Introduction of Section 8
With the Introduction of concept such as Social welfare and CSR and adjoint benefits with such concept’s community is now driving more toward not-for-profit organizations. Generally known as Non-profit organizations and registered under the Ministry of Corporate Affairs according to Section 8 of Companies Act, 2013 and The Companies (Incorporation) Rules, 2014, Section 8 Company is one of the several forms of business in India for Organizations formed for Charitable Business or social causes.
Non-Profit Organization (NPO) in India can be registered under 3 forms-
- through a trust deed,
- as a society under the Registrar of Societies and
- Non-profit company under Section 8 Company of the Companies Act, 2013
Section 8 Company is similar to a Trust or Society but there is an exception that a Section 8 Company is registered under the “Ministry of Corporate Affairs (MCA)” of the Central Government while the Societies and Trusts are registered under the regulations of the State Government. However, Section 8 Company has numerous advantages as compared to Trust or Society and also has better credibility among donors, departments of government, and other stakeholders.
A Section 8 company should:
- In its objects have promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
- Intend to apply its profits, if any, or other income in promoting its objects; and
- Intend to prohibit the payment of any dividend to its members,
Process of Section-8 Incorporation
Step 1: Consent of Directors and Members
Get consent of all the subscribers and Director of the company who are willing to incorporate the company. The person who are becoming the Director of the company (if Individual) can become Member of the company.
Step 2: Check the name Availability
The name of a Section 8 Company must end with the words like Foundation, forum, association, federation, chambers, council, electoral trust. Etc. Rule 8 and 8A of The Companies (Incorporation) Rules, 2014 shall be abided while checking the name of the company. You will need professional expertise to check the name as there are several complexities while doing the same.
The Digital Signature Certificates (DSC) of all the subscribers and Directors of the proposed Company shall be applied and necessary verification should be done by the applicant.
Step 4: Preparation of MOA and AOA
MOA and AOA of Section 8 Company should be prepared in physical copy with MOA having objects such as promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment etc. and shall mention that company will not distribute dividend to its members.
Step 5: Completion of Documentation:
Documents including INC 14, INC 15, MOA, AOA, estimate of the future annual income and expenditure of the company for next three years, etc. need to be prepared which will be filed with the Registrar of Company.
Incorporation Form SPICe PLUS, will be filed with Ministry of Corporate Affairs along with all the attachments.
When Ministry finds that all the documents are correct and complete in all respect, they will issue License in Form INC 16, Certificate of Incorporation, PAN, TAN etc. Ministry will also allot DIN on incorporation if the Directors do not have DIN already.
On getting Approval from Ministry, Section 8 company becomes eligible for registrations such as Section 11, 12 and 80 G of Income Tax Act, 1961, Niti Aayog etc.
Documents Required for Registration
- Digital Signatures of all Directors and Subscribers
- DIN No. for all Directors (If already allotted, otherwise it can be allotted later on)
- Identity Proofs for all the Directors and Subscribers (PAN Card)
- Address Proof of all the Directors and Subscribers (e.g. Aadhaar, Bank Statement)
- Photograph of all the Directors and Subscribers
- Any Utility Bill as Address Proof of Registered office of the company
- If Registered Office is Rented, No Objection Certificate/ Rent Deed from the owner of the Property
- Other documents as prepared by the Professional
Benefits of Section 8 Company
- Incorporated for social welfare
A Section 8 company is incorporated for charity, social welfare and social promotion. Their main aim is to promote social welfare and work for society instead of earning profits. Their main objects depict the reasons for their incorporation. The objects could include Sports, Promote commerce, art, science, education, research, social welfare, religion, charity, protection of the environment, or any such other object.
- No minimum capital
As compared to other companies, section 8 companies don’t require any prescribed minimum paid-up share capital. It can be incorporated with zero authorised/ paid up capital
- Licensed by government
These types of companies are licensed by the central government under section 8 of The Companies Act 2013 and these companies work for society and receive a donation from other general public for the welfare work.
- Limited liability
Section 8 Company also forms as a private limited or public limited company having limited liability. Members of this company have limited liability as per their share subscribed. Accordingly, their personal assets cannot be used to pay off any debts on which the company has defaulted/
- No dividend distribution
According to the Companies Act 2013, A Section 8 company cannot distribute any dividends to its members. The profits can only be used in promoting their business objectives.
- Stamp duty Relaxation
Some states such as Punjab, Gujarat, Delhi, West Bengal etc. are giving registration of Section 8 company with Zero Stamp Duty, however there are other states giving relaxation in stamp duty.
- No suffix
Section 8 companies may not use suffixes like the private limited company or limited company.
- Tax Benefits
Section 8 company is eligible for getting tax benefits. They can get registered under section 80G and 12AA of IT act thereby allowing them to provide tax exemptions to any donors.
Characteristics of Section 8 Company
- Object in the Memorandum of Section 8 Company can only have objects such as, promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment etc.
- Can be incorporated as a limited Company either a Private Limited Company or a Public Limited Company without addition of word"Limited", or as the case may be, the words "Private Limited".
- The name of a Section 8 Company must end with the words like Foundation, forum, association, federation, chambers, council, electoral trust. Etc.
- Minimum of 2 Director and 2 members in case of Private Limited and a Minimum of 3 Directors and 7 members in case incorporated as Public Limited Company.
- No Minimum or Maximum requirement of Capital for Sec 8 Company.
- During the Incorporation, on complete documents submission, Ministry will first issue License under Section 8 (1) of The Companies Act, 2013 in the form of INC 16, thereafter other documents such as COI, PAN, TAN etc. are issued.
- After the Incorporation, Section 8 Company can take Taxation benefits provided under Income Tax Act, 1962 by getting registration under Section 12AA and 80G.
- Any profit or income made by the company can be only applied towards promoting the objectives of the company and cannot be distributed as dividends to its members.