Benefits of Setting Up a Non-Profit Educational Institution

Since Education should not be considered as business, people who want to start an educational institution should consider a not-for-profit business model rather than a for-profit business model because it satisfies the owner’s interests and would act in the public interest. It is very hard for these not-for-profit organizations to raise funds unless it is sponsored by a rich person who wants to put money in a trust for the benefit of the society. Not-for-profit institutions will also face difficulties to raise funds when there is an economic downturn or when unemployment rates are high. However, the benefits that these Non-Profit Organizations receive are far more in number than the restrictions that they face.

What is Non-Profit Organization?

Non-Profit Organizations include trusts, cooperative societies or associations, and Companies which come under Section 8 of the Companies Act 2013. These organizations are created either for a charitable purpose or for the public good and they are usually exempted from paying taxes to the government. The surplus profits of these organizations are not distributed to the owners but to achieve the goals of the organization.

Types of Non-Profit Organization

Trusts

A public trust is a form of non-profit business which is created for the purposes of education, relief of poverty, medical relief among other examples. Indian public trusts, in general, cannot be dissolved and are irrevocable in nature. However, no national law governs public trusts in India but different states have created their own state laws.

Societies

Societies are an organization of people created for charitable purposes. They are governed by a managing committee or a governing council. Societies are governed by the Societies Registration Act 1860 which has been adopted by various states. Unlike trusts, these societies can be dissolved.

Section 8 Companies

Section 8 of the Companies Act, 2013 provides for registration of an association of persons as a limited company where such association is formed for promoting commerce, art, science, education, religion, charity or any other useful object and the company intends to apply its profits or other income to promote its objects. The payment of dividend to its members is prohibited.

Since an educational institution provides a service for the betterment of the society, it would stand in good stead if it is incorporated as a Non-Profit Organization under one of these three business structures. Each of these three business structures has their own advantages and disadvantages but they all have one thing in common.