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Company Structure for Social Enterprises!

In this section I try to bring up the various types of entities that can be formed and its functioning by social entrepreneurs for formally starting their social enterprises for the betterment of society.

Starting a social enterprise is catching up in India. Many young entrepreneurs are choosing the path to make an impact and give back to the society by starting a social enterprise and not choosing the high paying corporate career.
Whether it is a for a college level pass out from various Graduate degree courses or Post Graduates from specialized masters degree or second career choices of working employees, the question is common “How can I give back to society and make an Impact”. It’s a choice they make out of their will and passion to make an impact to the community or for not so privileged sections.

I have done tree plantations in the neighborhood, I have done plogging, cleaned streets, managed road as traffic warden, distributed notebooks…collected groceries and distrusted food to the daily wage earners during the recent epidemic….now how do I make it bigger.

The fundamental question remains unclear how do I begin formalizing it to increase the reach to serve more, involve a larger number of people do more on my part of giving back.

Well to begin with one can register a NOT For Profit (NFP) entity. This can be formed by way of a
a. Trust under Indian Trusts Act, 1882
b. Society under Societies Registration Act 1860
c. Section 8 Company under Companies Act, 2013

Once this is formed the entity have to register with income tax and obtain various exemptions as they goal is to work for the betterment of society.

There are two main clauses to accept donations for the social work

Under 80G the individual or the organisation making donations to NFP gets 50% deduction in their taxable income
Under 12A the NFP does not have to pay any tax for the entire lifetime

Further a charitable trust must get registered under charity commissioner compliance in order to seek benefit of tax exemption

While the above are enough to receive contribution within India, in case the NFP wants to receive foreign funds then it has to get FCRA (Foreign Contribution Regulation Act) REGISTRATION. It takes minimum three years to get FCRA after the formation of the entity.

While the above are good enough for receiving contribution and grants from individual or the organisations, in case the NFP has to receive the funds from the eligible corporate through CSR compliance funds it will have a three years waiting period.

Since every NFP has some administrative expenses and staff salaries to be paid so they are allowed to deduct some percentage of the contribution which is approximately in the range of 10 percentage.

While this subject is much deeper and needs a thorough understanding of the sector and model I have address the basics on a higher level. If anyone wants to have more clarity and guidance they can reach me at bitsgarg@gmail.com

In my next article I will write on how to manage NFP with For Profit (FP) organization working for the same cause on betterment of society…..

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