The device of "society" was evolved to fulfill the need of an institution of non-commercial nature for promotion of numerous charitable activities like education, art, religion, culture, music and sport etc.
Associations, clubs or societies are formed to help further these causes because they work on non-profit basis.
The need for a legal entity, which could own, possess and manage the funds and assets for achievement of charitable or promotional objects, as laid down by donors, is the result of these endeavours. A society can be formed to achieve this end.
A society has been variously defined. It has been described as a company or association of persons (generally unincorporated) united together by mutual consent to deliberate, determine and act jointly for common purpose.
Comparison Between Society and Company
A society is a non-commercial organization, form for the promotion of the object like art, culture, science, religion etc.
Under the provisions of Section 25 of the Companies Act, 1956, a company can also be formed for non-profit objectives. These may not be charitable. These companies are also allowed to drop the words 'limited' or 'private limited' from their names. The promoters while deciding whether to register themselves as a society or as section 25 company may keep the following distinctive feature in mind:
||Society under Societies Registration Act, 1860
||Company under Section 25 of the Companies Act, 1956|
||Charitable, literary, scientific, etc,
||Procedure is simple and easy
||Procedure is complicated|
||Selection of name is not difficult
||Name has to be got approved from the Registrar of the Companies|
||Management of society is easy and simple and not much restrictions imposed under the Act
||Provisions of the Companies Act have to complied with and/or complex and laborious, rigid and time consuming|
||Annual meeting of society has to be held as per provisions in the Act.
||All the meetings are to be held as per provisions of the Companies Act, 1956|
||Very few offences and penalties have been prescribed
||Provisions under the Companies Act are more stringent and attract more penalties.|
||Registered societies enjoy same reputation as companies
||Companies enjoy reputation of status|
||A registered society is a legal entity with certain limitations
A registered company is a legal entity.
Formation/Registration of Society
Minimum 7 or more persons, eligible to enter into a contract can form society for various bona fide purposes. Under the Jammu and Kashmir Act, and Telengana Area Act, only 5 persons can form a society.
Besides individual, following persons are eligible to form a society by subscribing to the memorandum of a society:
- Partnership firm
- Limited company
- Registered society
- Minors not eligible
REGISTRATION OF SOCIETY
Place of registration
The registration of a society is to be done under the act wherever obtaining and not in the state where the benefit is claimed.
Once the persons proposing to form a society have decided upon the name of the society and have prepared a draft of the memorandum and rules and regulations the society the following procedures would have to be adopted for getting the society registered:
Signing of Memorandum of Association
All subscribers (minimum 7) should sign each page of the memorandum and the signature should be witnessed by an Oath Commissioner, Notary Public, Gazetted Officer, Advocate, Chartered Accountant, Magistrate First Class with their rubber/official stamp and complete address.
Documents required to be filed with the registrar of the society
- Covering letter requesting for registration stating in the body of letter various documents annexed to it.
- Memorandum of Association in duplicate along with a certified copy.
- Rules and regulations
- Where there is a reference to any particular existing places of worship like temple, masjid, gurdwara etc. sufficient documentary proof establishing legal competents and control of applicant society over such places should be filed.
- Affidavit of non-judicial stamp paper of appropriate value by President or Secretary of the office.
- Documentary proof house tax receipt, rent receipt in respect premises shown as registered office of a society or 'No Objection Certificate' from the owner of the society.
Purpose For Which Society Can Be Formed
A society can be formed for the promotion of literature, science or the fine arts or the diffusion of useful knowledge/political education or for charitable purposes. Section 20 of the principal Act specifies the following purposes for which societies may be registered under the Act:
- Grant of charitable assistance
- Creation of Military orphan funds
- Societies established at the General Presidencies of India
- Promotion of
- Fine Arts,
- Instructions or diffusion of useful knowledge,
- Diffusion of political education,
- Foundation or maintenance of libraries or reading rooms,
- Public museum and galleries of paintings,
- Works of Act,
- Collections of natural history,
- Mechanical and philosophical inventions,
FORMATION FOR PROFIT MOTIVE PROHIBITED
For a society registered under Societies Registration Act, 1860 or under the Section 25 of Companies Act, profit motive for personal use is disentitled. Whatever profit is made through the working of such a society, is accountable for, and is necessary to put back the profit in the working of such a society. The Companies Act under section 25 also prohibits any payment of any dividends of its members as part of profit earned.
Memorandum of Association
The memorandum of association is a document depicting and describing the objective of its existence and its operation. It defines the permitted range of enterprise. Care must be taken to draft this document so meticulously as to confer all powers on the society, which will be reasonably required for total attainment of the objects.
FORMAT OF MEMORANDUM OF ASSOCIATION
The Memorandum of Association as per the principle Act and Acts passed by various State Governments should contain:
- name of the society
- the objects of the society
- the names, addresses and occupation of the members of the governing body and
- the place of registered office of the society
GUIDELINES FOR DRAFTING MEMORANDUM OF ASSOCIATION
Name Of Society
- The Registrar of Society may be approached with alternative names to ascertain whether the same are not undesirable and are not being used by other existing societies,
- It should not suggest obscenity or the decency and decorum
- It should not be likely to promote disharmony or feelings of enmity or hatred or ill-will between different religions, racial or regional groups or casts or communities
- It should not be identical or nearly resemble with the name of existing registered society
- It may end with the word 'trust'
- The name should be such that it does not attract the provisions of emblems and names (prevention of improper use) Act, 1950.
- It should not suggest or be calculated to suggest the patronage of the Government of India or connection with local authority or any corporation or body constituted by the government under any law for the time being in force.
- If it is proposed to give all India character to the society and words 'all India' or "Akhil Bharatiya" are to form part of name the society must have its constituents in atleast eight different states of Indian union.
- Words 'cooperative', 'land development', 'reserve bank', 'union', 'state', or any other word expressing or implying the sanction approval or patronage of the central or any state government and 'Municipal' or 'Chartered' or any word which suggests or be calculated to suggest connections with any municipality or other legal authority may not be used without the previous sanction in writing of such authority.
- The above provisions while selecting a name for the proposed society may guide the subscriber of the Memorandum of Association. The Registrar has the power to refuse registration if the name is inconsistent with these guidelines.
Registered Office of the Society
Even though the principle Act does not require the mentioned of the address of the registered office in the Memorandum of Association of the society, it is always better to mention the address of the registered office in the memorandum so that communication or notices may be sent to the society at such address.
Objectives of the Society
The society once formed has to act within the framework of the object clause. Any action of the society outside the framework of the object clause may be declared as beyond the permitted scope of the society besides being null and void. Therefore, it is advisable to draft the object clause with full caution and care keeping in view the present and future requirements of the society.
Names & Address Of Governors, Councils, Directors of Committee
Principle Act and the State Act require that the Memorandum should contain the names, addresses and occupation of the above captioned.
Whether a member is called a governor or director or president, it does not affect his status.
These office bearers have distinct existence from individual members. The administration and management of the society is interested to them jointly.
Rules & Regulations of the Society
The rules and regulations of the society are framed to guide the members of the governing body or the persons interested with the management of the society to regulate the functions of the society and for its internal management. The rules help the management in carrying out the objects of the society. They are binding on the members of the society. The rules, which are inconsistent with the provisions of the Act, are inoperative although registered with the Registrar of Societies.
Signature on Rules & Regulations
The rules should be signed by atleast three members of the governing body.
Effects of Registration and Non-Registration of Society
The Societies Registration Act, 1860 lays down procedure for registration of societies for various bonafide purposes.
The registration gives the society a legal status and is essential
- for opening bank accounts,
- obtaining registration and approvals under Income Tax Act,
- lawful vesting properties of societies, and
- gives recognition to the society at all forums and before all authorities.
When the society is registered, it and its members become bound to the same extent, as if each member had signed the memorandum.
A society, registered under this Act, must confine its activities to the sphere embraced by its objects.
A tax imposed on a society is one imposed on the society and not on its members.
A society registered under the Act enjoys the status of a legal entity apart from the members constituting it. A society so registered is a legal person just as an individual but with no physical existence. As such it can acquire and hold property and can sue and be sued.
The society should be registered under the Act to acquire the status of juridical person.
In the absence of registration, all the trustees in charge of the fund have alone a legal status and the society has no legal status, and, therefore, it cannot sue and be sued. A non-registered society may exist in fact but not in law. It is immaterial under the Act whether the society is registered but where the benefit is claimed, the registration of society under the Act us required. An unregistered society cannot claim benefits under the Income-tax act.
Accounts & Audit
The societies are in possession of funds and properties provided to them by the members or by other persons (by way of donation etc.). The funds and properties are interested for the attainment of objects for which the society has been formed. The members of the governing body are the trustees who apply the funds. It becomes necessary, that the societies maintain regular account books and get them audited and present them to the members at the general meeting and file them with the Registrar for scrutiny. Every society should get its accounts audited once a year by duly qualified auditor and have balance sheet prepared by him. The auditor should submit the report showing the exact date of financial affairs of the society.
As every society is a legal entity separate from its members it is capable of filing suits against any person or any member. Similarly, the suits can also be brought against the society.
The registered society can file a suit anywhere in India and in any state although it is not registered in that particular state.
ENFORCEMENT OF JUDGEMENT AGAINST SOCIETY
The judgement of decree passed against any person or officer of the society, who represents the society in the legal proceeding, cannot be enforced against the personal property of such person. The property of the society shall only be liable to pay for the decree passed against a society. This protection has been given to the office bearers of the society under the principal Act.