Starting An Education Startup? Which One To Choose: A Society, Section 8, Trust, Or Private Limited?

Starting an education startup is a huge journey and it is not for the faint hearted. To keep your startup legal, there are a number of different structures you can choose from; And there comes the big question, which entity type should you choose for your education startup? Should you choose any one of the Non-Government Organization or a Private Company?

Here in this article, we will be discussing about various entity types for an education startup and also what is the difference between a Society, a Section 8, a Trust or a Private Limited company?

Trust, Societies and Section 8 Companies are referred as non-profit organization, these organizations are formed to promote social development, social welfare and other charitable purpose. Which means profit made from these organization cannot be divided amongst the promoters.

In the other hand Private limited company is formed to make profit out of a business. Private limited company promote or work towards the shareholder’s interest.

Let’s understand in detail about each organization structure.

When To Consider Forming A Society?

If you want an elected body to manage your organization, this is the best option.
A society allows its members to easily leave if they do not want to be bound permanently to it.
If your decision is based on which of the three is the most straightforward, you should opt for forming a society. In comparison to booth trusts and Section 8 companies, it is easier to dissolve a society.
A society can receive public funds as a donation and use it for its best interest.

When To Consider Forming A Trust?

If the business is run by more than one family member.
If you want the trustee to serve for the rest of his or her life without having to be re-elected.
If required privacy in terms of activity as well as flexibility in the division of benefits.
A trust can receive public funds as a donation and use it for its best interest.

When To Consider Section 8 Company?

If the goal is to carry out a wide variety of activities.
Because it is a government-approved establishment, it must gain trust and credibility.
To achieve a company’s legal structure without requiring a large amount of capital.
A Section 8 company can receive public funds as a donation and use it for its best interest.

When To Consider Private Limited Company?

If the goal is to carry out operations for making profit
If want to raise funds in exchange of equity
A private limited company cannot receive public funds as a donation

Difference Between Society, Trust, Section 8 And Private Limited Company

The differences between the four different types of organization will be highlighted in the table below.

So, the million-dollar question. Every startup is different, and no two startup journeys are the same. You need to understand your long-term goals and how you’re going to achieve them. In the same way, the best option for you will depend on your circumstances. If you’re a startup looking for help with your business registration, then we’d love to help. Please get in touch with us at enquire@wazzeer.com or click here.

Particulars	Trust	Society	Section 8 Company	Private LimitedCompany
Governing Law	The Indian Trust Act, 1882	The Societies Registration Act, 1860	The Companies Act, 2013	The Companies Act, 2013
Legal Existence	Not a separate legal entity, so it cannot sue and be sued	A separate legal entity, which can sue and be sued	A separate legal entity, which can sue and be sued	A separate legal entity, which can sue and be sued
Charter Document	Trust Deed	By-Laws	Memorandum and Article of Association	Memorandum and Article of Association
Remuneration	Reasonable remuneration can be drawn by the trustees, only if they are rendering any services to the trust	Reasonable remuneration can be drawn by the trustees, only if they are rendering any services to the society	Remuneration can be drawn by the executive directors subject to provisions of the Companies Act, 2013	Remuneration can be drawn by the executive directors subject to provisions of the Companies Act, 2013
Contracts or agreement with related parties or parties who are interested in the entity	There is no restriction	There is no restriction	Few restrictions of related party transactions	Few restrictions of related party transactions
Conducting meetings and maintenance of secretarial records	Not mandatory	General body meeting has to be conducted once in a year and for obtaining any other approvals from the members. Records of such meetings need to be maintained	Board meetings and general meetings are required to be conducted at appropriate time and the records of the same should be properly maintained	Board meetings and general meetings are required to be conducted at appropriate time and the records of the same should be properly maintained
Maintenance of books of accounts	Required to maintain books of accounts	Required to maintain books of accounts	Required to maintain books of accounts	Required to maintain books of accounts
Audit of accounts	Mandatory only if the income of the trust exceed the prescribed limit	Mandatory only if the income of the society exceed the prescribed limit	Mandatory from first financial year only	Mandatory from first financial year only
Annual filing of financial statement with concerned authorities	Not required	Required to be filed	Required to be filed	Required to be filed
Filing income tax returns annually	Mandatory	Mandatory	Mandatory	Mandatory
GST Registration	Mandatory only if the turnover exceed the prescribed limit	Mandatory only if the turnover exceed the prescribed limit	Mandatory only if the turnover exceed the prescribed limit	Mandatory only if the turnover exceed the prescribed limit
Creditworthiness of organization	Lessor creditworthiness due to flexible laws and lesser compliance requirement	Lessor creditworthiness due to flexible laws and lesser compliance requirement	Higher creditworthiness due to stringent compliances & disclosures under various laws.	Higher creditworthiness due to stringent compliances & disclosures under various laws.
Annual cost of compliance	Lesser	Lesser	Higher because of mandatory compliance requirements	Higher because of mandatory compliance requirements
Status	Works a Non-Government organization, wherein grants and donations can be received.	Works a Non- Government organization, wherein grants and donations can be received.	Works a Non-Government organization, wherein grants and donations can be received.	Works purely as private organization, wherein the investment is made by members and profit is enjoyed. However, there are restrictions to receive grants and donations.
Advantages	? Low cost of operation? The structure provides more flexibility in operating.? Income-tax benefits can be availed.	? Low cost of operation? The structure provides more flexibility in operating.? Income-tax benefits can be availed.	? Liability of shareholders is limited to the amount paid up by them.? Tax exemptions may be availed.? Highest creditworthiness? Most recognized form of entity for further registrations and accreditation.? Preferred by business counterparts and vendors.	? Liability of shareholders is limited to the amount paid up by them.? Tax exemptions may be availed.? Highest creditworthiness? Most recognized form of entity for further registrations and accreditation.? Preferred by business counterparts and vendors.
Disadvantages	? Lesser creditworthiness.? All trustees need to be personally present at the time of registration of trust and even at the time of registering any changes in the trust deed.? Authorities for all other registrations, business counterparts or vendors may not prefer.	? Lesser creditworthiness.? Authorities for all other registrations, business counterparts or vendors may not prefer.? Require state-wise registration.	? Profit cannot be used for personal use.? Cannot alter chartered documents without approval of Central Govt.? Profit can only be used for the objectives of the company.? Dividend cannot be declared.? Cost of compliance is higher.? Financials can be viewed by anyone, as it will be available in public domain.	? Cost of compliance is higher.? Financials can be viewed by anyone, as it will be available in public domain.