Social enterprises are the lifeblood of civil society, taking up worthy social causes and delivering essential services where the State apparatus falls short. Social enterprises serve the most deprived sections of society, innovate to find creative solutions to various social and environmental problems. However, these social enterprises being corporate entities, either incorporated as non-profits like a Society, Trust or Section 8 Company or even for profit like a regular partnership firm, LLP or a private limited company must follow all necessary legal compliance requirements as mandated by the law of the land. They must also secure their interests when dealing with third-parties, comply with labour law regulations, and run a clean ship in order to be effective and efficient.
So what are some of the critical legal and compliance aspects that social enterprises must be vigilant about? Let’s take a look.
Eligibility for registration as a Public Charitable Trust in India
- It must be established for charitable purposes benefiting the entire society, e.g., poverty eradication, primary education, affordable or free healthcare.
- It must have a minimum of two trustees.
- It must have a clear and specific purpose, and its objectives must be lawful and not opposed to public policy.
- It must have a written trust deed signed by the trustees and witnessed by at least two people.
- It must have a valid PAN and TAN.
- It must have a minimum corpus of INR 1 Lakh.
Eligibility for forming a Section 8 Company
The following have to be proved to the satisfaction of the Central Government:
- its objects include promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
- the company after incorporation intends to apply its profits, if any, or other income in promoting such objects only; and
- the company intends to prohibit the payment of any dividend to its members.
Corporate Secretarial Compliances
For Section 8 Companies
- Regulatory filings
- Conducting meetings: Notice of meetings, circulating agenda, recording minutes and circulating minutes
- Maintaining transparency – maintaining requisite registers
- Upholding the MoA and AoA
- FCRA compliances for Section 8 Companies if they receive foreign contributions.
Compliances for Societies/Trusts
- Running as per Objects stated in Trust Deed or MoA
- Elect body for running day to day ops:
- For Society – managing committee
- For trust – board of trustees
- Annual Compliances – Appointment of Auditor, submission of audit report
- Conducting General Body Meeting as per trust deed/MOA
- Submission of annual budget report to office of the Charity Commissioner
- Filing of change reports for
- Composition of MC
- Change in immovable property
- Obtaining Certificate under S. 80G/12AA of the IT Act
- Maintenance of books of account, and register of movable and immovable properties
Failure to comply attracts hefty penalties. To ensure that they are fully compliant, organizations should engage a capable compliance professional.
Written Contracts with Third Parties
Organizations must ensure that wherever they are entering into commercial transactions with any third party, they must execute written contracts with the third parties to secure the organization’s interests, avoid disputes and unwarranted liabilities. Contracts create a legal basis for seeking relief if either party wishes to approach the Courts for breach of contracts. Contracts also bring predictability to the transaction and reduce uncertainty.
Employee Contracts
Employees have intimate knowledge of the internal workings and are also privy to the data, information and intellectual property, hence must be bound by well-drafted agreements stating their rights, duties and obligations. Employee contracts help to ensure non-disclosure of confidential data to which such employees may have access in the course of their work.
Ensuring Data Privacy
A lot of social enterprises work closely with vulnerable groups like children, persons with disabilities, women, elderly, etc. where sensitive personal information of such individuals including their address, mobile numbers, health records, etc. may be collected by such social enterprises in order to provide services to these individuals. Such organizations and all organizations collecting, storing or utilizing any personal information of any individuals must be very vigilant about Data Privacy.
The new Digital Personal Data Privacy Act, 2023, places certain responsibilities on such Data Fiduciaries, which is defined as any person who determines the purpose and means of processing of personal data, typically meaning the Company collecting and processing such data.
Compliance with the Act is very important to avoid heavy penalties. Non-compliance can even lead to closure of business.
Conclusion
While these are some of the major critical legal and compliance issues necessary for social enterprises to consider and take care of in order to ensure that they meet their stated objectives without fear of penalties, disputes and statutory action, social enterprises are encouraged to seek the guidance of competent legal and compliance professionals to handhold them.
About the Author
Hemant Kelkar, the Founder and Principal Counsel of VCounsel, brings his expertise as an accomplished lawyer. He serves as a Service Partner for the Social Innovation Lab, providing legal compliance services through the Shared Service Centre for Social Enterprises.