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Section 8 Company Registration

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  • Includes:
    • Two Digital Signatures.
    • Two DINs.
    • Section 8 Company Incorporation.
    • Govt. Fee for Name Approval and Incorporation Forms.
    • PAN and TAN.
    • ESIC and EPF Registration.

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SECTION 8 COMPANY

A company is referred to as Section 8 Company when it registered as a Non-Profit Organization (NPO) i.e. when it has motive of promoting arts, commerce, education, charity, protection of environment, sports, science, research, social welfare, religion and intends to use its profits (if any) or other income for promoting these objectives.

The income of NPO cannot be used for paying out dividends to the company’s members and has to be for the promotion of charitable objectives. Such companies obtain an incorporation certificate from the central government and are liable to adhere to the rules specified by the government.

According to the rules, failure to comply with the responsibilities stated by the Central Government may lead to the winding up of the company on the orders of government. Besides, strict legal action will be taken against all the members of the company if the objectives laid down by the company proves to be bogus.

Its manner of carrying out the operation is similar to any other limited company and even the right & duties of a limited company and NPO are alike. However, the title of “Section 8” and “Limited” can not be interchanged.

Eligibility to Apply for Section 8 Company

  • An individual or an association of individuals are eligible to be registered as Section 8 Company if it holds below-mentioned intentions or objectives. The objectives have to be confirmed to the satisfaction of the Central Government.
  • When the company intends to promote science, commerce, education, art, sports, research, religion, charity, social welfare, protection of the environment or alike other objectives;
  • When the company holds an intention to invest all the profits (if any) or any other income generated after incorporation in the promotion of such objects only;
  • When the company does not intend to pay any dividend to its members.

Features of Section 8 Company

  • Incorporate for social welfare: This type of company incorporated for charity, social welfare, social promotion, their main aim is to promote social welfare and work for society, not to earn profits. Their main objects depict the reasons for their incorporation, objects are like 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.
  • 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.
  • No dividend distribution: This form of company’s doesn’t issue a dividend to its members, because it is restricted from the law. They cannot distribute their earned profit as dividends to its member; they can use their profit in promoting their business objectives.

Advantages/Privileges

People generally prefer to conduct charitable activities by forming Section 8 companies instead of regular NGOs and associations. This is because they have limited liability, so their personal assets will not be used in paying debts of the company. Here are some advantages that these companies enjoy:

  • Members have limited liability.
  • No minimum capital requirements.
  • They get several tax exemptions.
  • Stamp duties and high fees are not payable for registration.
  • They have perpetual existence and separate legal status.
  • Exemptions from carrying out several procedural compliances.
  • More credibility than compared to NGOs, societies, and trusts because they are recognized by the Central Government’s license.

Disadvantages

Despite numerous merits, these companies also have the following drawbacks:

  • Members of the company cannot get any dividend.
  • Officers and directors do not get benefits and allowances.
  • Can only use the profits for furthering charitable aims and objectives.
  • Amendment of memorandum and articles requires Central Government’s permission.
  • The license is revocable on several grounds.

Annual Filing

Section 8 Company should follow the annual compliances within the below mentioned time:

What is the benefit of following annual compliance of Section 8 of the Company?

The basic reason for meeting the compliance of Section 8 Company is to avoid penalties. Also, it ensures the smooth functioning of the company. Below are some of the listed points:

  • Better Credibility of the Companies.
  • Avoid getting into any legal trouble.
  • To build trust amongst the customers.
  • To avoid penalties.

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Related FAQ’s

Section 8 Company may be incorporated as a company limited by shares or by Guarantee (with or without share capital).

Yes. As per rule 8(7) of the Companies (Incorporation) Rules, 2014, for the Companies under Section 8 of the Act, the name shall include the words foundation, Forum, Association, Federation, Chambers, Confederation, council, Electoral trust and the like etc. However, Section 8(1) permits the registration, under a license granted by the Central Government, of associations not for profit with limited liability without being required to use the word “Limited’ or the words ‘Private Limited” after their names.

No, Rule 3(6) of the Companies (Incorporation) Rules, 2014 prohibits one person company to invest in securities of any body corporate.

No. As per proviso to section 2(85), section 2(85) does not apply to a Section 8 Company and accordingly, a Section 8 Company cannot be treated as a small company. Likewise, a small company on conversion to a Section 8 Company shall cease to be a small company.

Yes, under the Companies Act, 2013, a Partnership firm or an LLP can become the member of Section 8 Company. The provisions of respective Acts need to be complied with by the partnership firm or LLP as the case may be.

There is no restriction in the provisions of the Companies Act, 2013 for a registered Trust to become a member of Section 8 Company. In case of unregistered trusts, provisions of section 89 would be applicable.

In terms of section 8, any person or an association of persons intending to register a limited liability company for objects specified in section 8(1)(a), subject to the restrictions provided in section 8(1)(b) and (c), can opt to apply for registration of Section 8 Company.

The term “person” has not been defined in the Companies Act, 2013. Section 2(41) of the General Clauses Act, 1897 provides that “person” shall include any Company or association or body of individuals, whether incorporated or not. Section 11 of the Indian Contract Act, 1872 provides that every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is sound mind and is not disqualified from contracting by any law to which he is subject. Therefore a Co-operative society can be regarded as Person and thus capable of becoming subscriber of a company including Section 8 Company.

A non-profit making company licensed under Section 8 of the Companies Act,2013 can become a member of another company if it is authorised by its Memorandum of Association to invest into shares of the other company.

A section 8 company, which is proposed to be registered with limited liability, may either be a public limited company or a private limited company or Specified IFSC Company.

No. Rule 3 of the Companies (Incorporation) Rules, 2014 prohibits a one person company to be incorporated as section 8 company or to convert into a Section 8 Company.

Yes, section 8 company can promote another company and be a holding company of another company.

Rule 19(2) of the Companies (Incorporation) Rules, 2014 provides that the memorandum of association of the Section 8 Company shall be in Form No.INC.13. Review of Form INC 13 clarifies that a memorandum of association of a Section 8 Company may inter-alia provide for the doing of all such other lawful things as considered necessary for the furtherance of the objects for which the company has been incorporated.

Yes, an Articles of Association of a Section 8 Company can have entrenchment clause in terms of provisions of section 5(3).

The powers under section 8 have been delegated to the Registrar of Companies by Notification No.1353(E), dated 21st May, 2014. Accordingly, the application in e-Form INC-12 for grant of licence will be made to the ROC. The application should be made in conformity with the procedure laid down in the Companies (Incorporation) Rules, 2014.

E-Form INC-12 has to be submitted with following attachments:

  • Draft Memorandum of association (in the Form INC-13 to be attached with the Form SPICe-32);
  • Draft Articles of association in the Form INC-31 (To be attached with the Form SPICe-32);
  • Declaration as per Form INC-14 (to be attached with the e-Form INC-12) by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, that the draft memorandum and articles of association have been drawn up in conformity with the provisions of section 8 and rules made thereunder and that all the requirements of the Act and the rules made thereunder relating to registration of the company under section 8 and matters incidental or supplemental thereto have been complied with;
  • If company is already in existence, then last one/two years accounts, balance sheet and report on the working of the association/company as submitted to the members of association/company;
  • Assets and liabilities statements with their value as on a date not earlier than thirty days of making the application;
  • Annual income and expenditure estimates for next three years;
  • Declaration by each of the applicant(s) as per Form INC -15 (to be attach with the e-Form INC
  • A copy of board/members resolution approving registration of company under section 8;
  • Optional attachment, if any.

Stamp duty on memorandum & articles of association of Section 8 or on any increase in share capital is governed by Indian Stamp Act, 1899 as adopted by respective state or stamp act of respective state, as the case may be. Some of the states provide privileged rates for stamp duty on MOA/ AOA of Section 8 Companies or on increase in authorized share capital.

Stamp duty on issue of share certificates is governed by Indian Stamp Act, 1899 as adapted by respective state or stamp act of respective state, as the case may be. No relaxation of special rate of stamp duty has been provided by any of the state in respect of stamp duty payable on issue of share certificates by Section 8 Company.

Stamp duty on issue of share certificates is governed by Indian Stamp Act, 1899 and no relaxation of special rate of stamp duty has been provided stamp duty payment on transfer of shares. However, as in case of other Companies, no stamp duty is payable on transfer of shares of section 8 company also, if made in demat mode.

Section 2(42) of the Companies Act, 2013 defines the term “Foreign Company” and means any company or body corporate incorporated outside India which– (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and (b) conducts any business activity in India in any other manner. Now since a Company or a body corporate incorporated outside India for doing not for profit activities, which has opened a branch/liason office in India, cannot fall in definition of a foreign company as business activity is missing. Therefore, such company cannot be termed as foreign company. However, subject to compliance of FEMA regulations, it can open branch/liason offices. Such not for profit companies or bodies corporate incorporated outside India can promote and register a Section 8 Company in India as a distinct entity.

There are special requirements to be complied with under the Foreign Contribution and Regulation Act, 2010 before a Section 8 Company can receive any contributions or donations from overseas/outside India from non-residents. The provisions of the said Act are in addition to the provisions under the Companies Act.

A Section 8 Company can alter the provisions of its Memorandum or articles by passing a special resolution, however such alteration requires the approval of the Registrar of Companies [vide MCA notification dated 21st May, 2014]. Further, if alteration in Memorandum or Articles results in conversion of Section 8 Company to any other kind of company, prior approval of Central Government is required. Such power is delegated to Regional Director [vide MCA notification dated 21st May, 2014].

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