Section 8 Company

What Are the Benefits Available to Section 8 Company?

calendar15 Jul, 2023
timeReading Time: 7 Minutes
What Are the Benefits Available to Section 8 Company?

In India, a Section 8 Company is an organization that clearly focuses on promoting various areas that benefit society. These areas include arts, commerce, education, charity, environment protection, sports, science, research, social welfare, and religion. Section 8 Companies operate as non-profit organizations (NPOs) and are committed to conducting activities solely for the betterment of society.

The distinguishing feature of a Section 8 Company is that any income or profit generated by the organization can only be utilized for promoting welfare activities. It is strictly prohibited to use the earnings for the personal benefit of its members or volunteers. This ensures that the resources and funds of the company are dedicated solely to the advancement of social causes.

The primary objective of a Section 8 Company is to serve the public interest and contribute to the advancement of social causes. These organizations are driven by a solid commitment to the community’s welfare, and their activities aim to address critical societal issues and bring about positive change.

By operating under the framework of a Section 8 Company, organizations can ensure that their efforts and resources are directed towards promoting the welfare of the community. These companies are legally bound to utilize their income and profits for social initiatives, allowing them to significantly impact society.

Section 8 Companies in India: Empowering Social Impact through Non-Profit Organizations (NPOs)

A Section 8 Company, also known as a Non-Profit Organization (NPO), is a legal entity formed to promote various social, cultural, educational, charitable, or environmental causes. These organizations operate without the primary objective of generating profits for their members or volunteers. Instead, their focus lies on utilizing any income or profits solely to promote welfare activities and achieve their philanthropic goals.

Objectives and Activities: A Section 8 Company can have diverse objectives depending on the cause it aims to address. These objectives can include promoting arts and culture, facilitating trade and commerce, advancing education, supporting charitable initiatives, conserving the environment, fostering sports and research, or contributing to social welfare or religious endeavors.

Restrictions on Income Utilization: One of the essential features of a Section 8 Company is that its earnings and profits cannot be distributed among its members or volunteers as dividends or profits. The income generated must be reinvested solely for the promotion of the organization’s objectives and welfare activities.

Examples of Section 8 Companies: As mentioned earlier, organizations such as the Federation of Indian Chambers of Commerce and Industry (FICCI), Confederation of Indian Industries (CII), People for the Ethical Treatment of Animals (PETA), Infosys Foundation, and Reliance Foundation are prominent examples of Section 8 Companies in India. These organisations operate in different domains and contribute to various social causes.

Licensing and Registration: To establish a Section 8 Company, individuals or groups need to obtain a license from the Central Government. The license is issued to those who propose to register under Section 8 of the Companies Act 2013. The Registrar of Companies (ROC) is responsible for registering the organization as a limited company without including the terms “Private Limited” or “Public Limited” in its name.

Nationwide Operation: Once registered under Section 8, the company is legally entitled to operate across the nation. This allows Section 8 Companies to undertake welfare activities and initiatives in different states or regions of India. By adopting the Section 8 structure, individuals or groups with solutions to India’s pressing problems can establish organizations focused on social impact.

These entities can channel their efforts and resources towards creating a positive change in society while adhering to the legal framework and restrictions associated with Section 8 Companies.

Registering a Section-8 Company in India

To complete the registration process of a Section 8 Company in India, following a specific order and submitting various forms and documents is essential.

Here is a breakdown of the forms and documents required:

  1. DIR 2: This form is used to obtain the consent of promoters and directors of the company.
  2. DIR 3: The DIR 3 form is filed to obtain the Director Identification Number (DIN) for the directors of the company.
  3. INC 12: This form is an application for obtaining a license for the Section-8 Company.
  4. INC 16: After the INC 12 form has been processed, the INC 16 form is filed to obtain the license for registering the company as a Section-8 Company.
  5. SPICE: The SPICE (Simplified Proforma for Incorporating Company Electronically) form is used for the incorporation of the company.
  6. INC 13: This form includes the Memorandum of Association (MOA) duly signed by all the subscribers.
  7. INC 14: A declaration from a practising chartered accountant is required, and this is submitted through the INC 14 form.
  8. INC 15: Each person making the application needs to submit a declaration, which is done through the INC 15 form.
  9. INC 22: The company’s registered office address is provided through the INC 22 form.
  10. DIR 12: The appointment of directors is made through the DIR 12 form.

Additionally, certain forms may require specific documents to be attached.

  • Digital Signature Certificate (DSC) of the proposed directors of the company.
  • Articles of Association (AOA) duly signed by all the subscribers.
  • Declaration from each subscriber and first director stating that they do not have charges of misconduct or offences against them.
  • Correspondence address until the registered office is officially established.
  • Passport-size photographs of all directors and shareholders.
  • Identity proofs of members, such as Aadhar Card, Passport, Voter ID, and PAN card.
  • List and details of the company’s proposed promoters and director(s).
  • Address proofs of all subscribers to MOA and first directors, such as telephone or gas bills.
  • Director Identification Number (DIN).
  • Copy of the rental agreement (if the registered office is on a rented property).
  • Estimated statement of income and expenditure for the next three years.

These forms and documents are necessary to complete the registration process and establish a Section-8 Company in India. It is essential to ensure that all the required forms are filed in the correct order and that the accompanying documents are prepared and attached as per the guidelines.

Key Steps for Company Formation

To initiate the process of establishing your company, the first crucial step is to appoint directors. If you intend to register as a private limited company, you must have a minimum of two directors. However, a minimum of three directors is required for a public limited registration. It is essential to ensure that your Memorandum of Association (MOA) and Articles of Association (AOA) explicitly state the company’s purpose and non-profit objectives and that all subscribed parties are fully aware of these provisions. Additionally, it is imperative to comply with the Company Act of 2013, which mandates the maintenance of account books, filing returns with the Registrar of Companies (ROC), and adherence to the Income Tax Act and GST Law.

Following the appointment of directors, the next step involves obtaining a Digital Signature Certificate (DSC). Since all filing processes are conducted online, all stakeholders must possess digital signatures. To obtain a DSC, you need to acquire a Class 3 DSC from a certifying agency recognized by the government. Alongside this, it is crucial to attach the address and identification proofs of all directors and stakeholders.

Subsequently, you are required to file Form DIR-3 with the ROC through the Ministry of Corporate Affairs (MCA) portal to obtain a Director Identification Number (DIN). Once the DIN is allocated to the proposed directors, you should file Form INC 12 with the ROC to apply for a Section 8 Company license. This application should be accompanied by Forms INC 13, AOA, INC 15, a statement of income and expenditure for the next three years, and a list of directors.

Upon receiving the license, you need to file the SPICE form along with the aforementioned additional documents. Completing these procedures will prompt the ROC to issue a Certificate of Incorporation and a unique Company Identification Number (CIN). These documents mark the successful establishment of your company.

Costs Involved in Establishing a Section 8 Company

Establishing a Section 8 Company requires the payment of various costs.

DSC Signature & DIN: ₹3000 – This includes the cost of obtaining Digital Signature Certificates (DSC) for stakeholders and Director Identification Numbers (DIN) for directors.

Company Name Reservation: ₹1000 – This cost covers the reservation of the desired company name with the Registrar of Companies (ROC).

MoA & AoA, Government Fees, and Incorporation Fees: ₹6000-8000* – This includes fees associated with preparing the Memorandum of Association (MoA) and Articles of Association (AoA), as well as the government fees and incorporation charges, which may vary within the specified range.

Notary and Stamps: ₹2000 – This covers the expenses for notarizing and stamping the necessary documents.

Professional Fees: ₹8000-10000 – This cost refers to the fees charged by professionals, such as lawyers or chartered accountants, who assist in the process of establishing the Section 8 Company.

Advantages of Section 8 Company Structure

The unique feature of this company lies in its capital structure, which does not require a minimum capital investment. This flexibility allows the company to adapt its financial resources based on its growth and operational needs. Instead of upfront capital, the company can raise funds through donations and subscriptions from members and the general public at a later stage, providing financial flexibility and enabling a broader range of contributors.

A significant advantage of this company type is the exemption from stamp duty, which is typically imposed on the Memorandum of Association (MOA) and Articles of Association (AOA) of private or public limited companies. This exemption eliminates unnecessary costs and simplifies the administrative process, making it easier for the company to focus on its mission and objectives.

The company also enjoys specific tax benefits under section 80G of the Income Tax Act 1961. This provision allows individuals or organizations making donations to the company to claim tax exemptions, incentivizing contributions and support. Furthermore, the Company Auditor’s Report Order does not apply to this type of company, relieving it from certain reporting requirements and associated obligations.

Donors to this company type are eligible for tax exemptions under sections 12A and 80G of the Income Tax Act. This further encourages individuals and organizations to contribute financially to the company’s activities and mission, fostering a supportive environment for its growth and impact.

In addition to individuals and organizations, registered partnership firms are welcome as members of this company. This inclusion allows partnership firms to hold directorship positions in their individual capacity, promoting increased participation and engagement in the company’s management and decision-making processes.

Overall, this type of company offers a unique capital structure, exemptions from stamp duty, tax benefits, and inclusivity for partnership firms. These advantages streamline the company’s operations, reduce financial burdens, and encourage contributions, ultimately enabling it to focus on its mission and drive positive social change.

Conclusion

Section 8 Companies play a crucial role in enabling non-profit activities and fostering positive social impact. These companies offer a streamlined registration process, making it easier for organizations to establish themselves and begin their charitable endeavors. By eliminating the requirement for minimum capital investment, Section 8 Companies allow non-profits to focus more on their mission rather than financial constraints.

The simplified registration process provided by Section 8 Companies is a significant advantage for non-profit organizations. It reduces bureaucratic hurdles and saves time and effort in navigating through legal formalities. This streamlined approach enables non-profits to quickly establish themselves and channel their energy towards their core objectives of making a positive difference in society.

Moreover, the absence of a minimum capital requirement allows non-profits to allocate their resources effectively. Instead of worrying about meeting financial thresholds, they can prioritize their funds for implementing impactful programs and initiatives. Section 8 Companies have revolutionized the non-profit landscape by providing a supportive framework that enables organizations to focus on their mission rather than being overwhelmed by administrative complexities. The streamlined processes and financial flexibility offered by Section 8 Companies create an environment where non-profits can thrive and create lasting change.

Read Our Article: What Is The Advantages And Disadvantages Of Section 8 Company In India?

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