Social Enterprises Registration in India

Author - Associate Sanjani Shah

The social enterprise in India is an entrepreneurial advantage towards the well being of the communal, ethnic and environmental aspects of the community. Social business professionals are working towards the extemporization of the communities as compared to the profit-making institutes.In this article  we are going to discuss about Social enterprise India and How to start a social enterprise or setting up a social enterprise 

The customary goal of all social entrepreneurship includes the growth and well being of the community. There are various types of establishments for social businesses, such as:

1. Non- profit business 

2. Co-operative societies

3. Community project

4. Special purpose business

There are no particular arrangements or no particular perspectives of the law to offer social business or entrepreneurship. However, there is no exceptional advantage or exemptions, subject to the activities that the business person or enterprise undertakes and relying upon the kind of institute it seeks to include as, depending on that there may be certain benefits in terms of taxes and in terms of governance.

However, altogether there is no noticeable law for a social enterprise law or entrepreneurship versus regular profit-making business or entrepreneurship.

Between the law and social enterprise, there is a huge drop back. However, specifically in India, the law has been making a forceful effort to catch up with the social enterprise. In the developed parts of the world, say in the USA, there have been fascinating developments, wherein law is increasingly acknowledging some of the social changes which are happening.

In India, there are generously a few occasions where the law actually does not differentiate a traditional business and a social entrepreneur. The particular benefits need to be understood on a real basis. 

Some of the issues and provocations that social business or enterprises face in starting up or moving ahead in their ambitious entrepreneur journey is actually not particularly different from any other traditional startup in India. There are notable issues and challenges which social business enterprises are going through in India. 

For instance, some of the typical issues and challenges are to discover what type of legal establishment to go for, whether it should be non-profit or profit-making institutes, taking its set up and then scuffle in terms of its corporate secretarial and other routine consent that arise from time to time. 

Two things to be kept in mind, one is naturally the structure you want to domain into, and you want to domain yourself into. For instance, due to the size of the business, it may not require to be registered as a profit or not profit as the situation may be, but two years or three years down the line how large your business grows and their ability to access funds needs to be kept in mind.

It may be notably more difficult for the enterprise to raise foreign capital or even capital within India and distribute or use the advances from the working businessman than certain other structures. The second is the cost of running the business, and it should be completely and comprehensively understood. The cost in terms of compliance, since even if the business is a straightforward private closely held company, there are compliance costs in terms of filing annual tax returns, filling the company’s tax statements etc. So, distinctly one is the structure of the enterprise and second is what it needs. The third one is in the long term, what the plans are and how much business will grow and what will be the source of the capital. So, these are the three comprehensive things a social entrepreneur needs to keep in mind.

For a specific business model, there are various types of legal institutes which are available to choose and thus, the social entrepreneur should choose as per their requirements. Once the institute is set up, then entrepreneurs should find out about the specific tax authorities, or fundraising authorities, particularly to raise capital for profit-making traditional business or nonprofit making social enterprise which ends up becoming applicable.

As per Section 8 of the Companies Act, 2013 which applicable to initiate “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 any other income is applied for promoting only the objects of the company and no dividend is paid to its members.” 

Trust, or Society act, is similar to a Section 8 Company act. A Section 8 Company is registered under the Central Government’s Ministry of Corporate Affairs and Trusts and Societies are registered under State Government regulations. A Section 8 Company has numerous advantages compared to Trust and Societies, like better improved legal standing and better acknowledgements. Section 8 Company has more acceptability around donors, Government departments and other stakeholders.

The advantage of register social enterprise or business is equally clear. It is done to raise funds and it is also easier to run. However, it comes at a cost. The procedure for a nonprofit institute or a Section 25 Company Act, is a little more burdensome and the Government is making stronger registration norms.