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When it comes to promoting charitable, educational, religious, or social welfare objectives in India, two common organizational structures are a society and a Section 8 company. Both serve non-profit purposes but differ significantly in terms of legal framework, governance, compliance, and perception. Understanding these differences is crucial for individuals or groups planning to set up a not-for-profit entity.
This article provides a detailed comparison of a society registration and a Section 8 company, helping you decide the best route for your organizational goals.
Definition and Governing Laws
A society is a group of individuals who come together for a common charitable, literary, scientific, or social purpose. The legal status of a society is obtained through society registration under the Societies Registration Act, 1860. Each state in India has its own adaptation of the act with minor variations in rules and procedures.
On the other hand, a Section 8 company is a special type of non-profit company registered under Section 8 of the Companies Act, 2013. The central objective of a Section 8 company is to promote commerce, arts, science, sports, education, research, or social welfare. The profits, if any, are reinvested into the company’s objectives, and no dividends are paid to its members.
Purpose and Objectives
Both society registration and Section 8 company structures cater to non-profit activities. However, a Section 8 company is more structured and ideal for large-scale operations involving funding, research, and collaborations with government bodies or international organizations. It has a higher degree of legal recognition, which adds credibility to the organization.
A society, by contrast, is often preferred for smaller, community-driven initiatives such as cultural associations, educational institutions, or welfare groups. Though still legally recognized, it does not carry the same reputation for professionalism or governance as a Section 8 company.
Minimum Requirements
For society registration, a minimum of seven members is mandatory, and at least one of them should be from a different state if it is a national-level society. The governing body manages the affairs of the society and changes to its structure require approval from the Registrar of Societies.
In the case of a Section 8 company, it can be established as either a private or public limited company. A minimum of two directors and two shareholders is required for a private limited format, and three directors and seven shareholders for a public limited format.
Registration Process
The society registration process is relatively straightforward and less costly. It involves submitting the Memorandum of Association (MoA), rules and regulations, ID proofs, and address proof of the registered office to the state Registrar of Societies. The timeline varies by state but usually takes about 1-2 months.
For a Section 8 company, the registration process is more comprehensive. It involves name reservation through RUN (Reserve Unique Name), preparation of MoA and Articles of Association (AoA), digital signatures, and filing various forms through the MCA portal. Approval is granted by the Regional Director of the Ministry of Corporate Affairs, and the process takes approximately 2-3 months.
Compliance and Regulation
One of the key differences lies in post-registration compliance. A Section 8 company is required to maintain regular compliance with the Companies Act, 2013. It must file annual returns, financial statements, and undergo audits. These compliance requirements ensure transparency and accountability.
A society, after society registration, has less rigorous compliance requirements. Annual meeting reports and list of governing members must be submitted to the Registrar of Societies. While simpler, this can sometimes lead to weaker governance and lower credibility in the eyes of funding agencies or regulatory bodies.
Funding and Donations
A Section 8 company is generally more favored by government agencies, corporates (for CSR funding), and international donors due to its strong compliance structure and transparency. It can receive foreign contributions if registered under FCRA and is eligible for 12A and 80G certifications for tax exemptions.
Although societies can also apply for 12A, 80G, and FCRA, the process may be longer and more scrutinized. Donors often prefer organizations with the Section 8 company structure due to better trust in its governance and legal compliance.
Governance and Management
The management of a society rests with its governing body or executive committee, which is elected periodically. However, internal disputes and lack of standardized procedures can hamper its functioning.
In contrast, a Section 8 company follows a board-governance model similar to corporate structures. Its directors are bound by statutory duties, making it more professional and transparent in operations.
Credibility and Preference
Due to the rigorous regulatory requirements and oversight, a Section 8 company is often seen as more credible and professional than a society. Corporates and funding agencies prefer working with Section 8 companies for CSR activities and partnerships.
However, society registration is still a viable and effective option for local, community-based projects where formalities and costs need to be minimized.
Conclusion
In summary, both society registration and forming a Section 8 company serve the same noble purpose—promoting social, educational, or charitable activities. The choice between the two depends on the scale of operations, funding needs, and desired level of legal compliance.
If your goal is to run a small, local initiative with minimal compliance, society registration is sufficient. However, if you’re aiming for large-scale impact, international funding, and long-term sustainability, then registering a Section 8 company is the better choice.
