What is Section 8 Company: Section 8 Company Registration

A Section 8 Company is a type of non-profit organization in India formed with the primary objective of promoting commerce, art, science, sports, education, research, social welfare, religion, charity, or environmental protection. Instead, any income or profits earned must be used to further the organization’s objectives.

These companies enjoy various benefits, including tax exemptions and no minimum capital requirement, making them an ideal choice for individuals and groups dedicated to social, cultural, or charitable causes. This article will help you understand what is section 8 company.

What is Section 8 Company?

A Section 8 Company is a type of non-profit organization in India registered under the Companies Act of 2013. These companies aim to promote social welfare, commerce, art, science, sports, education, research, religion, charity, environmental protection, or any other beneficial objectives.

Unlike other companies, a Section 8 Company does not distribute its profits to its members but instead uses them to achieve its goals. A Section 8 Company can be converted into another type of company (Eg.: Private Limited Company) if its objectives change. If the company needs to be dissolved, it must follow the procedure laid down in the Companies Act of 2013, which includes settling liabilities and distributing any remaining assets for similar objectives.

What is the eligibility for registering a Section 8 Company?

To register a Section 8 Company in India, the following eligibility criteria must be met:

• Purpose:
  • The primary objective of the company must be to promote fields such as:
    • Commerce
    • Art
    • Science
    • Sports
    • Education
    • Research
    • Social welfare
    • Religion
    • Charity
    • Environmental protection
• Eligibility for Individuals and HUFs:
  • An individual or a Hindu Undivided Family (HUF) is eligible to start a Section 8 company in India.
• Directors and Shareholders:
  • A minimum of two persons, acting as directors or shareholders, must comply with all the requirements and regulations of Section 8 company incorporation under the Companies Act.
• Resident Director Requirement:
  • The company must have at least one director and he should be a resident of India.
• Objective of the Company:
  • The company’s objectives must include one or more of the following: promotion of sports, social welfare, advancement of science and art, education, or providing financial assistance to lower-income groups.
• Remuneration Restrictions:
  • Founders, directors, and members of the company are prohibited from drawing any remuneration in any form, whether cash or kind.
• Profit Distribution:
  • Profits should not be distributed among the members or directors of the company, either directly or indirectly.

What are the key features of Section 8 Company?

• Non-Profit Nature:
  • The primary feature of a Section 8 Company is that it operates without the intention of making a profit. Any income or profits are reinvested into the company to support its objectives.
• Limited Liability:
  • Members have limited liability, meaning their assets are protected if the company faces financial issues.
• No Minimum Capital Requirement:
  • There is no requirement for a minimum capital investment to start a Section 8 Company.
• Name Requirement:
  • These companies do not need to include “Limited” or “Private Limited” in their names.
• Tax Benefits:
  • Section 8 Companies are eligible for various tax exemptions under the Income Tax Act, which can help reduce their tax liabilities.

How to form a Section 8 Company?

Here are the step-by-step process of incorporating a Section 8 company.

• Obtain a Digital Signature Certificate (DSC):
  • The proposed directors must first obtain Digital Signature Certificates.
• Apply for Director Identification Number (DIN):
  • The next step is to apply for Director Identification Numbers for the proposed directors.
• Name Approval:
  • Submit an application to the Ministry of Corporate Affairs (MCA) for name approval. In the company’s objectives, the name should reflect.
• Prepare and File Incorporation Documents:
  • Draft the Memorandum of Association (MOA) and Articles of Association (AOA), outlining the company’s goals and internal rules. Submit these documents, along with other necessary forms, to the MCA.
• Certificate of Incorporation:
  • Once the MCA approves the application, it issues a Certificate of Incorporation, officially bringing the company into existence.

What are the major benefits of Section 8 Company?

• No Minimum Capital:
  • A Section 8 Company does not have a minimum capital requirement for incorporation. The capital structure can be adjusted at any time based on the company’s growth needs.
  • This flexibility allows the company to bring in necessary funds later through donations and subscriptions from members and the public to support its operations.
• No Stamp Duty:
  • Incorporating a Section 8 Company in India is exempt from stamp duty.
  • This means there is no need to pay the stamp duty that is typically required on the Memorandum of Association (MOA) or Articles of Association (AOA) for private or public limited companies.
• Legal Entity:
  • A Section 8 Company is a separate legal entity, which protects its members from personal liability.
• Credibility:
  • Being registered under the Companies Act of 2013, these companies are recognized by the government, adding to their credibility.
• Tax Exemptions:
  • They can avail of various tax exemptions and benefits under the Income Tax Act.
• Funding Opportunities:
  • These companies can raise funds through donations, grants, and contributions from the public, government, and international organizations.
• Perpetual Succession:
  • The company continues to exist even if its members change or leave, ensuring stability and continuity.

What are the compliance requirements for Section 8 company?

To ensure smooth operation and legal compliance, a Section 8 Company must adhere to the following annual compliance requirements:

• Annual General Meeting (AGM):
  • Hold an AGM every year to discuss company performance and plans.
• Annual Return:
  • File an annual return with the Registrar of Companies (ROC) in Form MGT-7.
• Financial Statements:
  • Submit audited financial statements, including the balance sheet and profit & loss account, in Form AOC-4.
• Income Tax Return:
  • File annual income tax returns by the specified due date.
• Audit:
  • Ensure the company’s accounts are audited by a qualified auditor.
• Compliance Certificate:
  • File a compliance certificate, if applicable, to confirm adherence to all regulatory requirements.

Which are the forms required for Section 8 Company Registration?

The following forms are required for the registration of a Section 8 Company:

• Form INC-1: Application for name approval.
• Form INC-12: Application for the issuance of a license to operate as a Section 8 Company.
• Form INC-13: Memorandum of Association.
• Form INC-14: Declaration by an advocate, Chartered Accountant (CA), or Cost Accountant regarding compliance.
• Form INC-15: Declaration by each person making the application.
• Form INC-16: License to operate as a Section 8 Company.
• Form DIR-2: Consent to act as a director.
• Form INC-22: Notice of the situation of the registered office.
• Form DIR-12: Particulars of appointment of directors.

What is the purpose of Section 8 Company forms?

Each form serves a specific purpose in the registration process:

• Form INC-1: Secures the name of the proposed company.
• Form INC-12: Requests the license for operating as a non-profit organization.
• Form INC-13: Establishes the objectives and structure of the company.
• Form INC-14 & INC-15: Ensures compliance with legal requirements.
• Form INC-16: Officially grants the license to operate as a Section 8 Company.
• Form DIR-2: Confirms the consent of directors to be appointed.
• Form INC-22: Registers the official address of the company.
• Form DIR-12: Documents the appointment of the company’s directors.

Penalty for Non-Compliance of Section 8 Company

Non-compliance with Section 8 Company regulations can result in severe penalties:

• Fines:
  • The company and every officer in default can be fined between INR 10,000 and INR 1,00,000.
• License Revocation:
  • The government may revoke the company’s license if it operates beyond its objectives or violates legal provisions.
• Imprisonment:
  • In extreme cases, officers in default may face imprisonment of up to three years.

Conclusion

In conclusion, what is Section 8 Company is an ideal choice for individuals or groups looking to promote social causes through a structured and recognized entity. With its unique advantages such as limited liability, tax benefits, and high credibility, it provides a robust framework for non-profit activities.

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