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Business Registration Options For Crowd Funding

Section 8 Company is Company built with the purpose of promotion of commerce, art, science, sports, social welfare, religion, charity, education, research, protection of environment or any such other object. It is established mostly for charitable or not-for-profit purposes.

What are the Features of Section 8 Company?

  1. Section 8 Company does not need a prescribed minimum paid-up share capital.
  2. Members’s liabilities of Section 8 Company are limited to their capital contributions.
  3. Section 8 Companies enjoy more credibility as compared to NGOs, societies & trusts since they are recognized by Central Government’s license.
  4. Section 8 Company is exempted for the payment of stamp duty applicable for registration as applicable in case of other structures such as PVT. limited or a public limited company.
  5. Section 8 company can apply for exemption under section 12AA of the Income Tax Act. It is also eligible for registration under section 80G of the Income Tax Act.
  6. Section 8 company can receive the foreign contributions after getting itself registered under Foreign Contribution (Regulation) Act, (FCRA), 2010.

Section 8 company are not allowed to raise funds through deposits, but they can accept donations from the public.

These are the ways by which Section 8 Company can raise funding:

  • Foreign Donations: Foreign donations are allowed only when FCRA registration has been done. Foreign Contribution (Regulation) Act license can only be applied after 3 years from the date of registration. But in case, if it is urgent to receive foreign donations, then you may apply for prior permission from commissioner.
  • Equity Funding: Section 8 company can also gain funding through issuing new equity shares at a higher value.
  • Domestic Donations: No restriction in the case of domestic donation but a proper check must be kept to avoid the money laundering cases.

What are the Benefits of Section 12A & 12AA Registration?

  • Income will be exempted from taxation.
  • Get Advantage in taking grants from government / abroad / other agencies.
  • Benefits in FCRA registration.


Reserve Bank of India defines Crowd funding 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.”

Currently, 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 reward crowd funding is Legal however equity Crowd funding is Illegal

To issue equity shares in India, companies need to comply with the provisions of The Companies Act, 2013.

To regulate Crowd funding in India it is mandatory that the following are established:

  • The investors who are allowed to invest by the crowd funding platforms,
  • The types of entities that are allowed to get funds through this channel and the disclosure requirements,
  • The kind of entities that are allowed to set up internet-based Crowd funding Platforms to enable online solicitation from such investors, and the different associated aspects.

Pure Donation-Based Crowd funding (where issuers directly ask a donation from the grantors), Reward-Based Crowd funding (where issuers directly offer rewards like movie tickets, new computer game, download of a book, and many more) 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 get 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 process for registration of trust.

A Non-Governmental Organization (NGO) that is neither a conventional for-profit business nor a part of a government. Generally 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 broad range of activities and take different forms in different parts of the globe. Some NGO may have charitable status, while others NGO may be registered for getting exemption from tax based on recognition of social purposes.

A Comparison between Trust and Sec 8 Company

Factors                Section 8
Introduction                     Section 8 company is a registered entity
and has recognition all over India.
Trust and societies are registered at DGM locally & has state wise recognition.
Trust                     Section 8 companies are treated more trustworthy
because they have license.
They are registered with local state authorities, that’s why, lacks trust factor initially.
Compliance       High Compliance here and even need to comply
in case of no revenue.      
Compliances are few here in comparison to section 8.
Governing Doc       Section 8 company is governed by Memorandum of Association (MOA) and Articles of Association (AOA)
of the company.           
Governed by their trust deed or bye laws.
ClosureSection 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.
As compared to the section 8 company, Cost is very low.