trust Deed. These groups of individuals who manage the property of the trust for the benefit of the beneficiary are called the trustees.

Who is an author, trustee and beneficiary?

It further requires an author / a settlor who is the founder and the trustee who are the body of the trust. The parties to a trust are the author of the trust, trustee and the beneficiary of the trust.  The person who reposes or declares the confidence is called the author of the trust (i.e. the person who sets up the trust), the person who accepts the confidence is called the trustee and the person for whose benefit the confidence is so accepted is called the beneficiary. 

Who can form the Public Trust?

The formation of a trust can be done by every person who is competent to make a contract and to deal with property. Person here also means and includes a body of individuals or an artificial person such as association of persons, an institution, a limited company, a Hindu undivided family through its Karta.

What property a Trust can own?

The property of the trust can be movable or immovable property and also include intellectual property rights. A trust is an obligation annexed, attached or added to the ownership of property and arising out of a confidence reposed in and accepted by the owner for the benefit of the another, or of another and the owner. The trust property or trust money is the subject matter of the trust.

For the purpose of proper administration the trust property is always vested with the trustees. The trust and the trustees together have the legal ownership of the trust but the interest is restricted to the extent of proper administration of the properties in the favor and interest of the trust

What is the purpose and types of Trust?

Inspite the formation of an organization as a trust being simple and less complicated the statutory compliance or procedures and laws seem to be complicated.  To form a trust firstly one should have an intention to create a trust, there must be a certainty of the objects and beneficiaries of a trust and also the subject matter of the trust should be certain i.e., the trust deed must be clear on the terms of settlement of the property and funds of the trust. 

Trusts are broadly classified under two heads viz: the private trust and the public trust. Depending on the type of trust they are further classified for the purpose of maintaining records under the Bombay Public Trust Act 1950 as follows, 1) Hindu religious trust, 2) Christian trust, 3) Muslim trust, 4) Parsi Trust, 5) Trust registered on the basis of trust deed and 6) Societies converted into trust.

Acts, Rules governing registration and other factors of Trust in accordance with the Bombay Public Trust Act 1950

In case of public trust the registration of trust is  mandatory in accordance to section 18 sub clause 1 of the Bombay Public Trust Act 1950, the trustee of a public trust to which the act applies is duty bound to make an application for registration of a public trust. The details of making application are stated in section 18 of the Bombay Public Trust Act 1950. Registering a trust proves to be beneficial as trust once registered acquires a legal entity i.e. it enjoys a separate legal status and is governed by the provision mentioned in the Bombay Public Trust Act 1950. The deputy or the assistant charity commissioner of the region being the custodian of that trust has the entire supervision and control of that registered trust. The competent parties are to provide the income and expenditure of the trust in a proper manner as prescribed regulated with the annual audit.

The formation of a valid trust requires various ingredients like it is necessary that a trust must have an author, there must be a trustee, the requirement of a beneficiary or beneficiaries is also mandatory. The trust property must be clear & precise. There must be specific object or purpose of the trust.  The author is a person who keeps aside or sets aside certain property so as to benefit the beneficiary or beneficiaries.  The trustees are the persons who manage or take care of this property for the interest and benefit of the beneficiaries as mentioned and stated in the trust deed. The author may or may not become a trustee himself.

To form and register a trust minimum two trustees are required. However, the maximum number of trustees can be decided accordingly but is to be mentioned in the trust deed. All these trustees are collectively called as the board of trustee who govern and manage the trust.  Preparation of a trust deed is mandatory. The trust deed must contain the name of the trust ,the settlor (author) and trustees, address of the trust ,the author and trustees, address of the registered office, objects of the trust (whether charitable or religious), minimum & maximum number of trustees, rules and regulations of the trust, property of the trust.

Perpetual Existences

A trust once created and formed is created for ever. In other words a trust has perpetual existence. In case the subject matter of the trust is totally liquidated it shall cease to exist. Once it gains legitimacy revocation of trust cannot be done.  Security and stability of the existence of a trust is assured with the registration of the trust. The powers and destiny lies in the trust deed and the trustee are only authorized to make any implication as may be necessary.

Rules and Regulations

The management of the trust does not have any specific guidelines laid but it is advisable that the trust deed should be specific regarding the rules and regulations in concern to the quorum of meeting, adoption of any resolutions, delegations of function, the holding  and chairman of meeting, sources of income including grant receipt, modes of investments, fixing the accountability, audit and other legal formalities, opening and operation of bank accounts, modes of application of funds so as to attain the objectives, prohibition on use of funds and treatment and utilization of funds in event of winding up etc.

In accordance with the provisions laid in the trust deed the bank accounts can be opened in the name of the trust. The trust deed should thereby, have proper and specific clauses drafted for the opening and operation of bank account. The funds should be used for charitable purpose only.  If the trust requires any staff they can employ the staff in the similar way as in accordance with any other Indian organization.

Benefits of Trust formation

The other benefits of trust are, it is a simple process,  the maintenance of record and regulations are quiet easy and less complex, less interference by the regulators, as nature of trust being for charitable purpose it enjoys tax benefit as well.

It is always beneficial to register the Trust Deed. Without registration of the trust deed it would not be possible to get registration under Income Tax Act and Foreign Contribution Regulation Act (FCRA). The trust deed is to be prepared on a stamp paper of requisite value. The trust deed is than to be registered with the local registrar under the Indian Trust Act 1882.

Tax Benefit- Income acquired from trust proves to be beneficial to gain exemption from tax. A certificate from the Income tax department is required to avail the benefit. This certification of 12AA can be availed once the trust is registered.  Donations done to a trust also is beneficial to acquire tax exemption and benefit under section 80G.  But to avail these benefits the purpose and activities should necessarily be of charitable purpose and in accordance to the income tax laws prevailing for trust matters.

Step wise online process for new Trust Registration:

  1. Go to Charity Commissioner Site-  https://charity.maharashtra.gov.in/en-us/
  • Select New User- Register Citizen- Fill in the Details- Enter User Name and Password of your choice in the form and fill the form
  • Login with entered User name and Password.
  • Select Register Trust- PTR Office- Select Greater Mumbai Region Trust Details
  • Enter the Trust name you wish and click on Name Availability and check name availability ,If available or is already existing. If it’s available you can proceed with the name else the name has to be changed.
  • Enter Trustee Details ( All Trustees)
  • Scan Photo in jpg Format and other relevant details- Add all Trustees
  • Select Mode of Succession- as applicable
  • Minimum No of Trustees- as applicable
  • Maximum No of Trustees- as applicable
  • Tenure- as applicable
  • Object- Select accordingly
  • Particular of Documents- Trust Select- Creating Trust Deed
  • If check list does not have relevant objects mentioned in trust deed we can enter it manually in a box given below.
  • Enter Details of Movable and Immovable Property as relevant
  • Income Details- Source- as applicable
  • Gross Annual Income- Approximate amount
  • Expenditure- Approximate amount
  • Communication Address of Trust

List of Mandatory Documents to be uploaded for new Trust Registration:

  1. Consent letter of Trust
  2. Documents creating Trust- Trust deed to be attached
  3. Address Proof of all Trustees- Add and Merge all Trustees Aadhar card
  4. Identity Proof of all Trustees- Add and Merge all Trustees Aadhar card
  5. NOC of Trust Office Address- NOC Letter if rented
  6. Trust Office Address Proof- ( Electricity Bill / Agreement)
  7. Vakalatnama- If Required

Payment Details- Online Rs 3 Payment- Click on Submit- Direct to payment gateway make payment

Download Print and Submit to Charity Commissioner with physical copies of all the attached Documents

Important point to be considered while Drafting of Trust Deed

  • To begin with the flow of the Trust deed starts with the Date and place where the deed was made followed by the Trustee Details (this may include Name, Age, Occupation and Address  of the Settlor and Trustees).
  • After which the clause of the settlors contribution will appear in details. It is to be noted that you may cover the “Irrecoverable Clause” here or separately further in the trust deed. This clause is important and should state that,  “ it is expressly provided & agreed that the trusts created by this Deed of Trust by settler is irrevocable. The trust is irrevocable”.
  • After which the Name of the Trust is to be stated, followed by its registered address and if there is any alternative address the same may be mentioned.
  • Further, the property clause will be inserted, here it is to be noted that this clause specifically mentions that, “The funds/ property of the trust will be used only for the objectives of the Trust.” This clause is followed by the vesting of the trust property.
  • The most important clause is inserted after the above clause is the “Object Clause”- This should emphasis on all the relevant activities of the Trust. Some important points to be noted here are,
  1. Mention only relevant objects which the trust intents to perform
  2. Avoid making the objects lengthy or inserting unnecessary clauses
  3. Do not mention any clause which seems or may seem to be of a commercial nature.
  4. Ensure that you do not draft any clause which is only for a specific community, caste, race, creed or religion.
  5. Mention a clause specifically stating that the objects of the clause are for the general public at large and are irrespective of specific community, caste, race, creed or religion
  6. Keep the object clause short and to the point to avoid objection for acquiring 12AA or 80G certification
  •  This clause is followed by the Number of trustee, after which the clause of Managing trustee, Mode of succession of trusteeship, Qualification of trustees, Disqualification of trustees, First Board of trustees, Consent of the trustees to act and their power, Application of income tax act, Ordinary and special meetings, Notice of meeting of trustees, Quorum, Resolution by majority, Circular, Minutes book, The payment of management, Repairs to the property, Accounting year and accounts of the trust,  Bank accounts and their branches, Investment, Power to sale- mortgage- borrow etc., Register of movable and immovable property, Receiving of donations, Source of income, Power to appoint committees, Power to appoint employees, Liabilities of the trustees, Reimbursement of trustees, Power to frame rules, Utilization of profits, Area of operations, Amendment clause, Beneficiaries clause, reference to charity commissioner and winding up clause are to be considered. 

As per recent objection notices received it has been observed that appropriate drafting of  the trust deed plays a vital role to avoid objections and acquire certification under section 12AA and 80G. The above mentioned points and clause will help you to draft an appropriate Trust Deed so as to avoid objections and get certification with ease.