{"id":41479,"date":"2022-03-26T17:43:57","date_gmt":"2022-03-26T12:13:57","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=41479"},"modified":"2022-03-26T17:44:00","modified_gmt":"2022-03-26T12:14:00","slug":"advantages-and-disadvantages-of-section-8-company-in-india","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/advantages-and-disadvantages-of-section-8-company-in-india\/","title":{"rendered":"What is the Advantages and Disadvantages of Section 8 Company in India?"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The primary goal of the Section 8 Company\nis to serve charitable purposes. These companies fall under the Companies Act,\n2013. Unlike other non-profit firms, Section 8 companies are transparent and\nproductive on account of the constitutional framework. These companies aim to\nincentivize commerce, art, sports, science, welfare, research, social,\nreligion, environmental protection, etc. The prevailing Act doesn&#8217;t allow these\ncompanies to allocate the profit to their members. Instead, the earned profit\nis utilized to promote the company&#8217;s objective. In this write-up, we will be\ndiscussing the pros and disadvantages of section 8 Company. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/advantages-and-disadvantages-of-section-8-company-in-india\/#An_Overview_on_the_Section_8_Company\" >An Overview on the Section 8 Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/advantages-and-disadvantages-of-section-8-company-in-india\/#Advantages_of_Section_8_Company\" >Advantages of Section 8 Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/advantages-and-disadvantages-of-section-8-company-in-india\/#Disadvantages_of_Section_8_Company\" >Disadvantages of Section 8 Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/advantages-and-disadvantages-of-section-8-company-in-india\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"An_Overview_on_the_Section_8_Company\"><\/span>An Overview on the Section 8 Company <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>A\ncompany is deemed a Section 8 company when registered as anan NPO (Non-Profit\nOrganization). It has a motive of advocating commerce, arts, charity,\neducation, protection of the environment, social welfare, science, sports. <\/li><li>It\nis mandated to use the earned profits or other income for the promotion of\nthese objectives. The income of such entities cannot be utilized for addressing\ndividends-based obligations. <\/li><li>Such\nentities secure registration from the Ministry of Corporate Affairs and are\nobligated to comply with the norms underpinned by the government. <\/li><li>As\nper the rules, failure to meet the underlying norms formulated by the Central\nGovernment may lead to the closure of the company on the orders of the\ngovernment.<\/li><li>Also,\nstringent legal action shall come to effect against all the company&#8217;s members\nif the objects formulated by the company turns out to be bogus.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages_of_Section_8_Company\"><\/span>Advantages of Section 8 Company<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A <a href=\"https:\/\/corpbiz.io\/section-8-company-registration\"><strong>Section 8 Company <\/strong><\/a>renders various benefits, unlike its counterparts such as Trust or Society. Following is the list of viable benefits offered by the Section 8 companies: <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Access to Tax benefits<\/h3>\n\n\n\n<p>Since Section 8 companies are more of a charitable institution, they have access to the various exemptions available under the IT Act. These companies are qualified to access multiple tax benefits and a tax cut. Section 80G of the <strong>Income Tax Act<\/strong><sup><a href=\"https:\/\/www.incometaxindia.gov.in\/pages\/acts\/income-tax-act.aspx\"><strong>[1]<\/strong><\/a><\/sup> rendered plenty of tax-related benefits to these companies.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Zero Stamp Duty<\/h3>\n\n\n\n<p>The Section 8 companies are not liable to\npay stamp duty on the MOA and AOA, unlike other entities falling under the\nCompanies Act, 2013. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Minimal share capital<\/h3>\n\n\n\n<p>Unlike private,\npublic, or OPC, a Section 8 company can be set up without minimum paid-up share capital. These companies are allowed to alter their\ncapital structure in accordance with their requirement later on. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Exempted from any name<\/h3>\n\n\n\n<p>Section 8 companies are not compelled to\naffix the term like Limited or Private Limited in their name. These entities\nare registered with limited liability. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Separate legal entity<\/h3>\n\n\n\n<p>Section 8 company possesses a distinct\nlegal status which implies that entity&#8217;s existence is independent of its\nmembers. The section 8 entity has perpetual existence.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Improved Credibility<\/h3>\n\n\n\n<p>The flexible and transparent\nconstitutional framework of Section 8 companies allows them to garner better\ncredibility than other types of NGOs such as Society and trust. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Eligible for foreign contribution <\/h3>\n\n\n\n<p>Section 8 companies are eligible to\nreceive overseas funds in donations provided they are registered under the Foreign\nContribution Regulation Act, 2010. This helps them fuel their charitable campaigns that are in need of\nmuch-need findings.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Disadvantages_of_Section_8_Company\"><\/span>Disadvantages of Section 8 Company<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Following are the common disadvantages of\nsection 8 Company<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Profit distribution is not permissible<\/h3>\n\n\n\n<p>Unlike private, public, and OPC, Section\n8 companies do not have the leverage to undertake profit distribution and\nallocate fair share to the members. The profit earned by these companies can\nonly be used to serve charitable objectives. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Profit cannot be a prime objective<\/h3>\n\n\n\n<p>Under no circumstances section 8\ncompanies cannot serve profit-based objectives. However, they are free to\ngenerate income from legitimate sources or via donations. It is needless to\nmention that such gains can only be used to promote charitable objectives. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Presence of stringent compliances and norms <\/h3>\n\n\n\n<p>Section 8 companies are bound to abide by\nvarious tedious compliances and norms to remain operational within the legal\nlandscape. All such standards should be enclosed in the company&#8217;s charter\ndocuments such as MOA and AOA. The members of Section 8 entities have access to\nvarious benefits. Similarly, these members are also exposed to some unavoidable\nshortcomings. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Prohibition on appointing a member as a remunerated officer<\/h3>\n\n\n\n<p>Section 8 companies are not allowed to\nappoint a member as a remunerated officer. This condition has been clarified\nunder the governing legislation. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Section 8 companies are typically formed\nto serve philanthropic objectives such as the promotion of art, culture,\nscience, charity, etc. These companies encounter minimal legal hindrances\nregarding availing of legal status via registration. But the same is not true\nfor the post-registration phase, as these companies have to abide by various\nlegal implications that act as a barrier. No profit allocations to members and less\nstability are some common disadvantages of section 8 Company. However, on the\ntaxation front, these companies have some advantages. <\/p>\n","protected":false},"excerpt":{"rendered":"<p>The primary goal of the Section 8 Company is to serve charitable purposes. These companies fall under the Companies Act, 2013. Unlike other non-profit firms, Section 8 companies are transparent and productive on account of the constitutional framework. These companies aim to incentivize commerce, art, sports, science, welfare, research, social, religion, environmental protection, etc. The [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":41481,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[325],"tags":[2205],"acf":{"service_id":"11"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":34221,"readingTime":3,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/41479"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=41479"}],"version-history":[{"count":7,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/41479\/revisions"}],"predecessor-version":[{"id":41487,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/41479\/revisions\/41487"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/41481"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=41479"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=41479"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=41479"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}