SECTION-8 COMPANY
Section-8 Company Registration:
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SECTION - 8 COMPANY REGISTRATION
A. About
Definition: Section 8 companies are special types of companies established under the Companies Act, 2013, with the objective of promoting commerce, art, science, sports, education, research, social welfare, religion, charity, or any other useful object. Unlike other companies, Section 8 companies do not aim to make profits; any income generated is reinvested in the company’s objectives.
B. Applicable Law:
Companies Act, 2013:
- Section 8: Governs the formation, regulation, and management of non-profit companies.
- Rules and Regulations: Related rules such as the Companies (Incorporation) Rules, 2014, and other applicable rules.
C. Compliance Requirements:
- Annual Compliance:
- Annual General Meeting (AGM): Must be held every year.
- Board Meetings: At least four in a year, with not more than 120 days gap between two consecutive meetings.
- Annual Return Filing: Form MGT-7.
- Financial Statements: Filing financial statements in Form AOC-4.
- Income Tax Returns: Annually under the Income Tax Act, 1961.
- Audit Requirements:
- Mandatory audit of accounts.
- Appointment of auditor as per the provisions of the Companies Act, 2013.
- Registration under Other Acts:
- May require registration under the Societies Registration Act, 1860 or the Indian Trusts Act, 1882, depending on its activities.
D. Benefits:
- Tax Benefits:
- Eligibility for income tax exemptions under Section 12A and 80G of the Income Tax Act, 1961.
- Donations to Section 8 companies are tax-deductible for donors.
- Credibility:
- Enhanced credibility due to strict regulatory compliance and government recognition.
- Separate Legal Entity:
- Can own property, enter into contracts, and sue or be sued in its own name.
- Limited Liability:
- Members’ liability is limited to their shareholding.
- Perpetual Succession:
- Continues to exist even if members change.
E. Disadvantages:
- Stringent Compliance:
- High compliance burden compared to trusts and societies.
- No Profit Distribution:
- Profits cannot be distributed as dividends to members; must be reinvested in the company’s objectives.
- Limited Funding Options:
- Cannot raise funds through equity shares; dependent on donations, grants, and loans.
F. Features:
- Non-Profit Objective:
- Main objective must be to promote commerce, art, science, sports, education, research, social welfare, religion, charity, or any other useful object without profit motive.
- Incorporation:
- Requires a license from the central government (through the Registrar of Companies).
- Management:
- Managed by a Board of Directors, similar to other companies, with strict adherence to corporate governance norms.
4. Membership:
- Can be formed with a minimum of two directors (private limited) or three directors (public limited). No limit on the maximum number of members.
5. Funding:
- Can accept donations, grants, and funds from various sources, including government and international organizations.
6. Conversion:
- Can convert into any other type of company, but requires prior approval from the central government.
Related Guides
G. comparison between a Section 8 Company, a Private Limited Company, and a Limited Liability Partnership (LLP):
Feature | Section 8 Company | Private Limited Company | Limited Liability Partnership (LLP) |
Objective | Promote commerce, art, science, education, research, social welfare, charity, etc. | Profit-oriented business activities | Profit-oriented business activities |
Applicable Law | Companies Act, 2013 | Companies Act, 2013 | Limited Liability Partnership Act, 2008 |
Profit Distribution | No dividends; profits must be reinvested in objectives | Dividends can be distributed to shareholders | Profits are distributed among partners |
Minimum Members/Directors | 2 Directors, 2 Members (Private); 3 Directors, 7 Members (Public) | 2 Directors, 2 Shareholders | 2 Partners (Designated Partners) |
Maximum Members | No specific limit | 200 Shareholders | No specific limit |
Legal Status | Separate legal entity | Separate legal entity | Separate legal entity |
Liability | Limited to the extent of shareholding | Limited to the extent of shareholding | Limited to the extent of contribution |
Perpetual Succession | Yes | Yes | Yes |
Transferability of Shares | Restricted | Restricted | Partners’ consent required for transfer |
Compliance Requirements | High (annual reports, AGM, board meetings, audits) | High (annual reports, AGM, board meetings, audits) | Moderate (annual filings, meetings, audits) |
Taxation | Eligible for tax exemptions (Section 12A, 80G) | Corporate tax rates | Taxed as per individual partners’ tax rates |
Governance | Board of Directors | Board of Directors | Partners manage |
Registration Cost | Moderate to High | Moderate to High | Low to Moderate |
Foreign Investment | Allowed as per FDI norms | Allowed as per FDI norms | Allowed as per FDI norms |
Audit Requirement | Mandatory regardless of turnover | Mandatory regardless of turnover | Mandatory if turnover/capital crosses a limit |
Conversion | Can convert into any other company type | Can convert into LLP or public company | Can convert into private/public company |
Annual Compliance Filings | Financial statements, annual returns | Financial statements, annual returns | Statement of accounts and solvency, annual returns |
Charitable Objectives | Must operate for non-profit purposes | For-profit business activities | For-profit business activities |
Conclusion:
- Section 8 Company is best suited for non-profit organizations aiming to promote social welfare, education, charity, etc., benefiting from tax exemptions but requiring stringent compliance.
- Private Limited Company is ideal for profit-driven businesses seeking limited liability, easy equity raising, and operational flexibility, albeit with higher compliance.
- LLP offers a blend of limited liability with partnership flexibility, suitable for small to medium-sized enterprises looking for easier compliance and tax benefits.
H. Frequently Asked Questions (FAQ) Related to Section 8 Companies
A Section 8 Company is a type of company registered under the Companies Act, 2013, primarily for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, or any other useful object. Such companies do not aim to make profits and any income generated must be used for promoting the objectives of the company.
- Non-Profit Objectives: Formed for charitable or non-profit purposes.
- Limited Liability: Members have limited liability.
- Separate Legal Entity: Can own property, enter into contracts, and sue or be sued.
- No Dividend Distribution: Profits must be reinvested in the company’s objectives.
- Legal Status: Section 8 Companies have a distinct legal status, unlike Trusts or Societies.
- Regulation: Governed by the Companies Act, 2013, providing stricter regulation and higher credibility.
- Tax Benefits: Eligible for more extensive tax exemptions compared to Trusts and Societies.
- Obtain Digital Signature Certificate (DSC) for proposed directors.
- Apply for Director Identification Number (DIN) for proposed directors.
- Name reservation through Form INC-1.
- Draft Memorandum of Association (MOA) and Articles of Association (AOA) as per prescribed format.
- File incorporation forms INC-12, INC-13, INC-14, and INC-15 with the Registrar of Companies (RoC).
- Upon approval, RoC issues the Certificate of Incorporation along with a unique company identification number (CIN).
- Annual General Meeting (AGM): Must be held every year.
- Board Meetings: At least four meetings a year.
- Annual Return Filing: Form MGT-7.
- Financial Statements: Filing in Form AOC-4.
- Income Tax Returns: Annually under the Income Tax Act, 1961.
- Audit: Mandatory annual audit of accounts.
No, a Section 8 Company cannot distribute profits to its members. All profits must be reinvested in the company to further its non-profit objectives.
Yes, an existing company can be converted into a Section 8 Company by applying to the RoC with the necessary documents and following the prescribed procedure under the Companies Act, 2013.
Yes, Section 8 Companies can avail of various tax exemptions under the Income Tax Act, 1961, such as Sections 12A and 80G, provided they meet certain conditions and get the necessary registrations from the Income Tax Department.
Non-compliance can lead to penalties, including fines and imprisonment for directors. The company’s license can also be revoked, resulting in its conversion into a regular company with limited benefits.
Yes, foreign nationals or entities can invest in a Section 8 Company, subject to compliance with Foreign Direct Investment (FDI) regulations and other applicable laws in India.
Yes, a Section 8 Company can be converted into any other type of company with prior approval from the central government.
A Section 8 Company is managed by a Board of Directors. The minimum requirement is two directors for a private limited Section 8 Company and three directors for a public limited Section 8 Company.
No, there is no minimum capital requirement for incorporating a Section 8 Company under the Companies Act, 2013.
- Tax Benefits: Eligible for various tax exemptions.
- Credibility: Higher credibility due to strict regulatory compliance.
- Limited Liability: Members enjoy limited liability protection.
- Perpetual Succession: Continuity irrespective of changes in membership.
Yes, a Section 8 Company can engage in commercial activities, provided the profits are used solely for promoting the non-profit objectives of the company.
I. Eligibility Criteria for Incorporating a Section 8 Company:
- Objective:
- The primary objective must be to promote commerce, art, science, sports, education, research, social welfare, religion, charity, or any other useful object.
- The company must apply its profits, if any, or other income in promoting its objectives.
- The company must prohibit the payment of any dividend to its members.
- Directors and Members:
- Minimum Directors: At least two directors for a private limited Section 8 Company, and at least three directors for a public limited Section 8 Company.
- Minimum Members: At least two members for a private limited Section 8 Company, and at least seven members for a public limited Section 8 Company.
- Directors and members can be individuals or entities.
- At least one director must be a resident of India, i.e., a person who has stayed in India for a total period of not less than 182 days in the previous calendar year.
- Name Approval:
- The proposed name of the company must be approved by the Registrar of Companies (RoC) and should not be similar to the name of an existing company or violate any trademark.
- The name must include words such as “Foundation,” “Forum,” “Association,” “Federation,” “Chambers,” “Confederation,” “Council,” etc., indicating its non-profit nature.
- Documents Required:
- Identity Proof: PAN card for Indian nationals, and passport for foreign nationals.
- Address Proof: Aadhaar card, voter ID, passport, or driving license for Indian nationals; passport, residence card, or utility bill for foreign nationals.
- Passport-sized Photographs of all directors and members.
- Proof of Registered Office: Rental agreement or sale deed and a utility bill not older than two months, along with a No Objection Certificate (NOC) from the owner if the office is rented.
- Digital Signature Certificate (DSC):
- All proposed directors must obtain a Digital Signature Certificate (DSC) from a government-recognized certifying authority to digitally sign the incorporation documents.
- Director Identification Number (DIN):
- All proposed directors must obtain a Director Identification Number (DIN) from the Ministry of Corporate Affairs (MCA).
- Memorandum of Association (MOA) and Articles of Association (AOA):
- MOA and AOA must be drafted in accordance with the prescribed format and must clearly state the non-profit objectives and rules governing the company’s operations.
- Declaration and Compliance:
- A declaration by professionals (Chartered Accountant, Company Secretary, or Cost Accountant) in Form INC-14, certifying that the MOA and AOA comply with the provisions of the Companies Act, 2013.
- A declaration in Form INC-15 by each person making the application, confirming that the requirements of the Act and the rules made thereunder have been complied with.
Incorporation Process:
- Name Reservation:
- File Form INC-1 to reserve the company name with the Registrar of Companies (RoC).
- License Application:
- File Form INC-12 along with MOA and AOA, declarations (Forms INC-14 and INC-15), and other relevant documents to apply for a license under Section 8 of the Companies Act, 2013.
- Certificate of Incorporation:
- Upon approval, the RoC issues a Certificate of Incorporation along with a unique Company Identification Number (CIN).
- Post-Incorporation Compliance:
- · After incorporation, comply with annual filing requirements, conduct regular board meetings, maintain statutory registers, and adhere to audit and financial statement requirements.
J. Documents Required for Incorporating a Section 8 Company
- Identity Proof of Directors and Members:
- PAN Card: For all Indian directors and members.
- Passport: For foreign directors and members.
- Address Proof of Directors and Members (any one of the following):
- Aadhaar Card
- Voter ID Card
- Passport
- Driving License
- Utility Bill (electricity, telephone, gas, etc.), not older than two months.
- Bank Statement or Passbook with the latest transactions, not older than two months.
- Passport-sized Photographs:
- Recent passport-sized color photographs of all directors and members.
- Proof of Registered Office Address:
- Utility Bill (electricity bill, water bill, property tax receipt, etc.) for the registered office, not older than two months.
- Rental Agreement/Lease Deed: If the office premises are rented.
- Sale Deed/Property Deed: If the office premises are owned.
- No Objection Certificate (NOC) from the property owner, if the office premises are rented.
- Digital Signature Certificate (DSC):
- DSC of all proposed directors, which can be obtained from government-recognized certifying authorities.
- Director Identification Number (DIN):
- DIN for all proposed directors, which can be obtained by filing Form DIR-3 with the Ministry of Corporate Affairs (MCA).
- Memorandum of Association (MOA):
- MOA outlining the non-profit objectives of the company. It must be drafted as per the prescribed format and signed by all subscribers in the presence of a witness.
- Articles of Association (AOA):
- AOA detailing the rules and regulations for the company’s internal management. It must be drafted as per the prescribed format and signed by all subscribers in the presence of a witness.
- Declaration by Professionals:
- Form INC-14: Declaration by a practicing Chartered Accountant, Company Secretary, or Cost Accountant, certifying that the MOA and AOA comply with the provisions of the Companies Act, 2013.
- Declaration by Subscribers and Directors:
- Form INC-15: Declaration by each person making the application, confirming that all requirements of the Companies Act, 2013, and the rules made thereunder have been complied with.
- Application for Name Approval:
- Form INC-1: Application for reserving the company name, ensuring it is not similar to any existing company or trademark.
- Application for License under Section 8:
· Form INC-12: Application for the issuance of a license under Section 8 of the Companies Act, 2013, along with the necessary documents and declarations.