Section 8 Company

All companies in India are not operating for the profit purpose. Many companies primarily operate for charitable and non-profit objectives. The company registered under the Section 8 of the Companies Act 2013, is known as Section 8 Company.

A Section 8 Company is a non-profit organization that aims to promote charitable activities, art, science, education, and sports. The profits of such companies are utilized for promoting these objectives and are not distributed among the Company’s members.

Definition of Section 8 Company – Companies Act, 2013

According to Section 8 of the companies Act, 2013 such companies are established for the promotion of commerce, art, science, sports, social welfare, charity, protection of any environment or any other such charitable objects. As per rule 8(7) of the companies Incorporation Rules, 2014 for the companies under Section 8 of the Act, all the section 8 companies are named and registered as an Association, Foundation, Society, Club, Organization etc. These companies are registered under Ministry of Corporate Affairs, Government of India.

Overview of Section 8 Company Registration

The Section 8 companies intend to apply its profits in promoting or helping out the needful and intend to prohibit the payment of any dividend to its members. Section 8 companies work towards the transformation of the society rather than just earning profit.

The companies under Section 8 are easy to register as compared to Trusts and Societies.

Benefits of Opening a Section 8 Company in India

Incorporating a Section 8 company in India offers numerous advantages, some highlighted below.

Tax Benefits: Section 8 companies are exempted from the provision of income tax. Also, these companies get other tax benefits and deductions.

Zero Stamp Duty: Unlike other companies, Section 8 companies do not need to pay stamp duty on the AOA and MOA of the private or public limited companies.

Ease of Transferring the Ownership or Title: According to the Income Tax Act, 1961, Section 8 Companies can transfer their ownership or title. Also, the interest and shares of other members of the company is also considered as movable property and are easy to transfer which in turn makes it easier for the members to leave and transfer its ownership to others.

Exempted From The Title “Limited”: Section 8 companies are exempted from using the word “Limited” unlike other companies like Private Limited Company and public limited company. However, it is mandatory for the section 8 companies to use the suffix such as Foundations, associations etc.

Higher Credibility: Section 8 companies are more credible than other non-profit organizations like societies or trust. The licensing of these companies is done by the Central government. So, no changes can be made in the AOA and MOA of the Company.

Disadvantages Of Section 8 Company

Now, let’s have an eye on the disadvantages of the Section 8 Companies which are listed below:

• The profit that the section 8 Companies make is used for the meeting the objectives like arts, commerce, science. It cannot be used by the director or shareholders by any means.
• The members of the Section8 Companies cannot be appointed as the officer.
• The members cannot make changes in the MOA and AOA of the company because the licensing is done by the Central government.
• The profit earned by the Section 8 companies cannot be distributed among its members.

Eligibility for Forming Section 8 Companies

 A company which intends to be registered under the Section 8 of the Companies Act, 2013 should keep these rules in mind before registering

• The company’s objective should be promoting fields like arts, science, commerce, education, religion etc.
• The company should use the profit from the organization in promoting the objectives of the company.
• The company should restrict the share of dividends to its members.
• Section 8 companies can only be registered as Private or Public Limited. It cannot be registered as one person Company (OPC).
• The company must confirm the proposed name, its objectives, registered office address, authorized capital, proposed Director and the members.
• The name of the company should reflect the charitable objective. Also the proposed name must be different from the category of undesirable names specified in Rule of Companies Act.
• The company’s name must include the words like Foundation, Forum, Association, Chambers, council etc.
• Requires license from the Central Government.

Requirements for Online Registration of Section 8 Company

Before applying for the incorporation process of a Section 8 company in India, specific legal requisites must be fulfilled. These requirements are as follows:

Number of Directors

A minimum of two directors is required if the Section 8 entity intends to operate as a private limited company. However, a minimum of three directors are required if the entity aims to operate as a public limited company.

Number of Members

If the Section 8 Company aims to function as a private limited company, the number of members is capped at 200 by the Ministry of Corporate Affairs (MCA). However, there is no such limit for Section 8 entities with a business structure like a public limited company.

Capital Requirement and Name

According to the Companies Act 2013, Section 8 entities are not required to maintain a minimum paid-up capital. Moreover, NGOs operating as Section 8 entities are not obligated to affix terms like private limited or limited in their name.

Company Objects

Only entities with non-profit objectives are eligible for Section 8 registration. The Memorandum of Association and Articles of Association must clearly state such goals for which the Company is established. Any profits the Section 8 entity generates must be utilized for charitable purposes or reinvested in the entity. The profit of Section 8 entities is not available to its members in any form. These legal requisites ensure that Section 8 companies operate with transparency and the intended purpose of promoting social welfare.

Section 8 Company Incorporation Process

Step 1: Obtain Digital Signature Certificate (DSC)

 Digital Signature is the online signature used for filing and is issued by Ministry of Corporate affairs (MCA). A digital signature is a secure digital key issued for the purpose of validating and certifying the identity of the person. Some of the certified authorities which issue the digital signature certificate are E- mudra, national Informatics Centre, Code Solutions and Indian Institute of development research in banking technology. The documents required while applying for DSC are:

• Photo ID – Voter ID or PAN or Driving License
• Address Proof- Voter ID, Utility Bill, Bank Statement (Utility bills and Bank Statement must not be older than 2 months)
• Photo of the applicant

Step 2: Reserve the Company Name

The next step is to reserve the name of the proposed Company with the MCA. The Section 8 company name should be unique and not be similar to any existing company name. Form INC-1 is used for reserving the company name.

Forms to be used: INC-1

Step 4: File the Application for Incorporation

After the company name is approved, the next step is to apply for Section 8 Company incorporation. The application for incorporation is filed in Form INC-32 along with the Company’s Memorandum of Association (MOA) and Articles of Association (AOA).

Forms to be used: INC-32, MOA, and AOA

Step 5: Obtain a License for Section 8 Company

Once the application for incorporation is approved, the next step is to obtain a license for the Section 8 Company. Form INC-12 is used for obtaining the license. It should be filed along with the necessary documents.

Forms to be used: INC-12

Step 6: Obtain a Certificate of Incorporation

After obtaining the license, the MCA issues a Certificate of Incorporation in Form INC-16. This certificate confirms the incorporation of the Section 8 Company.

Forms to be used: INC-16

In summary, the forms used for Section 8 Company registration are DIR-3, DSC, INC-1, INC-32, MOA, AOA, INC-12, and INC-16.

Penalty Under Section 8 Companies

If any company under Section 8 Companies Act, 2013 fails to comply with the terms and regulations of Section 8, then according to the provisions of Sub-section (11), the Company shall be held punishable and have to pay:

A minimum fine of INR 10 Lakhs which can extend to INR 1 Crore.

The Concerned Director is punishable and will face the imprisonment for a term of three years with a fine of minimum INR 25000. The fine can also extend to INR 25 Lakh.