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Pankaj Tyagi
| Updated: 01 Jul, 2021 | Category: Section 8 Company

A Closer look at Benefits of Section 8 Company Registration

Benefits of Section 8 Company Registration

Section 8 companies are the establishments that aim to promote social welfare, charity, education, science, art, religions, and other undertakings imperative to aid the society at large. These entities are generally regarded as Non-profit organizations (NPO). They are primarily incorporated to undertake the main object of welfare in the field as cited above.

To begin with, let us go through the key concept of the Section 8 Company.  As we know that our legal framework facilitates different types of business structures such as LLP, private limited company, and public limited company. Each business structure listed here seeks different implications and legal requirements. All these business structures can function like a Section 8 company. But, note that the One Person Company (OPC) is an exception here. Now let us go through the several benefits of Section 8 Company Registration.

Prominent Benefits of Section 8 Company Registration

The following section depicts all possible benefits of Section 8 Company registration

Prominent Benefits of Section 8 Company Registration

Attract minimal taxes 

Presently, section 8 companies and their donors rejoice horde of tax exemptions as mentioned below:

  • Section 8 Company confronts reduced stamp duty when contrasted with other companies.
  • As per the IT Act, 1961, the donors may claim a 50% rebate against the contributions they made. Moreover, Section 80G allows such donors to claim said rebate within the timeline ranging from 1-3 years.
  • The taxation applicable to Section 8 entities is on par with other companies. The profit is taxable at the rate of 30%.
  • If Section 8 entity holds a registration under section 12AA (tax exemption) of the IT Act, then its profits shall not be subjected to any form of taxes.
  • Every year the Central Government renders several tax exemptions to Section 8 companies so that can flourish without any hassle.

Fewer tax obligations eventually translated to improved profitability. This is why it is one of the prominent benefits of section 8 company registration.

Read our article:How to Approach for Section 8 Company Name Reservation?

Mitigates the requirement for minimum capital

There is no compulsion as such for section 8 entities to procure minimum capital to ensure their existence, unlike other legal structures. Plus, these entities are free to alter their capital structure at any instance to extend their existing capabilities.

Seeks no stamp duty

Section 8 companies are not legally entrusted to confront any payment regarding the stamp duty for registration as applicable in the case of other business forms such as a private or public limited company.

Rejoice Separate legal status

An entity holding Section 8 registration rejoices separate legal status just like other business structures. These entities excel on the paradigm of perpetual existence, which means they will continue to exist even in the absence of founding members.

Ensuring independent legal status is certainly one of the vital benefits of section 8 company registration.

Garner sustainable credibility

A Section 8 Company fosters improved credibility in comparison to Trust or society. The provisions that regulate such entities are as stringent as other business structures like private or public limited companies. Trust or society, on the other hand, largely excels on moderate compliances, which eventually makes them less credible compared to Section 8 companies.

No compulsion of affixing the title

It may sound like an insignificant advantage at first, but it could make a huge difference particularly when an establishment intending to create a better positioning among the people or it is focusing on improving recognition.

Benefits of section 8 company registration in terms of compliances

The section above depicts the generalized advantages of operating a Section 8 company in India. Apart from these, there are few more benefits of section 8 company registration that exist in terms of compliances. The following section talks about the same.

Relaxation for founding a Committee regarding Remuneration or Nomination

Unlike the previous day, Section 8 companies are no longer required to establish a committee that scrutinizes the candidature of a person for nomination to the board or sorting out the remuneration of existing or proposed directors.

Reduced frequency of holding the board meeting

The board has been vested with rights to take decisions pertaining to investments, granting, and borrowing of credit via circulation instead of the board meeting. This significantly mitigates the requirement of holding frequent board meetings that cost ample time and hurts the ability to make timely decisions.

No Need to Appoint Company Secretaries

Section 8 companies are no longer required to look out for a Company Secretary to administer their compliances in view of Company Act, 2013[1]. This way they can save a lot of money and be allocated to areas that seek urgent funding to thrive further.

Shorter notice for AGM 

In past, conducting AGM in accordance with Company Act has retrained these entities to take a decision at a crucial time. The compulsion of waiting 21 days to avail board’s approval via AGM was somehow acting as a deterrent to decision making for these entities. Keeping these facts in mind, the government has shred off this timeline to 14 days.  This will empower these companies to take prompt decisions to resolve important company’s matters.

Relaxation for Recording Minutes of Meeting

Section 8 companies, particularly the ones with a smaller footprint, often struggled to focus on their core objective because of heaps of compliances. Recording Minutes of meetings is indeed an important undertaking from legal standpoint, but from an operational viewpoint, it seems lethargic since it slows down the decision making process. Fortunately, the government has got rid of this norm.

Conclusion

Section 8 companies solely work for society’s welfare and expect nothing in return. That’s the reason why they are often acknowledged as non-profit organizations.  Since their objectives largely revolve around human empowerment and society’s betterment, they often receive consistent backing from the government in terms of tax exemptions and relaxed compliances. The increasing number of Section 8 entities has encouraged the government to get rid of irrelevant provisions that compromise their ability to grow seamlessly.

Hope this write-up has provided the required information that you were searching for. If you still think that there is a scope of clarification on some points related to the benefits of section 8 company registrations then let us know.

Read our article:NGO Registration under Section 8 Company: A Complete Guide

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Pankaj Tyagi

Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.

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