When deciding the structure of a not-for-profit organization in India, one has two prominent options: registering as a Section 8 Company under the Companies Act, 2013, or setting up a Trust under the Indian Trusts Act, 1882. Each structure has its own benefits and suitability depending on the organization’s goals, scale, and governance preferences. This article explores the process of registering a Section 8 Company, compares it with Trust registration, and helps determine which might be better suited for different types of non-profit endeavors.
What is a Section 8 Company?
A Section 8 Company is akin to a limited company under the Companies Act, 2013, but it is specifically established for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other 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. This structure is highly regarded for its credibility amongst donors, government bodies, and other stakeholders.
What is a Trust?
A Trust, on the other hand, is an arrangement where property is managed by one party for the benefit of another. Trusts are generally easier to set up and require less compliance compared to a Section 8 Company .trust registration certificate is ideal for smaller groups with limited resources who are focused on a specific community or regional service.
Comparing Section 8 Company and Trust Registration
- Legal Compliance and Formalities: Process of of section 8 company registration involves more rigorous legal formalities and ongoing compliance requirements compared to a Trust. This includes mandatory annual filings, audits, and more structured operations.
- Credibility and Public Perception: Section 8 Companies are often perceived as more credible compared to Trusts due to their strict regulatory requirements. This can be advantageous when applying for government grants or attracting large donors.
- Management and Governance: Section 8 Companies require a minimum of two directors and have a more transparent governance structure which can be advantageous for organizations planning to scale up or seeking substantial funding.
- Tax Benefits: Both entities enjoy tax benefits under sections 12A and 80G of the Income Tax Act, 1961, but the process of obtaining these benefits can be more streamlined in a Section 8 Company due to its structured nature.
Process of Registering a Section 8 Company
1: Digital Signature Certificate (DSC) Firstly, all proposed directors of the Section 8 Company must obtain a Digital Signature Certificate, which is necessary for filing the forms electronically.
2: Director Identification Number (DIN) Next, obtaining a Director Identification Number (DIN) for each director is mandatory. This can be done by filing form DIR-3 online, accompanied by proof of identity and address.
3: Name Approval The name of the Section 8 Company must be approved via the RUN (Reserve Unique Name) form or while submitting the SPICe form. The name should ideally reflect the charitable or non-profit nature of the entity.
4: Application for License The application for a license under Section 8 must be made in Form INC-12, which should be accompanied by the MOA (Memorandum of Association) and AOA (Articles of Association), along with declarations confirming that the company will be promoted for charitable purposes.
5: Filing of Incorporation Forms After obtaining the license, file SPICe form INC-32 along with the linked forms for PAN and TAN of the newly formed company.
Commence Your Business Following the approval of the forms and receipt of the Certificate of Incorporation, the company can start its operations.
Conclusion
Choosing between a Section 8 Company and a Trust depends largely on the specific needs, scale of operations, and resources of the organization. For entities looking for more structure, scalability, and credibility, a Section 8 Company is advisable. However, for smaller, community-based groups, a Trust could be a more practical choice. The detailed process and strict compliance make Section 8 Companies a robust framework for nonprofits aiming to make a significant impact.
Also read : Exploring The Cultural Heritage Tour In Kerala
