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
Features of Section 8 Company
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:
Despite numerous merits, these companies also have the following drawbacks:
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:
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.
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: