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Difference Between Associations or Clubs under Companies Act and Societies Act

Non-Governmental Organizations commonly referred to as NGO and INGO’s are usually non-profit organizations and sometimes international organizations which are autonomous bodies and independent of governments that are active in humanitarian, educational, health care, public policy, social, human rights, environmental, and other areas to effect changes according to their objectives.

Difference between associations or clubs under companies act and societies act.

Comparison Between Entities Under S.29 and S.28 of the Companies Act 1994

The “association not for profit”or Club can be registered under the Companies Act 1994. Both types of companies (i.e. “association not for profit”) shall enjoy all the benefits of limited company and also be subject to all obligations as limited company. Both types of companies are registered as a Company Limited by Guarantee. Company Limited by Guarantee means the company which may not have a share capital and the members thereof promise to pay the company's debts up to a fixed sum in the event of liquidation of the company. 

The main difference between an entity under section 29 of the Companies Act 1994 and an entity under section 28 of companies Act 1994 is that one is profitable organization and the other is non-profitable organization respectively. There is no general advantage or disadvantage on the basis of their registration as the promoters of the entity chose as per their convenience, i.e. whether they would like to form a profitable or non-profitable entity. 

However, the “association not for profit” can be formed without using the word “Limited” in its name.  There are no specific tax benefits for both types of companies, on the basis of their formation, however, if an entity under section 28 is WHOLLY for religious or charitable purposes., it may obtain tax exemption under certain heads as per Income Tax Ordinance 1984.

Comparison between entities under S.29 of the Companies Act 1994 and entities under Societies Registration Act, 1860.

The entities under Societies Registration Act, 1860. Can only be Charitable societies, societies established for the promotion of science, literature, or the fine arts, the foundation or maintenance of libraries etc, i.e. charitable in nature as per section 20 of the Act, whereas the entity under s.29 of the Companies Act 1994 can do any sort of business as defined in the object clause of the entity and is profitable in nature.  

There are no specific tax benefits for both types of entities, on the basis of their formation, however, if an entity under Societies Registration Act, 1860 is WHOLLY for religious or charitable purposes., it may obtain tax exemption under certain heads as per Income Tax Ordinance 1984.

i. The option and the possibilities of conversation of an entity from Section 29 of the Companies Act 1994,  to Section 28 Companies Act 1994 or to an entity under Societies Registration Act, 1860: , i.e. from profitable to no-profitable entity,  is discussed in below:

ii. Convert itself to an “association not for profit” under Section 28 of the Companies Act: 

There is no explicit rules and regulation in regards to conversation of a company constituted under section 29 of the Act to a company under section 28 of the Act. 

However, as of practice the Registrar of the Joint Stock for Companies & Firms, has the discretion to convert the exiting entity, i..e entity under section 29 of the Act to an association under section 28 of the Act, if the Registrar is satisfied that the conversion to be made for promoting commerce, art, science, religion, charity, or any other useful object, and intends to apply its profits or other income in promoting these objects. Moreover, the Registrar shall make the decision of the conversion application, after receiving the clearance report provided by the security agencies. Nevertheless, it should be noted that the procedure of the conversation of a company under section 28 is entirely bureaucratic, time consuming and uncertain.

iii. Convert itself to a society under Societies Registration Act, 1860: 

It is not possible to convert a Company, which is formed section 29 of the Companies Act 1994, to a society. 

The entity under section 29 can wind up voluntarily from it’s current format of registration by passing a special resolution and appointing a liquidator. Thereafter may apply to form a society under Societies Registration Act, 1860.