A Section 8 company is a not-for-profit or charitable entity which is formed for charitable objects like “promotion of commerce, social welfare, religion, charity, art, science, sports, education, research, protection of environment or any other such object”. For a company to be incorporated under Section 8, it should be created keeping any of the above objects in mind and is required to obtain a license from the Central Government to operate as a Section 8 company. The Company shall be registered as a limited company and is prohibited from using its profits or income for any other purpose than promoting the objects of the Company or re-investing the money in the Company. Section 8 also prohibits the Company from paying dividends to its members. The incorporation of a Section 8 company is governed by the MCA or the Ministry of Corporate Affairs under the Companies Act, 2013 & the Companies (Incorporation) Rules, 2014. Scroll down to check more about Incorporation of a Section 8 Company.
Benefits of Being Incorporated as a Section 8 Company
Section 8 Companies receive many advantages and exemptions by virtue of being incorporated as such because these companies are established to further charitable objects. Moreover, it is required to follow many compliances before and after obtaining registration as per the Ministry of Corporate Affairs norms so that it gains certain credibility among various stakeholders, donors, and government departments. Some of the benefits of Incorporation of a Section 8 company are as follows:
- Limited Liability
The Company’s members have limited liability to the limit of the value of shares held by them in the Company. In other words, the legal responsibility of the members to repay the debts of the Company is limited, as is the case of an LLP.
- Distinct and Separate Legal Identity
The Company has a legal existence which is separate from its members and thus has perpetual existence until the Company is wound up. The Company can hold assets, incur debts, and be held liable otherwise in its own name. The Company is an artificial person and can exist regardless of the exit of its founding members.
- Exemptions From Tax
The Central Government has provided certain tax exemptions to Section 8 companies to encourage the furtherance of charitable objects. A Section 8 company enjoys many benefits under the Income Tax Act 1961. Once the Company obtains registration under Section 12 AA of the Income Tax Act, it becomes eligible to apply for tax exemptions. The donors of a Section 8 company are also eligible to obtain tax exemptions under Section 80G of the Income Tax Act.
- Stamp Duty
The Central Government of India has exempted Section 8 companies from paying stamp duties applicable on various documents during the process of incorporation.
- Paid-Up Capital Requirement
There is no minimum paid-up capital requirement to incorporate a Section 8 Company. Since the capital structure is alterable, it can easily be modified to bring in the capital when required through various modes like donations and subscriptions by the public and company members.
- Name of the Company
A Section 8 company is exempted from attaching suffixes like ‘private limited’ or ‘limited’ to its name. However, the name must have any of the terms like inter alia, confederation, federation, association, chambers, forum, foundation, and council.
- Other Exemptions Under the Companies Act
Section 8 companies are provided many benefits and exemptions under the Companies Act, 2013 pertaining to Annual General Meetings, board meetings, the appointment of company secretaries, the notice period for general meetings, audit and remuneration committee, the appointment of directors and disclosure of interest by such directors. Mentioned below are certain relaxations provided to Section 8 companies:
- The companies registered as Section 8 companies are required to give a notice of 14 days to call for a general meeting instead of 21 days.
- The directors can decide the date, time and place of the annual general meeting of the Company.
- A Section 8 company is exempted from recording meetings of the annual general meetings, general meetings, or resolutions unless it is expressly provided for in AoA or the Articles of Association of the Company.
- A Section 8 company is required to conduct a minimum of one meeting in six months instead of the standard requirement of 4 meetings per year. Also, such companies are exempted from the requirement of a time gap of 120 days between two meetings.
- Section 8 Companies are only required to send copies of financial statements and other necessary documents to be attached under the law to their trustees and members 14 days before the meeting instead of 21 days.
- Section 8 companies can appoint any number of directors and are not required to pass a special resolution to appoint more than 15 directors.
- Section 8 companies do not need to adhere to provisions under the Companies Act relating to independent directors and, inter alia, their appointment, the minimum number required, term of office, and retirement.
- Section 8 company directors are exempted from the requirement of giving consent to hold the office of a director to the Registrar of Companies within 30 days of such appointment.
- Section 8 companies are exempted from the requirements of establishing a nomination and remuneration committee as per Section 178 of the Companies Act, 2013.
- Section 8 companies are not required to pass resolutions at board meetings to invest funds, borrow money, provide security for a loan, provide guarantees, or grant loans.
- A director of Section 8 companies is only required to disclose her interest if the related party transactions are more than Rupees One Lakh.
- A Section 8 company is required to maintain a separate register of contracts pertaining to related party transactions for directors only when the transaction amount exceeds Rupees One Lakh.
Eligibility Criteria for the Incorporation of a Section 8 Company
Section 8 of the Companies Act, 2013 allows any person or association of persons to be incorporated as a company for charitable persons. Hence, a Hindu undivided family or an individual are eligible to be incorporated as a Section 8 company. However, Section 8 mentions specific other prerequisites to be eligible to obtain a license from the Central Government. To be incorporated as a Section 8 company, it is imperative that the Company:
- Is formed for any of the charitable objects mentioned under Section 8 of the Companies Act, 2013, namely, for the advancement of science, art, sports, commerce, religion, protection of the environment, research, charity, social welfare, education, and other similar objects.
- Must use the profits and income arising from the Company only for the advancement of the objects of the Company.
- Must not distribute dividends to its shareholders.
- Must not provide any remuneration to its members, founders, and promoters.
Other Requirements for the Incorporation of a Section 8 Company
There are specific other requirements mentioned under the Companies Act that an entity must meet for the Incorporation of a Section 8 Company:
- Purpose of the Company
To be incorporated as a Section 8 company, it should be formed for promoting or advancement of charitable objects, and the income or profits arising from the Company must only be used in the furtherance of the not-for-profit objects for which it was formed for. The directors or members must not receive any share of the profits made by the Company.
- Management of the Company
After the Company obtains a license under Section 8, it must be run by the directors as per the Articles of Association and Memorandum of Association drafted in accordance with the requirements of Section 8 objectives. Without the consent of the Central Government, the Memorandum of Association & Articles of Association of a Section 8 company cannot be altered.
- Minimum Directors Requirements
To be incorporated as a Section 8 company, it is required that at least one of the directors has been a resident of India for at least 182 days. Generally, if a company is being incorporated as a private limited company, it must have a minimum of two directors. If the Company is being incorporated as a private limited company, it must have a minimum of three directors. There can only be a maximum of 200 members for a private limited company, while a public limited company can have any number of members. There is no requirement for a maximum or minimum number of directors in a Section 8 Company.
- Acquire a DSC or Digital Signature Certificate
All the proposed directors of the Company must obtain digital signature certificates or DSC from any certification agency approved by the CCA or the Controller of Certification Agencies. A DSC is imperative to sign documents on the Ministry of Corporate Affairs website electronically. A DSC is valid for two years from the date of issuance of the certificate and is required to sign and attest documents digitally. All authorized signatories who are required to affix their signatures on the documents for the process of registration on the MCA website must obtain DSCs.
- Directors to Acquire DIN or Director Identification Number
Every proposed director of a company must obtain a director identification number from the MCA website by applying for the same under from DIR-3, which is filed under with the SPICe+ Form. The DIR 3 form must be signed by a chartered accountant and must be submitted with documents which provide proof as to the identity and address of the director for whom the DIN is being applied.
- Company Name
A Section 8 company is exempted from placing the suffixes ‘Limited’ or ‘Private Limited’ after its name as is required by other public limited or private limited companies. However, it is necessary to have any of the words like, inter alia, council, federation, chambers, forum, association, foundation.
- Paid-Up Capital Requirement
There is no minimum paid-up capital requirement for the incorporation of a Section 8 company. The Company’s capital structure can be changed at any point in time when there is a requirement for funds. It can be generated by various modes like public donations and subscriptions by the Company’s members.
Necessary Documents Required Incorporation of a Section 8 Company
Incorporating a company requires meeting many legal and regulatory compliances and requires submitting various documents with the Registrar of Companies for assessment based on which a certificate of incorporation is granted. It is imperative to be aware of and remain prepared with the list of such necessary documents. The documents which are necessary to apply for incorporation of a Section 8 company are as follows:
- Draft Articles of Association and Memorandum of Association which have been signed by the members and witnesses
- The expected annual income of the Company and expenditure for a period of next three years, along with the purpose of the expenditure and the income source
- Identity proof and residence proof of the subscribers and directors like Passport, Aadhar card, PAN card, driver’s license
- Utility bills of the registered office of the Company if any
- Registered document showing that the registered office is in the Company’s name.
- Proof of ownership of the registered office, if any.
- If the registered office is a rented property, then a duly notarized lease deed and a No Objection Certificate obtained from the landlord of the rented property
Forms Required to be Filed Incorporation of a Section 8 Company
There are many essential forms which are required to be filled and uploaded on the MCA website to register a Section 8 company. Mentioned below are some of the forms which must be filled for the Incorporation of a Section 8 Company:
- Form INC 12
Before applying for the certificate of incorporation, one needs to obtain a license from the Central Government to operate as a Section 8 company. This license is used for under form INC 12 and is required to be submitted along with the draft memorandum of association as provided under INC 13 and articles of association, amongst other attachments. The pages of the articles of association and the memorandum of association are to be signed with the details of subscribers pertaining to their name, description, address, and occupation and must be signed with at least one witness present, as is provided under Rule 13 of the Companies (Incorporation) Rules, 2014. These following documents are required to be attached with Form INC 12:
- Draft articles of association and memorandum of association
- Form INC 14 declaration duly signed by an advocate or a chartered accountant or a company secretary that the draft memorandum of association and articles of associations have been drafted in accordance with the requirements mentioned under Section 8.
- Form INC 15 declaration, duly signed, on a stamp paper of prescribed value, by the directors that the draft memorandum of association and articles of associations have been drafted in accordance with the requirements mentioned under Section 8.
- Form INC 9 declarations by shareholders and directors that they are not guilty of any malfeasance or offence
- The expected annual income of the Company and expenditure for a period of next three years, along with the purpose of the expenditure and the income source.
- A list of promoters and proposed directors of the Company.
- SPICEe+ Form along with AGILE PRO Form
To apply to reserve the name of a company and to apply to incorporate a company, one needs to file SPICe+ Form. The Part A of the SPICe+ Form is to reserve the name of the Company. The applicant must provide alternative names which are distinct and unique and must include terms like inter alia, confederation, federation, association, chambers, forum, foundation, and council. The applicants can also use the Reserve Unique Name feature on the MCA website to reserve a name for the Company. The name can also use the facility to search names of the companies which already exist to avoid coming up with similar or identical names.
The Part B of the SPICe+ Form is to be filled to apply for the incorporation of a Section 8 company. The details of the address of the registered office, the capital structure of the Company, details of first directors and subscribers, and details of jurisdiction for acquiring PAN or TAN would be filled in here. There are some crucial documents that are required to be attached to Part B of the SPICe+ Form:
- Address proof and identity proof of all the shareholders subscribed to the memorandum of association and directors of the Company, along with the passport-sized photographs of the directors.
- Articles of association and memorandum of association, which have been signed by the subscribers of the Company as per Companies (Incorporation) Rules, 2014.
- Details of the registered office or, if the registered office has yet to be established, then the address of correspondence being used till then.
- Declarations made under Form INC 14 and form INC 15, which have been duly attested by a chartered accountant
- Declarations made under Form INC 9 that the directors and shareholders have committed no malfeasance or offence.
- The expected annual income of the Company and expenditure for a period of the next three years, along with the purpose of the expenditure and the income source.
- Utility bills of the registered office space
- Proof of ownership of the registered office, if any.
- If the registered office is a rented property, then a duly notarized lease deed and a No Objection Certificate are obtained from the landlord of the rented property.
The other forms which are to be filled are SPICe+ MOA and SPICEe+ AOA forms. Form INC 35, or the AGILE PRO form, is filled after the SPICe+ Form for professional tax registration, registration with Employees’ Provident Fund Organization and registration with Employees’ State Insurance Corporation, the opening of a bank account and Goods and Services Tax Identification Number registration.
- Form INC 22
This Form is filed to provide a notice as to the information of the Company’s registered office. This application is to be filed within 30 days of the date of receipt of the certificate of incorporation.
- Form DIR 2
The application under Form-DIR 2 is filed to get the consent of the proposed Directors to the incorporation of a Section 8 company.
- Form DIR 3
This Form is filled out to apply for the director identification number. The application must be made to the ROC.
- Form DIR 12
This Form is filed to appoint directors is filed. Once the directors are appointed, this application must be filed within 30 days of such appointment.
Procedure for Incorporation of a Section 8 Company
Following is the step by step procedure for Incorporation of a Section 8 Company:
- Register on the MCA Website
The applicant is required to create a business user account on the MCA portal to fill in and submit the necessary forms and applications.
- Obtain Digital Signature Certificate and Director Identification Number
The shareholders and proposed directors, and authorized signatories of the Company must acquire digital signature certificates from a Controller of Certification Agencies approved agency which has been granted approval by the Controller of Certification Agencies. Directors and authorized signatories must have DSCs sign documents on MCA digitally. Once the digital signature certificates have been granted, the directors are required to file for a director identification number by filling out Form DIR 3. After the Registrar of Companies has approved DIR 3 application, the unique DIN shall be granted to the applicant.
- Obtain Section 8 License Under Form INC-12
It is imperative to obtain a license to operate as a Section 8 company before applying for the certificate of incorporation. The application must be made to the Registrar of Companies with the documents attached as mentioned above. The Form and the documents attached by the applicant shall be reviewed by the Registrar of Companies, and she shall grant the license once the documents are approved. The license to operate as a Section 8 company shall be granted under Form INC 16.
- Reserve Company Name
After the Section 8 license has been granted, fill in Part A of the SPICe+ Form to reserve the name of the Company along with the prescribed fees and documents. The SPICe+ Form can be found under the tab of MCA services on the website.
- Fill Part B of the SPICe+ Form
After reserving the company name, one has to fill in Part A & Part B of the SPICe+ Form, which is found on the MCA website under the MCA Services tab, with the necessary documents as mentioned above. The articles of association as provided under form INC-34 and the memorandum of association as provided under form INC-33 must be filled in accordance with Schedule 1. The directors and other authorized signatories are required to upload their DSC on the portal to sign the documents digitally.
The applicant is to then fill in the SPICe+ AOA, SPICe+ MOA and AGILE PRO Forms to register for professional tax, GSTIN, the opening of a bank account, EPFO, and ESIC. Most of the details in the MOA and AOA forms shall be auto-filled based on the information submitted in the previous steps. Once the applicant has paid the prescribed, the documents and the forms shall be submitted.
A scrutiny check must be conducted by the applicant before finally submitting the documents and the forms.
- Review by the Registrar
The documents and the forms submitted shall be assessed by the ROC to check for any lacunae in the application.
- Grant of Incorporation Certificate:
Once the registrar has scrutinized the applications and the documents attached and is satisfied with the completeness and sufficiency, an incorporation certificate will be issued with a CIN or Corporate Identification Number. The Incorporation Certificate shall be proof of the Company’s registration as a Section 8 company.
A Section 8 company is regulated & controlled by the MCA or the Ministry of Corporate Affairs under the Companies Act, 2013 & Companies (Incorporation) Rules, 2014. It is established for charitable purposes and receives nimiety benefits and relaxations from the government to advance social welfare. The Procedure for Incorporation of a Section 8 company involves adhering to many legal and regulatory compliances. It is imperative that any person looking to incorporate a Section 8 company must remain abreast with the compliances and processes involved and be prepared with all the documents and other requisite requirements to facilitate smooth registration of one’s Company and to avoid any penalties due to non-compliance.
Read Our Article: A Closer look at Benefits of Section 8 Company Registration