April 26, 2011

Difference between Foundation and Trust


F.1: The registration of the foundation is done under the companies Act. It gets the status of independent legal person. Due to this, the foundation can purchase and hold assets of any kind and can enter into any agreements.
F.2: In the Foundation, this power of control and administration belongs to the foundation council.
F.3: The foundation council requires a minimum of three individuals or one corporate director.

Comments: Foundation is mostly created as a ‘Not for Profit Organization’, established, under Section 25 of the Companies Act 1956. ex. 1. IDEA Institute of Management and Technology (IIMT) is an integral part of IDEA Foundation. 2. Ambuja Cement Foundation, India: For creating employment in rural areas.


T.1: The trust is a legal act formed under u/s 5 of Indian Trust Act 1882, by means of which a person called the settlor/author/grantor transfers assets to a person called the trustee, who will manage or dispose of them in favour of a beneficiary (who can be the same person as the settlor/ author/grantor). The trustee is usually a firm or company engaged professionally and customarily in the business in managing properties, investing liquid assets and transferring assets which are legally under the ownership of said trustee, but subject to the provisions of the trust instrument.

T.2: The control and administration of the assets in the trust is the power of the trustee.

T.3: The trust allows the appointment of one or more trustees without a minimum or maximum.

General Comments: 

The foundation is different from the trust, as it is the owner of its own assets. These assets are managed by the foundation council, which has the function and the power to fulfill the objectives and purposes of the foundation. The use of the foundation as a structure and a tool for the ownership of any movable or immovable assets is not applicable to trusts, because the trust does not represent by itself a legal entity different from the trustee. In order to transfer the authority of the settlor over the trustee and over the assets managed by the trustee, it is required to execute other formal documentation with the same requirements to that by means of which the settlor transferred the assets to the trustee.

Common in Both: There are various types where a non profit organization can be created. I, e by a Trust, Society or u/s Section 25 Company Act. It’s an option to an individual, under which law/act he wants to create the same.

                                                 Application for Trust Registration

1. The application for registration should be made to the official (Sub registrar) having jurisdiction over the region in which the trust is sought to be registered.

2.After providing details (in the form) regarding designation by which the public trust shall be known, names of trustees, mode of succession, etc., the applicant has to affix a court fee stamp of Rs.2/- to the form and pay a very nominal registration fee which may range from Rs.3/- to Rs.25/-, depending on the value of the trust property.

3. The application form should be signed by the applicant before the regional officer or superintendent of the regional office of the charity commissioner or a notary. The application form should be submitted, together with a copy of the trust deed.

4. Two other documents which should be submitted at the time of making an application for registration are affidavit and consent letter.

5.The trust deed should clearly spell out the aims and objects of the trust, how the trust should be managed, how other trustees may be appointed or removed, etc. The trust deed should be signed by both the settlor/s and trustee/s in the presence of two witnesses. The trust deed should be executed on non-judicial stamp paper, the value of which would depend on the valuation of the trust property.

                                       Application for Foundation registration

Section-25 Company Act:

1.According to section 25(1)(a) and (b) of the Indian Companies Act, 1956, a section-25 company can be established ‘for promoting commerce, art, science, religion, charity or any other useful object’, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members.

2.The first step towards registration of foundation under company Act (under section 25 of the Indian Companies Act) is the application for availability of name to the registrar of companies {prescribed form no. 1A}, with a fee of Rs.500. It is advisable to suggest a choice of three other names by which the company may be called, in case the first name, which is proposed, is not found acceptable by the registrar.

3. Once the availability of name is confirmed, an application should be made in writing to the regional director of the company law board.

4. The application should be accompanied by three printed copies of the memorandum and articles of association of the proposed company, duly signed by all the promoters with full name, address and occupation. Various other declarations and statements are required to be furnished for the purpose of registration. [No stamp paper required].

5.A declaration by an advocate or a chartered accountant that the memorandum and articles of association have been drawn up in conformity with the provisions of the Act and that all the requirements of the Act and the rules made there under have been duly complied with, in respect of registration or matters incidental or supplementary thereto.

6. Three copies of a list of the names, addresses and occupations of the promoters (and where a firm is a promoter, of each partner in the firm), as well as of the members of the proposed board of directors, together with the names of companies, associations and other institutions in which such promoters, partners and members of the proposed board of directors are directors or hold responsible positions, if any, with description of the positions so held.

7. A statement showing in detail the assets (with the estimated values thereof) and the liabilities of the association, as on the date of the application or within seven days of that date. An estimate of the future annual income and expenditure of the proposed company, specifying the sources of the income and the objects of the expenditure.

8. A declaration by each of the persons making the application that he/she is of sound mind, not an undischarged insolvent, not convicted by a court for any offence and does not stand disqualified under section 203 of the Companies Act 1956, for appointment as a director.

9. The applicants should also, within a week from the date of making the application to the regional director of the company law board, publish a notice in the prescribed manner at least once in a newspaper in a principal language of the district in which the registered office of the proposed company is to be situated or is situated and circulating in that district, and at least once in an English newspaper circulating in that district.

10. The regional director may, after considering the objections, if any, received within 30 days from the date of publication of the notice in the newspapers, and after consulting any authority, department or ministry, as he may, in his discretion, decide, determine whether the licence should or should not be granted.


1 comment:

Asif Khan said...

I want to know the main difference between them in the tax manner