What are the Trusts?
Individuals form trusts for setting a particular part of the assets or the property for the benefit of another person. A Trust is formed as a benefit for another individual. It is more of a fiduciary relationship between the trustor, the trustee, and the beneficiary.
A specific asset or a property transferred from the trustor to the trustee for the future benefit of the beneficiary is known as trust. The beneficiary is another party (third-party) who may be related to the trustor and trustee.
Hence, the relationship that brings the parties to trust is crucial to define trust. Under the Indian Trusts Act, 1882, the meaning of trusts has been provided as a relationship that persists between the trustor and trustee to hold some specific benefit for the beneficiary.
Parties in a Trust
- Trustor- The trustor is the person who creates the trust. The trustor is usually the owner of the trust.
- Trustee- The Trustee is an individual that holds the trust property which is given by the trustor.
- Beneficiary- The beneficiary is an individual for whom the trust is created. The beneficiary is a third party who may be known to the trustor and trustee.
Types of Trusts
Trusts are divided into different categories based on the activities carried out by a particular trust. The following are the trusts:
A society is formed mainly for the promotion of science, arts, commerce. All the activities conducted by society are non-commercial. Therefore activities conducted by society are for non-profit purposes. Societies are regulated under The Societies Registration Act, 1860. Societies, through having similar activities from trusts, have to be differentiated from trusts.
Private Limited Trusts
Private Limited Trusts are formed for conducting activities for the individuals, family, or close ones. This can include close individuals who form the beneficiaries of private trust. The Trusts Act, 1882, governs private limited trusts.
Public Limited Trusts
Public limited trusts are typically formed where the beneficiaries include the public at large. Usually, public trust will be established for charitable, educational, and religious purposes. In India, the most common public trusts are charitable and religious trusts.
A Company formed under Section 8 of the Companies Act (2013)
Private limited companies can be under section 8 of the companies act. However, these companies cannot carry out businesses to make profits. Companies formed under this have the objectives of promoting education, crafts, science, arts, sustainability development, and environmental activities.
Why Trust Registration Process is Required
Trusts are formed for the sole purpose of promoting non-commercial activities. These activities have to be in the field, promoting development in the field of arts, science, education, and the environment. Therefore registering a trust is crucial. The following benefits are obtained from registering a trust in India.
- To ensure that the activity conducted on behalf of the trust is regulated properly.
- To develop and promote activities leading to a better society.
- Trust registration is required to claim income tax benefits under 12A and 80 G.
- In the case of public trust, beneficiaries are the general public. Every trust must act in the best interests of the public to promote the development of trust.
- This license is required so that the businesses of trust are conducted as per the law.
- To develop various sectors in society.
Who regulates Trust Registration?
The primary regulatory Authority for trust registration is the Registrar of Trusts. The registrar of trusts maintains all the information on the trusts which have been registered in India. The Trusts Act, 1882 govern registrations of Private Trusts.
Any act does not govern Public Trust registration. Trusts registered in different states have separate state acts which the applicant has to be aware of. Registering trusts in Bombay would come under the jurisdiction of the Bombay Public Trust Act. Public trusts in India require to be registered with the respective state authority (if required).
The following laws regulate trusts:
- Trusts Act, 1882
- Income Tax Act, 1961
- Societies Registration Act, 1860.
Eligibility Criteria for Trust Registration
The following criteria would apply to trust registration:
- There must be at least two or more persons for forming the trusts.
- The trust must be formed according to the provisions of the Indian Trusts Act, 1882.
- The parties must not be disqualified under any law in force in India.
- The objectives of the trust must not go against any law in force in India.
- Practices that are conducted by the trustee must be fair.
- The formation of the trust must not go against public interest or any other law in force.
- Any trust activities must not injure any person.
- The activities conducted by the trust must not go according to the memorandum.
- Trust Deed must be properly drafted and intend the real interests of the parties forming the trust.
- If there are more than two purposes of creating the trust, then both the purposes must be valid. If one object is valid and another object is invalid, then the trust cannot be formed.
Procedure for Applying for Trust Registration
Application for Trust Registration:
Name of the Trust- The parties of the trust must choose the name of the trust first. The name of the trust must not go against the provisions of any act such as Trademarks, Copyrights Act, and Intellectual Property Rights Act. Additionally, the name of the trust must not go against the Emblems and Names Act, 1950.
Settlers of the Trust- The parties must decide the settlers of the trust. Apart from this, there is no amount of limit on the number of trustees that have to be considered. There has to be a minimum of two trustees for the formation of the trust. However, the author cannot be a trustee of the trust. Another requirement is that the trustee has to be a resident of India.
Form Memorandum of Association for the Trust- Memorandum of Association of the company is a document which states the objects which the trust is formed for. Similarly, the trust has a respective memorandum of association (MOA). This includes the objects of the trust what the trust is formed for. Only legal objects are required to be carried out by the trust.
Draft the Trust Deed- A trust deed is considered as a legitimate document for forming the trust. The trust deed must be produced to the companies' registrar when the trust is formed between the parties. While drafting the trust deed, the following have to be kept in mind:
- Trust name.
- Where the trust has its registered office or place of business.
- Which activities are carried out by the trust?
- What are the objectives of the trust? Whether they fall in place with the legitimate objects of the business.
- Information related to the authors/ trustors and trustees.
- What are the net assets owned by the trust? Is there any other assets owned by the trust.
- Information related to the board of directors of the trust. Any other information on the shareholders and directors of the trust.
- Qualifications, the quorum of the board, and other information regarding the trust.
- Duties and responsibilities of the board of directors, managers, and other members of the trust.
- Powers and Functions of the Managing Trustees and other members of the trust.
- Any other information about the trust and the amendment of the trust.
Submit the deed to the Registrar- Once the deed is drafted, it must be submitted to the registrar. The following parties will be involved in drafting the deed. The author, the trustee, and the beneficiary. All the terms and conditions related to the deed would be mentioned in the trust deed.
The trust deed operates something like articles of association in a company. The trust deed contains all the bye-laws and other relevant information regarding the trust.The trust deed must be on a stamp paper under the provisions of law. The amount which has to be paid on the stamp paper must be according to the property value. The following fee has to be paid to the sub-registrar:
- Rs 100 - This fee has to be submitted as a registration fee for the trust.
- Rs 1000 – This fee has to be paid to the sub-registrar for keeping a copy of the registration certificate with the registrar.
- The parties have to submit any other fee which is requested by the Sub-registrar.
Obtain Certificate of Trust Registration - On viewing all the documents, if the registrar is satisfied that the documents are in good order, then the trust will be registered. The registrar will provide the trust registration certificate. This trust registration certificate has to be kept with the trustee and the trustor. After this is completed, the respective bank account can be opened.
Documents required for Trust Registration
The following documents are required for trust registration:
- Trust Deed with the respective stamp value.
- Two Photographs of the parties in the trust.
- PAN Card of the individuals having trust.
- Address Proof of the Individuals.
- Identity Proof of the Individuals.
- Authentication from the Partners.
- No Objection Certificate for using the Premises.
- Any form of Utility Bill.
- Address Proof of the Registered Office of the Trust.
- 12A and 80 G Certificate from the respective income tax authorities to claim any form of deductions.
How can Enterslice help in securing Trust registration
- We file the application form on your behalf to get the Trust Registration License.
- We will also help you securing approval for the license from the Authority.
- We monitor and track the status of the application on behalf of the client.
- We value your time and money.
- We also offer post compliance services for Trust Business.