All companies in India are not operating for the profit purpose. Many companies primarily operate for the charitable and non-profit objectives. The company registered under the Section 8 of the Companies Act 2013, is known as Section 8 company.
According to Section 8 of the companies Act, 2013 such companies are established for the promotion of commerce, art, science, sports, social welfare, charity, protection of any environment or any other such charitable objects. As per rule 8(7) of the companies Incorporation Rules, 2014 for the companies under Section 8 of the Act, all the section 8 companies are named and registered as an Association, Foundation, Society, Club, Organization etc. These companies are registered under Ministry Of Corporate Affairs, Government of India.
What are its provisions?
The Section 8 companies intend to apply its profits in promoting or helping out the needful and intend to prohibit the payment of any dividend to its members. Section companies work towards the transformation of the society rather than just earning profit. These companies were earlier defined under Section 25 of Companies Act, 1956. The companies under Section 8 are easy to register as compared to Trusts and Societies. The Central government provides license to these companies stating all the guidelines. Companies failing to do, so are ordered to wind up their companies.
Examples of Section 8 companies are the Federation of Indian Chambers of Commerce and Industry (FICCI) and Confederation of Indian Industries (CII).
Advantages of Section 8 Company
Following is the list of advantages of the Section 8 Companies over trust and societies:
- Tax Benefits
Section 8 companies are exempted from the provision of income tax. Also, these companies get other tax benefits and deductions.
- Zero stamp Duty
Unlike other companies, Section 8 companies do not need to pay stamp duty on the AOA and MOA of the private or public limited companies.
- Ease of transferring the ownership or title
According to the Income Tax Act, 1961, Section 8 Companies can transfer their ownership or title. Also, the interest and shares of other members of the company is also considered as movable property and are easy to transfer which in turn makes it easier for the members to leave and transfer its ownership to others.
- Exempted from the title “Limited”
Section 8 companies are exempted from using the word “Limited” unlike other companies like private limited company and public limited company. However it is mandatory for the section 8 companies to use the suffix such as Foundations, associations etc.
- Higher Credibility
Section 8 companies are more credible than other non-profit organizations like societies or trust. The licensing of these companies is done by the Central government. So no changes can be made in the AOA and MOA of the Company.
Disadvantages of Section 8 Company
Now, let’s have an eye on the disadvantages of the Section 8 Companies which are listed below:
- The profit that the section 8 Companies make is used for the meeting the objectives like arts, commerce, science. It cannot be used by the director or shareholders by any means.
- The members of the Section8 Companies cannot be appointed as the officer.
- The members cannot make changes in the MOA and AOA of the company because the licensing is done by the Central government.
- The profit earned by the Section 8 companies cannot be distributed among its members.
Eligibility for forming Section 8 Companies
A company which intends to be registered under the Section 8 of the Companies Act, 2013 should keep these rules in mind before registering
- The company’s objective should be promoting fields like arts, science, commerce, education, religion etc.
- The company should use the profit from the organization in promoting the objectives of the company.
- The company should restrict the share of dividends to its members.
- Section 8 companies can only be registered as Private or Public Limited. It cannot be registered as one person Company (OPC).
- The company must confirm the proposed name, its objectives, registered office address, authorized capital, proposed Director and the members.
- The name of the company should reflect the charitable objective. Also the proposed name must be different from the category of undesirable names specified in Rule of Companies Act.
- The company’s name must include the words like Foundation, Forum, Association, Chambers, council etc.
- Requires license from the Central Government.
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Requirements For Online Registration of Section 8 Company
- The company must be governed by the Companies Act, 2013.
- Minimum 2 Directors if the company is to be incorporated as a private limited company.
- Minimum 3 Directors if the company has to be incorporated as Public Limited Company.
- No minimum share capital is required. All the funds are brought through donations from the general public.
Documents Required for the Incorporation of Section 8 Companies
- Aadhar Card or Pan Card of all Directors
- Passport Size Photographs
- Voter ID/Aadhar Card of all Directors
- Self attested copy of address proof like Bank statement, Mobile bills, electricity bills(not older than 2 months)
- Registered Office Documents
- Rent/lease agreement
What are the Procedures For Registration of Section 8 Company ?
Apply for Digital Signature Certificate (DSC)
Digital Signature is the online signature used for filing and is issued by Ministry of Corporate affairs (MCA). A digital signature is a secure digital key issued for the purpose of validating and certifying the identity of the person. Some of the certified authorities which issue the digital signature certificate are E- mudra, national Informatics Centre, Code Solutions and Indian Institute of development research in banking technology.
Obtaining the DIN from ROC
After obtaining the DSC for the proposed directors, The ROC will validate the form DIR-3 and then allot the DIN to these directors.
File the RUN (Reserve Unique Name ) for Company name approval
After obtaining the DIN from ROC, you need to file the RUN form in which you can propose a total of two names in the order of choice. Out of these two names, the ROC will allot only one name depending upon the availability. Also, in case of rejection one more chance is given for the resubmission of names.
Registration of Section 8 companies through SPICe Plus form
To simplify the section 8 company registration process, the Ministry of Corporate Affairs (MCA) on 7th June 2019 has made the amendment in the process of incorporation of section 8 companies. As per the amended rules, the application for the incorporation of Section 8 companies as well as the license for such companies will be submitted in FORM INC- 32 (SPICe plus form).
For an existing Section 8 company the license will continue to be in FORM INC-12.
Documents needs to be attached with the Form INC-12:
- MOA (Memorandum of Association).
- AOA (Article of Association).
- Declaration from practicing CA (Chartered Accountant).
- Declaration from every person filing the application.
- The expenditure and income for the next three years.
- Issuance of the License
The ROC will examine the form INC-12 and after validation will issue the license under Section 8 in Form INC-16.
- File the SPICe Plus Form INC-32 with the ROC
After receiving the license, you need to file SPICe INC-32 with ROC for Incorporation of the Company. Following documents needs to be attached with the Form:
- An Affidavit from every Director and subscriber ( As per INC-9)
- KYC (Know your Consumer) of every Director.
- Declaration regarding deposits.
- Utility bills of past two months.
- NOC from the premises owner (No Objection Certificate) in case where office is on rent or lease.
Penalty under Section 8 Companies
If any company under Section 8 Companies Act, 2013 fails to comply with the terms and regulations of Section 8, then according to the provisions of Sub-section (11), the Company shall be held punishable and have to pay:
- A minimum fine of INR 10 Lakhs which can extend to INR 1 Crore.
- The Concerned Director is punishable and will face the imprisonment for a term of three years with a fine of minimum INR 25000. The fine can also extend to INR 25 Lakh.
Section 8 Companies primarily operate for charitable and non-profit objectives which are for the well-being of our society. Also, it has got several exemptions in terms of tax and others.
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