Regarding section 8 company

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Querist : Anonymous

Querist : Anonymous (Querist)

24 September 2018 Dear sir/ma'm

We want to start a foundation in the field of education and research where we want to set up a research institute to provide a platform for technical students but we have some queries regarding it which are as follows:

1). What is better trust vs section 8 company for purpose shown above?
2). What is the funding source for section 8 company?
3). How can we draw salary for individual employees? is there sp. provision for it?
4). Is it possible to generate a profit to generate fund from manufacturing something for a purpose of charity?
5). If we already registered a section 8 company then is it required sp. license from govt body to raise a fund?

Please help us to solve a query shown above

ND (Expert)
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24 September 2018 queries regarding it which are as follows:
1). What is better trust vs section 8 company for purpose shown above? Either of these can be used. Only thing is that it is easier to close a trust as compared to a Section 8 Company. Then in case of outside funding , Donors usually prefer a company as compared to a trust due to transparency.
2). What is the funding source for section 8 company? It can be initially share capital.
3). How can we draw salary for individual employees? is there sp. provision for it? The employees can be employed by a trust as well as a company.
4). Is it possible to generate a profit to generate fund from manufacturing something for a purpose of charity? Yes, it is possible. But that will be counted as a profit activity and not a charitable activity.
5). If we already registered a section 8 company then is it required sp. license from govt body to raise a fund? Please help us to solve a query shown above . If that Section 8 company is registered u/s 12AA and 80 G of Income Tax Act, then there is no need to take any other approval to raise domestic funding. In case you want to raise funds from abroad, then you need approval from FCRA

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Querist : Anonymous

Querist : Anonymous (Querist)

24 September 2018 Thank you so much, @ND , Dear sir as per you say To raise a funds from abroad we need approval from FCRA. Here I have one more question in my mind is that what if we raise a fund from domestic Crowd Funding portals? (https://milaap.org/)
Where if we put our initiative to that portal; Donors either may from India or abroad. So what about it? Is it counted as foreign Fund?

Querist : Anonymous

Querist : Anonymous (Querist)

24 September 2018 Hello Experts!! I also requesting to all of you if you have any important materials regarding Section 8 companies which helps me best to decide; please send it on my mail id tajagnavyas1995@gmail.com. or also suggest me link if it available anywhere online or offline.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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20 July 2025 Here’s a detailed breakdown addressing your queries about setting up a Section 8 company vs. a Trust, plus related funding and compliance aspects:

1) What is better — Trust vs Section 8 Company for your purpose (education & research)?
Trust:
Easier and quicker to register.
Less regulatory compliance.
Easier to dissolve/close.
Less preferred by big donors and funding agencies because of lower transparency and governance standards.
Section 8 Company:
Registered under Companies Act, 2013.
More stringent governance and compliance (Board meetings, annual filings, audits).
Viewed as more credible and transparent by donors, especially institutional donors and government agencies.
Suitable for organizations planning to receive large grants or foreign funding.
Bottom line: If you want long-term sustainability, higher credibility, and easier access to institutional funds, Section 8 Company is better. If you want a simpler structure and smaller scale, a trust may suffice.

2) Funding source for Section 8 company
Initial funding can come from members/shareholders’ contributions (note: Section 8 companies do not issue shares for profit; members’ contribution is for non-profit objectives).
It can raise funds by donations, grants, CSR funds, project-based funds.
If registered under Section 12AA and 80G of Income Tax Act, donors get tax benefits, which encourages more donations.
Can also raise funds via government schemes, international grants (with proper approvals like FCRA).
3) Drawing salary for individual employees — any special provision?
Section 8 companies can employ staff on regular payroll basis, just like any other company.
Salaries are paid according to the company’s policies, and are fully allowed under law.
Salary should be reasonable and justifiable as per market norms to avoid any scrutiny.
Employees get all statutory benefits (PF, ESIC, TDS on salary, etc.) as applicable.
4) Is it possible to generate profit from manufacturing something for charitable purpose?
Yes, you can carry out business activities like manufacturing to generate funds for the charitable objective.
However, such income is considered “business income” and not directly charitable.
The company needs to maintain proper accounts to separate business income and charitable activities.
Business income is taxable unless it is wholly applied for charitable purposes and meets income tax exemptions.
This activity should align with the company’s main object clause.
5) Is a special license needed to raise funds if already registered as Section 8 company?
If registered under Section 12AA and 80G of the Income Tax Act, no additional license is needed to raise domestic funds.
For raising funds from abroad, you need FCRA (Foreign Contribution Regulation Act) approval.
Raising funds through crowdfunding platforms (like Milaap):
If donors are from India, no issue.
If foreign donors contribute, it is treated as foreign funding and requires FCRA registration.
Additional resources on Section 8 companies
MCA Section 8 Companies Info
Guidelines and FAQs on Section 8 Companies
You may also check various NGOs and professional consultancy websites for sample documents and compliance checklists.

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