Section 8 Company

FAQs on Section 8 Companies – An Overview

calendar17 Jan, 2023
timeReading Time: 7 Minutes
FAQs on Section 8 Companies – An Overview

Section 8 Companies are not-for-profit organisations registered under the Companies Act, 2013. These Companies do not operate with a main business motive & hence are different from the other class of Companies. The Companies Act, 2013 made provisions for a good variety of Companies such as Private Limited Company, Public Limited Company, Foreign Company, etc. However, Section 8 Companies stand quite unique from others. Therefore, skimming through most FAQs on Section 8 Companies can give a fair idea about them. In this blog, we will discuss some FAQs on Section 8 Companies.

Page Contents

Some Important FAQs on Section 8 Companies

Following are the FAQs on Section 8 Companies:

What Do We Mean By A Section 8 Company?

A non-profit organisation may register in India as a trust, as a society, or as a Private limited corporation under Section 8 of the Companies Act of 2013. A Section 8 company is the same as the famous Section 25 Company under the former Companies Act 1956, which was one of India’s most common types of Non-Profit Organisations. 

The purpose of incorporating a section 8 company is to promote commerce, art, science, sports, education, research, social welfare, religion, charity, and the protection of the environment.

What is the complete procedure to register a Section 8 company?

The first step is to obtain a Digital Signature Certificate (DSC)of the proposed Directors of the company;

  • After receiving a DSC, file Form DIR-3 with the Registrar Of Companies to get a DIN;
  • Once the DIR-3 is approved;
  • Draft MOA and AOA;
  • File the Form with Form INC-12 with the Registrar Of Companies; 
  • Once the Form gets approval from the Central Government, a license will be issued.

What are the documents required for the incorporation of a Section 8 company? – FAQs on Section 8 Companies 

Registering as a Section 8 Company is outlined in the Companies Act of 2013. An application in Form No. INC.12 must be filed to the Registrar of Companies, and the supporting documentation is listed below:

  • If the promoters and directors are citizens of India, PANs cards for each director are required. Along with this, additional identifying documents such as a voter ID, an Aadhar card, or a driver’s licence may be provided;
  • A passport is necessary as identification in a situation where the director is a foreign national;
  • Any proof of residence, this could be a telephone bill, electricity bill, etc. It cannot be more than two months old;
  • The most recent passport-sized photograph of each director and promoter;
  • Address proof for the company’s registered office. This could be the lease and payment receipt, or any document proving ownership, such as the sale deed, is necessary if the director is the one who owns this;
  • Director Identification Number (DIN) (if any);
  • Digital certificate (if any);
  • Memorandum of Association – Form no. INC – 13;
  • Articles of Association – Form no. INC – 13;
  • A Declaration that the draught MOA & AOA are consistent with the provisions & regulations of section 8 – Form INC-14; 
  • A declaration on stamp paper & notarised by each member of the company – Form INC-15. 

Who is authorised to issue a license of incorporation to a Section 8 Company? – FAQs on Section 8 Companies  

Registrars of Companies, also known as ROCs of respective jurisdictions, are authorised to issue a license to Section 8 Companies. The power has been delegated to ROCs by the Central Government. 

Are there any rules regarding the registration of a foreign company as a Section 8 Company in India?

No, because as per the Company Act of 2013, a corporate company that is incorporated outside India to carry out not-for-profit activities cannot fall under the preview of a foreign company. As there are no business activities that are being carried out. Therefore, the respective company or entity cannot be termed as a foreign company.

Can trusts or co-operative society become a member or a subscriber of a Section 8 company?

Yes, they can, as per the Companies Act of 2013[1]. The act per say does not prohibit a Trust/Co-Operative Society from becoming a member of a Section 8 company.

Is it compulsory for a Section 8 company to be incorporated as a Limited Liability Company? – FAQs on Section 8 Companies 

Section 8 has the choice to incorporate aslimited by shares/by Guarantee (with or without share capital).

Is it mandatory for section 8 Company to include words like – foundation, forum, association, federation, chamber, confederation, council, electoral trust etc. in their name while registering it?

Yes, it is mandatory to include such words in the name. According to the rule 8(7) of the Companies (Incorporation) Rules of 2014, all the companies that are incorporated under Section 8 of the Act to include the words like foundation, forum, association, federation, chambers, confederation, council, etc., in the name. 

Can the AOA (Articles of Association) of a Section 8 Company have an entrenchment clause in it?

Yes, AOA can have an entrenchment clause. As per Section 5(3) of the act an Articles of Association (AoA) of a Section 8 Company can have an entrenchment clause.

What are the advantages given to a section 8 company? 

Section 8 companies work solely for the benefit of the public. Therefore they receive specific benefits. Let’s examine these benefits: 

  • No minimum capital is required for a Section 8 firm, unrelated to other companies. They have the flexibility to change their capital structure as needed.
  • When registering, stamp duty must typically be paid, although section 8 companies are exempt from this requirement. 
  • Any registered partnership business may join a Section 8 company as an individual member.
  • Companies registered under Section 8 of the 2013 Companies Act are eligible for a number of tax benefits. For instance, Sections 12AA and 80G of the Income Tax Act provide tax incentives to contributors of Section 8 companies.
  • A company incorporated under Section 8 is more credible than any other Not for Profit Organization (NPO), such as a trust. This is because the corporation is licenced by the Central Government, which may impose strict regulations. As a result, the organisation gains a more trustworthy reputation.
  • Like any other company, a Section 8 company is regarded as a distinct legal entity. It has a separate legal status from members. Thus, it can be sued and being sue in its own name. It also has a perpetual existence.
  • Section 8 businesses have a lot of flexibility because it is considerably simpler to transfer ownership and title in these.

Are there any relaxations given in stamp duty payment to a Section 8 company? – FAQs on Section 8 Companies 

Yes. One of the benefits of incorporating a Section 8 company is relaxation on stamp duty. Stamp duty is paid on a memorandum of association and articles of association. All the provisions related to stamp duty are governed under the Indian Stamp Act of 1899. 

Is it allowed for a trust to become a member of a Section 8 Company?

Yes, a trust can become a member; there is no as such restriction mentioned under the Companies Act of 2013. 

Is it necessary for the companies that were incorporated under Section 25 of the Companies Act of 1956 to obtain a licence under Section 8 Companies Act 2013?

No, there are no such requirements. All the existing companies are not required to obtain any such licence since they are protected under Section 465 of the Companies Act of 2013. 

Can a One Person Company (OPC) incorporated under Section 8 of the Companies Act?

No. it is prohibited to incorporate a One Person Company under Section 8 Company. This is as per rule 3 of the Companies (Incorporation) Rules, 2014.

What are the annual compliances for a Section 8 company? – FAQs on Section 8 Companies

  • Form MGT-7 for filling an annual return of the company. This must be filled within sixty days of the last annual general meeting (AGM).
  • AOC-4 for filling financial statement of the company. This must be filled within 30 days of last AGM. 

Can a company incorporated under Section 8 amend its Memorandum of Association (MOA) or Articles of Association (AOA) only BY passing a special resolution?

Yes, a Section 8 company has all the power to amend its MOM or AOA by passing the special resolution. Though there is an added point to this, such alterations can only be done with prior approval of the ROC (Registrar of Companies).

Are digital signatures mandatory for the process of registration by a Section 8 company?

If filling out documents through an online portal, digital signatures are the only secure way to do so. So all the e-forms on the Ministry of Corporate Affairs (MCA) portal require a digital signature of the authorised person.

Are Section 8 Companies allowed to receive contributions from outside India or from non-residents? – FAQs on Section 8 Companies 

Yes, a section 8 company can receive such contribution or donations, but only by fulfilling some requirements under the Foreign Contribution and Regulation Act of 2010.

The provisions the Foreign Contribution and Regulation Act of 2010 supplement provisions under the Companies Act of 2013.

Is it allowed for the Section 8 companies to be a holding company of another company?

Yes, there is no such restriction on section 8 therefore Section 8 company can promote another company and be a holding company of another company.

Can a company incorporated under Section 8 of the Companies Act be converted into any other company?

A Section 8 Company can easily be converted into any other company including the One Person Company. This has been talked under Section 8(4)(ii) read with Rules 21 and 22 of Companies (Incorporation) Rules of 2014. But there are some restriction as per other laws, like the Income Tax Act of 1961.

Can a company incorporated under Section 8, provide advisory or consulting services to others? – FAQs on Section 8 Companies 

Yes, a Section 8 company can provide such services, though it should only be in line with the objects stated under Section 8(1)(a) of the Companies Act of 2013.

Can a Section 8 Company issue redeemable preference shares?

No a Section 8 company cannot issue redeemable preference shares as per the restrictions provided under Section 8(1) of the Companies Act. As per provision a Section 8 company cannot distribute profits and payment of any dividend to its members.

Does the provisions of the Companies (Auditors Report) Order of 2016 applicable on a Section 8 Company or not?

No, as per the provisions of the Companies (Auditors Report) Order of 2016, under para 2(iii), the act does not apply to Section 8 companies. Hence there is no need for these companies to adhere to rules regarding this.

Can a Section 8 company extend its objective beyond the state in which it was registered? –  FAQs on Section 8 Companies 

Yes, a Section 8 Company can definitely do so. As per Clause 4 of the Form INC 13 under rule 19(2) of the Companies (Incorporation) Rules of 2014, provide such power to Section 8 Company to change the state for its registered office.

Is Section 8 Company allowed to invest in a profit subsidiary?

Yes, there are no such restriction for section 8 companies to invest in ‘for profit’ companies. Therefore, they are allowed to have profit subsidiary.

Can a Section 8 Company take loan from its members and then pay interest on that? – FAQs on Section 8 Companies

Thought a Section 8 company is allowed to take loan from its members and then pay interest on that. Still one must go through Chapter five of the Companies Act before taking such loan. 

Read Our Article: A Closer Look At Benefits Of Section 8 Company Registration

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