Section 8 Company

Formation of Section 8 Company – Requirements, Exemptions, Who can Form?

calendar13 Feb, 2023
timeReading Time: 4 Minutes
Formation of Section 8 Company – Requirements, Exemptions, Who can Form?

A Section 8 Company is formed after filling form no. INC 12, which has to be submitted with the registrar of the companies. It has few other compliances and procedures to be followed after filling of incorporation of form with the registrar. Section 8 co. was previously covered under section 25 of the companies act, 1956[1], which implies that companies with an objective of social benefit was prevalent even before. FICCI and CII are an example of section 8 company, they aim to develop trade and commerce. In this write-up, we will discuss the formation of Section 8 Company in India.

Requirements for the Formation of Section 8 Company

A section 8 company is incorporated only after the approval of the government and in order to attain the approval the applicant shall fulfil some requirements for the formation of Section 8 Company such as below:

  • Objective: the objective of the company should be to promote arts, commerce, research, education, conduct charity, protect the environment, develop science, sports, social welfare etc. The company should work to use its profit or any other income towards the fulfilment of the objective, and it should not work for merely earning profits out of its activity.
  • Minimum capital: There is no minimum capital requirement fixed by the law, as the company is incorporated for charitable purposes, there is no bar on minimum capital requirement.
  • Shareholder: In a section 8 company the maximum no. of shareholders can be 200. However, in order to incorporate the company, there must be at least 2 shareholders.
  • Director: As per section 149(3),being the company incorporated in India it is really necessary that at least one of the directors should be a resident of India, and by resident of India it means that the person should have resided in India for 182 days in the preceding year.
  • Composition of board and board meetings: the board shall be composed of at least 2 directors and as per section 173(1) and 174(1), a board meeting shall be conducted at least once in six months and the composition of the board shall be 8 directors or 1/4th of the total directors in the non-profit company.
  • Compliances fulfilment: Formation of section 8 company requires approval from the government at first, and only after that MOA, AOA, declaration, stamp paper duty etc will be fulfilled.
  • Name of the company: For the Formation of Section 8 Company in India, the name of the company shall be decided on the basis of the trademark rules, i.e., it should not be similar to any other company’s name and that it should represent its nature and objective but should not be identical to the nature of the products and services.
  • Violation of objective: the objectives of the section 8 company is to promote the purpose for which they are incorporated and all the profits should be used to promote the objective and not distribute the profits amongst the shareholders, if any violation is found to be done, then the company’s license shall stand cancelled.

Who Can Form a Section 8 Company?

A section 8 company can be incorporated by any individual or association of individuals who aim to fulfil all the requirements for the formation of section 8 company as mentioned under the law. The person or the group of persons shall have approval from the central government for the formation of section 8 company. Below are some further eligibilities on who can form a section 8 company:

  1. Any 2 persons or individuals, or association of persons who wants to work for charitable purpose and adhere to the guidelines of the government that the purpose of the formation of the company should be to promote arts, commerce, research, education, conduct charity, protect environment, develop science, sports, social welfare etc.
  2. They should not divide the profits amongst themselves and use them for charity purposes.
  3. They should abide by the government orders, and they are referred as Ltd. company, which means the liability of the members are limited although they do not need to put the words ltd. in the name.
  4. Section 149(3) of the companies act makes it mandatory that every organization must have women director. However, A section 8 company is free to appoint independent directors as per notification issued on 5th June 2016.
  5. They shall not make any changes in the AOA or MOA of the company without the authority of the government, everything that would alter the structure or the objectives, vision, etc. of the company will have to go through the central government and if any changes are made without the approval of the government then the license of being a non-profit company shall be cancelled, and the company members will have to release all the benefits and privileges that they were using being a non-profit company.

Exemptions of Section 8 Company

Section 8 company are offered many benefits from the government so that charity does not stop due to losses and high expenses. Few of the exemptions and benefits are as listed below:

  1. Tax benefits: A charity or religious trust or organisation that is enrolled under Section 12A or who has submitted an application for registration by submitting Form 10A would file a tax audit report in Form 10B. A CA must provide a Form 10B, which is an audit report, after being requested by the taxpayer.
  2. Financial Statements Filing: Within 30 days of the annual general meeting, the financial statement would be provided in the appropriate format (E-FORM AOC-4) 
  3. Annual Return Filing: Within 60 days of the annual general meeting, Form MGT-7, along with all the necessary information, including shareholder and management information, is submitted to the Registrar of Companies (ROC).
  4. AGM: The annual general body meeting is called within six months of the end of the fiscal year. However, the firm might have the first AGM fewer than nine months after the end of the first fiscal year in the case of the first annual general meeting. You must understand that there shouldn’t be more than 15 months between 2 annual general meetings.
  5. When a business selects funding from donors, the revenues are eligible for taxation relief. The corporation has to comply with the requirements outlined in Section 11 and enlist under Sections 80G and 12A in order to claim the same exemptions.

Conclusion

Section 8 companies are incorporated for the objective of promoting social welfare and for the motive of earning income solely for the members households and so they are provided with benefits and exemptions. In order to keep a check on the misuse of the exemptions every alteration is to be approved by the central government and the audits reports are to be submitted with the ROC. Although there is no restriction as to who can incorporate a section 8 company it is still necessary that one of the members be resident in India.

Read Our Article: What Are Section 8 Companies? Know Its Provisions And Incorporation Procedures

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