SECTION 8 COMPANY FORMATION- Non-Profit Organization
Section 8 Company is Company formed with the objective of promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object. It is established majorly for charitable or not-for-profit purposes.
Section 8 company are not allowed to raise funds by way of deposits, but they can accept donations from the public. Below are the ways by which it can raise funding:
Benefits of Section 12A & 12AA registration:
RBI defines Crowdfunding as “Solicitation of funds from multiple investors through a web-based platform or social networking site for a specific project, business venture or social cause.”
Presently, raising funds in India by a Company is governed by the provisions of Companies Act,2013, Securities Exchange Board of India Act 1992, Securities Contracts (Regulation) Act, 1956, Depositories Act, 1996.
In India Equity Crowdfunding is Illegal, but reward crowdfunding is Legal.
To issue equity shares in India, companies need to comply with the provisions of The Companies Act,2013.
To regulate Crowdfunding in India it is important that the following are established:
Pure Donation-Based Crowdfunding (where issuers directly seek a donation from the grantors), Reward-Based Crowdfunding (where issuers directly offer rewards like movie tickets, new computer game, download of a book, etc.) and Peer-to-Peer lending do not fall within the regulatory purview of SEBI, as they do not generally involve issuance of securities for financial return, and may require authorization from other regulators.
Trust, Society and Section 8 Company
Trust, Society and Section 8 Company can seek registration Under Section 12A of Income Tax Act to claim exemption under Income Tax Act’ 1961, if certain conditions are satisfied. Section 12A deals with registration of trust and Section 12AA deals with online procedure for registration of trust.
A Non-Governmental Organization (NGO) that is neither a part of a government nor a conventional for-profit business. Usually set up by ordinary citizens, NGOs may be funded by governments, foundations, businesses, or private persons. NGOs are highly diverse groups of organizations engaged in a wide range of activities and take different forms in different parts of the world. Some may have charitable status, while others may be registered for tax exemption based on recognition of social purposes. Others may be fronts for political, religious, or other interest groups.
Trust v/s Sec 8 Company- A Comparison
|Factors||Section 8 Company||Trust/Society|
|Introduction||Section 8 company is a registered entity and has recognition all over India.||Trust and societies are registered at DGM locally and has recognition state wise.|
|Trust||Section 8 companies are treated more trustworthy because they have license.||They are registered with local state authorities, hence, lacks trust factor initially.|
|Compliance||Compliances are high here and even need to comply in case of no revenue.||There are very few compliances to be made in comparison to section 8.|
|Section 8 company is governed by MOA and AOA of the company.||Trust and Societies are governed by their trust deed or bye laws.|
|Closure||Section 8 Company can be closed within the parameters of law.||The irrevocable trust cannot be closed.|
|Cost||The maintenance cost is high in section 8 company.||Cost is very low as compared to the section 8 company.|