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Section 8 Company - Everything You Must Know About

There are many companies out there to generate profits through their trade but not all companies are purposed of making profits by carrying out business and commerce. These companies are referred to as section 8 companies. Many companies have a purpose of being charitable with non-profit objectives. Such companies are recognized under Section 8 of the Companies Act, 2013.

What is meant by Section 8 Company?

As per the Companies Act, 2013 Companies that are purposed with a non-profit objective as well the companies whose purposes are to encourage the different arts, commerce, science, literature, education, charity, social welfare, environment protection, or other similar purposes are considered as a section 8 company. These companies previously were defined under Section 25 of the Companies Act, 1956 with more or less the same provisions. However, the new act defined more objectives of Section 8 companies. In the companies Act, 2013 There are three significant conditions defined to grant the licence of a section 8 company that is as follows- The objective of a company formation should be a charitable purpose. All the generated income and profits should be utilized for these objects. The dividend can not be distributed among its members. For an instance, Section 8 companies are like the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Confederation of Indian Industries (CII). The main purpose of these companies is to benefit trade, and commerce and bring growth to India.

Features of section 8 company

Section 8 companies include the following features which are different from other types of companies. Limited Liability - The liability of section 8 company members is limited to an extent. The member’s liability can not be expanded in any of the cases. Charitable Objectives - Section 8 company does not work with the intent of making profits. The goal of section 8 company is to be charitable in nature. They focus on and support the development of religion, culture, sports, research science etc. No Least Share Capital - There is no maximum limit or compulsory capital limit predefined for a section 8 company in India. Edges - Section 8 company possess the nature of charitable purposes therefore, section 8 company has certain benefits and exemptions. Government License - Section 8 company works only when they get a license from the Central Government. However, this license is revocable too by the government.

Benefits of Section 8 Company

Most of us think that being an NPO (Non-profit organization) can not be beneficial but that is not the actual case. Being an NPO or a Non-profit Organization does not always mean that the company can not generate a profit/income. A non-profit organization signifies only that the company can generate income and profit, but the organization's members are not to benefit from the earned profit. The profits can not be distributed among the members of the company. All incomes are spent to heighten the purposes of the company. However, there are certain exemptions and benefits for the NPO for both “NGO and NPO” under section 8 of the Companies Act 2013. Multiple tax exemptions are available for non-profit organizations/companies. Regardless, the contributors of the section 8 Company can claim Tax Exemptions against the contribution they made to the section 8 Company. Separate Legal Originality- The companies under the section company act are separate legal entities and are different from their members. These section 8 companies have an unchanging or enduring existence. Moreover, Section 8 companies possess organized procedures, functions, and outstanding flexibility. Zero Stamp Duty- A Section 8 Company is exempted from the provision of paying stamp duty on the memorandum of association (MoA) and article of association (AoA) of the private/public limited company, But the stamp duty is required for the registration of other kinds of company. No Minimum Capital Requirement- There is no maximum limit or compulsory capital limit predefined for a section 8 company in India. However, the capital layout can be changed in the required time of growth of the company. In case the company needs a fund for carrying out the business functions, it can be obtained in the form of donations/contributions/or subscriptions from its members as well as the general public. Name- Section 8 Companies are not asked mandatorily to add the “private limited” at the end of their character. The names of these companies are registered with “Association, Society, Council, Charities, Foundation, Academy, Organisation, Federation, etc”. Tax Benefits- There are many tax benefits available for section 8 companies. The contributors of the section 8 Company can claim Tax Exemptions against the contribution they made to the section 8 Company.

Eligibility For Section 8 Company Registration

An association of individuals has to meet the prefined criteria in section 8 of company registration as per the company act 2013 which is below-mentioned. The Objective of a company formation should be a charitable purpose and intends to promote the sharing of knowledge such as science, literature, religion, fine arts, etc. The dividends or income earned by the company can not be distributed amount its members. It should be used only to promote the objectives of the company objectives. 2 or more people who are going to be members/directors of the company must fulfil the requirements of the section 8 companies registration. One of the members in the two should be a resident of India. Section 8 company must hold an intention to spend all the earned or generated profits/shares/income on the promotion of the objectives of the company such as research, religion, charity, social interest, preservation of nature, or other objectives. A Firm also can be a member of the company registered under this section. The section 8 company must be ready with a clear vision and projection for the next three years. The excess generated profit should be invested to catch the major objectives of the section 8 company.

Formation of Section 8 Company

An association of persons can make an application to the Registrar of Companies (R0C) using appropriate forms to form a company with non-benefit purposes under Section 8 of the Companies Act. Then the Central Government will rectify the application & then can accept it upon any terms and conditions levied under the licence granted by it. After the acceptance of the application, pay the fee which is applicable & the Registrar of Companies (RoC) then will register your company. It is to be noted that these types of companies are also considered limited companies. All the benefits, regulations & obligations of limited companies apply in this case as well. But exceptionally, section 8 companies are not required to put “limited or private limited” in their company name like other companies have to mention. These companies are based on the licence granted by the registrar of the company (ROC) so they can not even modify their MOA or AOA without the permission of the Central Government. However, no right to do anything that is not permitted in the granted licence.

Procedures of section 8 company registration - A detailed outline

Get DIN and DSC: The first step is to get the section 8 company registration director's identification number and digital signature certificate. Applications will be filed with the registrar of the company (ROC) to obtain (DIN) Director Identification Number and (DSC) for the Directors of the company which will be signed. After receiving this, you have to file the form DIR-3. with the ROC to get the “DIN”. Make sure to submit all the relevant documents such as a passport-sized photograph attested ID Proof, and Address proof of the Director with these applications. Get the name Approval: This is the first step to incorporating your company. RUN is a form that needs to be filed to reserve a name for a new company. You must check the name availability in the “Reserve Unique Name” or RUN facility. There can 2 names proposed in Form INC-1. If any proposed name is rejected then you are allowed to resubmit the 1 name. The proposed name should not be similar to any other company name while applying for section 8 company registration. Apply for the RD 1 Licence and COI- The third step is to apply for the section 8 licence and Certificate of Incorporation (COI). INC-12 is to be transmitted with the memorandum of association “MoA” in Form INC-13. However, applying for the COI will be a good step. The “COI” or Certificate of Incorporation (including the CIN number) is proof that the company has been created. Furnishing Spice Form- This is the last step to incorporating your section 8 company where the documents relating to the registered office like the rental and other utility bills/agreements are furnished along with the RD-1 licence and the name approval certificate. The validity of the name is approved for 30 days. Make sure that the purposed name and the licence are valid while filing the SPICe form.

Required Documents for section 8 company registration

DSC (Digital Signature Certificate) and DIN (Directors Identification Number) of the Directors. Objectives and proposed work of the company. AoA ( Article of Association). Financial statements like assets and liabilities, projections for five years, etc. Directors' personal documents such as PAN, Aadhar, or voter ID. MoA (Memorandum of Association). Registered office address documents viz. Passport-size photos. rental agreement or sale deed in the name of the company, and utility bills not older than two months.

Required Forms for Company Registration

When you want to register your section 8 company, there are certain forms to be furnished. But people usually get perplexed about which form they should select for their specific purpose. We have expressed below a list of required forms, go through the list below-

Revocation of License

The Central Government has rights to cancel the license of section 8 company if the following circumstances are found- The company has breached against the terms and conditions mentioned in the license. The company has violated the provisions of section 8 When the company is found doing fraudulent or violating its objective During the order of the central government, the company would be given a chance to hear before taking any type of action. The Central government can even state the company to get merged with a similar company under certain circumstances.

Penalty For Contravention

If a section 8 company violates any of the mentioned clauses/provisions of Section 8 then it will be punishable with a penalty varying from Rs. 10 lakhs to Rs. 1 crore. Additionally, directors and officers of the company will have to bear the levied penalty with imprisonment of up to 3 years and a fine between Rs. 25,000 to Rs. 25 lakhs. These officers may also get prosecution under strict provisions of Section 447 if they conduct any affairs with deceitful objectives.

How to Get Donations In Section 8 Company?

Section 8 companies can raise donations from individuals through the execution of various types of campaigns. Such campaigns can be carried further by the way of words or advertisements on social media and in newspapers. They also can apply for government grants and aid. Certain section 8 companies can additionally make a door-to-door campaign to get funding. Exemption For Section 8 Company Tax-exemption - A section 8 company gets the full tax exemption in income tax. To get it, one needs to furnish an application to the local income tax commissioner with relevant details. No company secretary needed - Section 8 Companies does not require to appoint a company secretary. This leisure leads to lower costs for Section 8 companies. Meeting required– The section 8 company is not required to conduct at least one board meeting every six calendar months except for holding four board meetings in a year. Relaxed notice period – As per the new rules, an annual general meeting can be called within 14 days from the date of the notice period. This is now decreased from the prior 21 clear days.

Frequently asked questions

Two people or directors are required to register a company under the section 8 company act of 2013.

Yes. Section 8 company is a new form of section 25 company. Earlier, it was known as the section 25 company act of 1956. Later It was changed into section 8 company.

There is no minimum capital requirement to form a company under section 8 company act 2013.

There are no such eligibility requirements to be a director in a section 8 company. The individual should be more than 18 years of age and a natural person. Government officers can also be the directors of the section 8 company.

DIN stands for the Director Identification Number (DIN). If a person wants to be a director in a company then he/she must apply for the (DIN) Director Identification Number which is issued by the Ministry of Corporate Affairs.

Yes. An NPO or non-profit organization can invest in another company to fulfil its objectives.

Yes. Any shareholder can become a director of a company under section 8 company act, 2013. There are no specified conditions for being a director in a NOP (non-profit organization).

Yes, there is no specific restriction for section 8 companies to invest in ‘for-profit companies. Therefore, Section 8 Company can have a for-profit subsidiary.

When a NOP or non-profit organization makes any profit, that earned profit is invested in the objectives of the company instead of distributed among the shareholders of the company.

Yes. You can convert a section 8 company into a private limited company with the approval of ROC.

Yes. Section 9 company also pays the tax but in case of the company is registered under section 12AA then the company is exempted from tax.

Krishna Gopal Varshney

Krishna Gopal Varshney co-founder & CEO of Myitronline is amongst the top emerging startups of Asia and authorized ERI by the Income Tax Department. A dedicated and tireless Expert Service Provider for the clients seeking tax filing assistance and all other essential requirements associated with Business/Professional establishment. Connect to us and let us give the Best Support to make you a Success. ”

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