Section 8 Company Registration

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Section 8 Company

         A Section 8 Company is a type of company that is formed for the purpose of promoting commerce, art, science, education, research, sports, charity, social welfare, religion, environmental protection, or any other purpose, and intends to use all of its profits, income, or other earnings to further these goals.  It does not pay out any dividends or income to its members.

       These are limited companies, which are registered under the Companies Act, and will be treated as limited companies without the phrase “limited” being added to their name. 

       A previous version is Section 25 Company (under the Companies Act, 1956). “Non-Profit Organizations (NPOs)” or “Non-Governmental Organizations (NGOs)” are legal forms of “Section 8 Companies.”  A Section 8 Company has the authority to work anywhere in the country.

     A Section 8 Company is a  non-profit company formed for the purpose of charity donations rather than profit. Section 8 Company’s earnings or profits are solely used to promote charitable causes. All such companies are given an incorporation certificate by the central government, that also alerts them of various restrictions and criteria. If they are unable to meet the conditions, the government may decide to close their company. In the event of a fraud, the company’s officers will face legal prosecution. 

Benefits of Section 8 Company Registration

Being a Non-Profit Organization (NPO) does not imply that the company cannot make a profit or generate revenue. It simply means that the company can make money, but the promoters are not entitled to any of the gains. The revenues will not be shared among the promoters. All profits must go toward promoting the object.

Nonetheless, under Section 8 of the Companies Act 2013, some exemptions and privileges have been allowed for both “NGO and NPO.” There are numerous tax exemptions available to such companies. Donors who contribute to the Section 8 Company are also entitled to receive a tax deduction for their contributions.

Some of the advantages are:

• Separate Legal Entity: The Section 8 Company is a separate legal entity from its members. The company will continue to exist indefinitely. Along with having organized operations and greater flexibility.
• No Stamp Duty: A Section 8 Company is exempt from paying stamp duty on the Memorandum and Articles of Association of a private or public limited company, which is required for the registration of other types of business formations.
• No Minimum Capital Need: In India, there is no minimum capital requirement for a Section 8 Company. And, depending on the company’s growth requirements, the capital structure can be changed at any time. This means it can be formed without the need for any share capital. The funds necessary for carrying the business operations can be brought, later, in the form of donations and/or subscriptions from members and the general public.
• Name: Section 8 Company is not required to suffix “Public Limited or Private Limited”, next to it’s legal name. It can be registered with names such as “Association, Society, Council, Club, Charities, Foundation, Academy, Institute, Organisation, and Federation”.
• CARO: Requirements of Companies Auditor’s Report Order or CARO do not apply to this type of company.
• Tax Benefits: For Section 8 Companies in India, many tax benefits are granted.
• Credibility: Section 8 Companies are more reliable than all other forms of charitable organizations. They are governed by the Companies Act and are regulated strictly. Such as the requirement of a mandatory annual audit, and both the “MOA and AOA” cannot be altered at any stage or situation. The rules on managing the profits and losses of the company make these companies trustworthy.
• Exemption to the donors: Those donating to a Section 8 Company are eligible for tax exemptions u/s 12A and 80G of the Income Tax Act.
• Membership: A registered partnership firm can become a member in its individual capacity and obtain Directorship.

Eligibility

1. Objects of Section 8 Company must be the promotion of Commerce, Art, Science, Education, Research, Sports, Social Welfare, Religion, Charity, Protection of Environment or any such other object.
2. The Company must intend to apply it’s profits (if any) or other income in promoting these objects.
3. It must intend to prohibit the payment of any dividend to it’s members.

 

Criteria that must be fulfilled for registering a Section 8 Company:

• Registration Under: Companies Act, 2013.
• License: License to be applied to MCA.
• Directors: A Minimum of “2 Directors for a Private Limited Company and 3 Directors for a Public Limited Company” must be there.
• Indian Resident: At least 1 director must be a resident of India, i.e., have stayed in India for a total period of not less than 182 days in the previous calendar year.
• Subscribers to MoA: If the Company is proposed to be incorporated as a private company or a public company respectively, it’s MoA must have at least 2 or 3 subscribers.
• MoA & AoA: Decide about the name to be applied for, objects to be carried by the Company, planned registered office address, number of Directors and promoters, authorized capital, and number of shares to be subscribed by each promoter. They must mention the plan laid-out to meet your social objectives.
• Initial Capital: Whatever amount of initial capital has been proposed for the Company, it must get invested in the Company within 2 months.
• Property Management: The ownership of the property lies in the name of the Company and it can only be sold as per the rules mentioned under the Companies Act.
• Dissolution: The Section 8 Company may be wind-up only by following the bye-laws of the society. Upon dissolution and after settling all debts and liabilities, the funds and property of the society are not to be distributed among the members of the company. Instead, the remaining funds and property would be given or transferred to some other Section 8 Company, someone that has a similar object.
• Annual Compliance: There must be Annual filing of accounts, statements and returns of the company with the ROC, in order to adhere to the set compliances.
• Documents: All the Directors must have their valid DIN (Director’s Identification Number) & DSC (Digital Signature Certificate).

Documents Required For Section 8 Company Registration In India

• Passport size photographs of the directors.
• PAN card of every director
• Identity proof of every director (Voter ID Card, Driving License, Passport, Aadhar Card)
• Address proof of every director (any utility bill such as telephone bill, electricity bill, and passbook or bank statement)
• Registered address proof of the company (electricity bill, tax paid receipt, sales deed or any utility bill)
• Memorandum of association
• Articles of association
• Digital signature of directors
• Director Identification number (DIN) of directors
• No objection certificate (NOC) from the owner of the premises where the registered office of the Company is situated
• Documents should be self-attested and attested by a Gazetted officer, bank manager or a post master.

Donations/Funding of Section 8 Company

Section 8 Company is not allowed to raise capitals by way of deposits but they can accept donations from the general public. Below are some of the ways by which it can raise funding:

• Foreign Donations:Foreign donations are allowed only when FCRA (Foreign Contribution Regulation Act 1976) registration has been done. FCRA license can only be applied after 3-years from the date of registration. However, if some really urgent foreign donations are necessary, then you may apply for a prior permission from the commissioner.
• Equity Funding:Section 8 Company can also raise funds by issuing new equity shares at a higher value.
• Domestic donations:There is no limitation to the domestic donations. But to avoid money laundering cases, a proper system must be laid down to keep them in check.

Frequently Asked Questions(FAQ’s)

What is Section 8 Company Registration?

• The company should be formed for the promotion of a social cause. It may be charity, education, industry, sport, etc.
• Income and profits should be used for this purpose or object only.
• No dividend should be paid to its members.

How to register a Section 8 Company?

A Section 8 Company is at first to be registered in the same manner as a limited company. After this registration procedure, it needs to obtain a license from the Central Government to be registered under this Section. This license is provided on the basis of the Company’s objectives which have been mentioned in MoA and AoA and some other criteria.

Can a Section 8 Company be converted into a private limited company?

Yes. A Section 8 company can be converted into a private limited company after taking approval from ROC.

Can the promoters of a Section 8 Company be employees as well?

No. A promoter of an NPO cannot be a paid employee of the Company.

What are the annual compliances for Section 8 Company?

The annual compliances which must be met by a Section 8 Company are the same as other normal companies registered under the Companies Act.
1. Conducting 2 Board Meetings, at least, in a year.
2. Mandatory audit of the Books of Accounts.
3. Annual returns, along with other e-filing forms such as MGT-7, AOC-4, etc.
4. Income tax returns.
5. Additional compliances to fulfill the registration u/s12AA, 80G, of the Income Tax Act, applicable to donations, etc.

Can a Section 8 company raise Foreign Funding?

Foreign donations are allowed only when FCRA (Foreign Contribution Regulation Act 1976) registration has been done. FCRA license can only be applied after 3-years from the date of registration. However, if some really urgent foreign donations are necessary, then you may apply for a prior permission from the commissioner.

Can a Section 8 Company invest in another company?

Yes. Section 8 Companies can invest in other companies. To meet the objectives of it’s formation.

Can a Section 8 Company form a normal subsidiary company?

Yes, it can form a subsidiary company which is normal and plans to make profits.

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