An organization that works for non-profitable or charity purposes and is registered as NPO (Non-Profit Organization) is referred to as a ”Section 8 company”. The motive of NPO is the promotion of arts, commerce, education, charity, environment protection, sports, science, research, social welfare, and religion.
Section 8 company establishment gets more advantages in comparison with trust and society. Its credibility is higher among the government departments, donors and the other shareholders.
These organizations were previously characterized in Section 25 of the Companies Act, 1956 with pretty much similar provisions. The new Act has more objectives that Section 8 organizations can have.
Renowned examples of Section 8 companies incorporate the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Confederation of Indian Industry (CII). The motive of these organizations is to work for the development of trade and commerce in India.
In the Companies Act, the registration of section 8 companies will be done as limited companies and will be treated as limited organizations without adding the word “limited” to their name. It can be registered as private limited or public limited companies.
Features of Section 8 Company:
- Objective –
Section 8 companies have a very clear objective is a charity and it is not aim to make a profit in any case.
- Minimum share capital –
In section 8 company there is no requirement of any minimum paid-up share capital.
- Limited liability –
In any case, the liability of the member of the section 8 company is limited. It cannot be unlimited at any point.
- Government permit –
Such organizations can work only if they have permission or license from the central government. The Government can deny this permit also.
- Privileges –
The objective of section 8 company is charity, because of this, these companies get many benefits and exemptions under the companies act.
- Members –
In section 8 company firms are also allowed to become a member with individuals and the association of persons.
Advantages of Section 8 company:
- Separate Legal Identity –
Section 8 Company has a separate legal identity from its members.
- Zero Stamp Duty –
Paying stamp duty on the MoA and AoA of the private limited and public limited company is exempted in Section 8 company.
- Name –
Section 8 Company can register as “Association, Society, Council, Club, Charities, Foundation, Academy, Institute, Organization, and Federation”. is not required to add “Public Limited or Private Limited”, next to its legal name.
- CARO –
There are no requirements of the Companies Auditor’s Report Order or CARO don’t in this kind of organization.
- Tax –
There are many tax benefits available to Section 8 companies in India.
- Credibility –
Section 8 Companies are more reliable than all other forms of charitable organizations.
- Exemption to the donors –
Tax exemptions u/s 12A and 80G of the Income Tax Act apply to donations to a Section 8 Company.
- Membership –
A registered partnership firm can become a member in its individual capacity and obtain director status.
Documents Requirement for the Registration of Section 8 Company:
- Digital Signature Certificate
- Memorandum of Association
- Articles of Association
- Passport Size Photographs
- Members’ Id Proof such as Aadhar Card, Passport, Voter Id
- Details of Director (When the Members Are Other Companies/LLPs)
- Address Evidence
- Director Identification Number
Eligibility to Apply for Section 8 Company:
Section 8 Companies may be registered by an individual or association of individuals if they meet the following objectives or intentions. These objectives must be approved by the Central Government.
When the company is promoting science, commerce, education, art, sports, research, religion, charity, social welfare, environment protection, or similar objectives;
In the case of a corporation that intends to invest all profits (if any) or any other income generated after incorporation into the promotion of these objects only;
Dividends are not paid by a company to its members when it does not intend to.
Procedure for incorporation of a Section 8 company:
- Step 1 –
The proposed Directors of the Section 8 Company should be provided with a DSC. To get a DIN, submit Form DIR-3 to the ROC once you receive a DSC. In order to obtain DSC, you must attach proof of your identity and address.
- Step 2 –
A DIN will be assigned to the proposed directors after the DIR-3 is approved by the ROC.
- Step 3 –
Form INC-12 must be filed with the ROC to apply for a licence for the Section 8 company, as well as any documents mentioned above.
- Step 4 –
A license under section 8 will be issued in Form INC-16 once the form has been approved.
- Step 5 –
As soon as you have the license, you need to file the SPICe+ Form with the ROC along with the attachments described above.
Note: After the ROC has reviewed the documents, he issues a Certificate of Incorporation along with a unique Company Identification Number (CIN).
Cancellation of License:
The Central Government must grant a license to Section 8 companies. Revocation of such licenses is also possible for the following reasons:
- A violation of Section 8 has been committed by the company;
- License terms have been violated;
- Whenever its actions are fraudulent or violate public policy and objectives.
Depending on the situation, the government can even order the company to be wound up or merged with another similar company. Before passing such orders, the Government must hear from the company.