Section 8 Companies
A Section 8 Company is a non-profit organization that aims to promote charitable activities, art, science, education, and sports. The profits of such companies are utilized for promoting these objectives and are not distributed among the Company’s members.
At KRB Finarch, we provide end-to-end services for registering Section 8 companies in India. Our team of experts offers hassle-free and professional services to help you establish a Section 8 company quickly and efficiently. Contact us today to avail of our professional services for registering your Section 8 Company in India.
Definition of Section 8 Company – Companies Act, 2013
According to the Companies Act 2013, a Section 8 company is defined as an organization whose objectives are to promote arts, commerce, science, research, education, sports, charity, social welfare, religion, environmental protection, or other similar activities goals. These entities utilize their profits to achieve their mission and do not distribute dividends to their shareholders.
Overview of Section 8 Company Registration
A Section 8 Company is a type of corporation established to promote non-profit activities, such as education, social welfare, environment preservation, arts, sports, charity, and more. This follows the provisions of the Companies Act 2013.
The essential purpose of registering a Section 8 Company is to encourage non-profitable goals, including but not limited to trade, arts, commerce, education, charity, environmental protection, sports research, and social welfare. To register a Section 8 Company, a minimum of two directors are required, and there is no requirement for a minimum paid-up capital to set up such a company.
Key Points about Section 8 Company
- In India, Non-Governmental Organizations (NGOs) can be registered under the Registrar of Societies or as a non-profit entity under Section 8 Company of the Companies Act, 2013.
- Profit generated by Section 8 Companies cannot be used for purposes other than charitable objectives and cannot be distributed among shareholders.
- Section 8 Companies are similar to the erstwhile Section 25 Company under the Company Act 1956. As per the prevailing Company Act, these are now recognized as Section 8 Companies.
- Section 8 Companies are required to comply with the provisions of the Companies Act 2013. They are mandated to maintain books of accounts, file returns with the Registrar of Companies (ROCs), and comply with GST and IT Act.
- Any changes to the charter documents like the Articles of Association (AoA) and Memorandum of Association (MoA) require the government’s consent.
Benefits of Opening a Section 8 Company in India
Incorporating a Section 8 company in India offers numerous advantages, some highlighted below.
Tax Exemption
Section 8 companies registered under section 12AA of the Income Tax Act are eligible for a 100% tax exemption, as they utilize their profits for charitable purposes. This is a significant benefit as the profits generated by such entities are non-taxable.
No Minimum Capital Requirement
Unlike public limited companies, Section 8 entities do not have a minimum capital requirement. They can adjust their capital structure according to their growth, giving them more flexibility.
No Need for Paying Stamp Duty
Section 8 companies are not required to pay stamp duty for registration. This reduces the cost of setting up a Section 8 company compared to other registered companies.
Separate Legal Entity
Section 8 companies have a separate legal identity and perpetual existence, just like other registered companies. This increases their credibility and provides them with more autonomy and legal standing.
Increased Credibility
Section 8 companies are subject to strict legal compliance frameworks, enhancing their credibility regarding legal standing. Unlike NGOs and trusts, Section 8 entities follow stringent compliances post-registration, making them more trustworthy.
No Title Required
Section 8 companies are free to choose a name that suits their liking during the registration process. Unlike other registered structures, they are not required to affix the term “Section 8” after their name.
A Section 8 company in India offers numerous benefits, including tax exemption, no minimum capital requirement, no need to pay stamp duty, separate legal identity, increased credibility, and no title required. These advantages make Section 8 companies attractive for entrepreneurs looking to start a business with a charitable or social cause.
Eligibility Criteria for Incorporation of the Section 8 Company
Specific eligibility criteria must be met to establish a Section 8 company in India.
- An Indian national or Hindu Undivided Family (HUF) can incorporate a Section 8 Company.
- The entity must have at least one director.
- The primary object of the Section 8 Company should be related to promoting art and science, sports, charitable activities, education, or providing financial assistance to individuals from lower-income groups.
These eligibility criteria ensure that the Section 8 Company operates to promote social welfare and contribute to the greater good of society.
Mandatory legal requirements for Section 8 Company
Before applying for the incorporation process of a Section 8 company in India, specific legal requisites must be fulfilled. These requirements are as follows:
Number of Directors
A minimum of two directors is required if the Section 8 entity intends to operate as a private limited company. However, a minimum of three directors are required if the entity aims to operate as a public limited company.
Capital Requirement and Name
According to the Companies Act 2013, Section 8 entities are not required to maintain a minimum paid-up capital. Moreover, NGOs operating as Section 8 entities are not obligated to affix terms like private limited or limited in their name.
Company Objects
Only entities with non-profit objectives are eligible for Section 8 registration. The Memorandum of Association and Articles of Association must clearly state such goals for which the Company is established. Any profits the Section 8 entity generates must be utilized for charitable purposes or reinvested in the entity. The profit of Section 8 entities is not available to its members in any form. These legal requisites ensure that Section 8 companies operate with transparency and the intended purpose of promoting social welfare.
Documents Required for Section 8 Company Incorporation
The following documents are required to complete the incorporation process for a Section 8 company in India:
- Articles of Association (AOA) and Memorandum of Association (MOA)
- Declaration by the first director(s) and subscriber(s) (an affidavit is not required)
- Proof of office address, such as a copy of utility bills like electricity, water, or gas bill
- Copy of the certificate of incorporation (COI) of an overseas corporate body (if any)
- A resolution passed by the promoter company
- Consent of Nominee (INC-3)
- Residential and identity proof of nominees and subscribers
- Applicant’s identity and residential proof
- Digital Signature Certificate (DSC)
- Declaration of unregistered companies.
By providing these documents, you can ensure smooth and efficient Section 8 company incorporation processes.
Section 8 Company Incorporation Process
The process of incorporating Section 8 companies in India involves the following steps:
Step 1: Obtain Digital Signature Certificate (DSC)
The first step is to obtain a Digital Signature Certificate (DSC) for the proposed directors of the Section 8 Company. This certificate is required for the online filing of documents with the Ministry of Corporate Affairs (MCA). Form DIR-3 is used for obtaining the DIN and should be filed along with the DSC of the proposed directors.
Forms to be used: DIR-3, DSC
Step 2: Obtain Director Identification Number (DIN)
After obtaining the DSC, the next step is to apply for a Director Identification Number (DIN) for the proposed directors. The DIN number is a unique identification number issued by the MCA to individuals who wish to be directors of a company in India.
Forms to be used: DIR-3
Step 3: Reserve the Company Name
The next step is to reserve the name of the proposed Company with the MCA. The Section 8 company name should be unique and not be similar to any existing company name. Form INC-1 is used for reserving the company name.
Forms to be used: INC-1
Step 4: File the Application for Incorporation
After the company name is approved, the next step is to apply for Section 8 Company incorporation. The application for incorporation is filed in Form INC-32 along with the Company’s Memorandum of Association (MOA) and Articles of Association (AOA).
Forms to be used: INC-32, MOA, and AOA
Step 5: Obtain a License for Section 8 Company
Once the application for incorporation is approved, the next step is to obtain a license for the Section 8 Company. Form INC-12 is used for obtaining the license. It should be filed along with the necessary documents.
Forms to be used: INC-12
Step 6: Obtain a Certificate of Incorporation
After obtaining the license, the MCA issues a Certificate of Incorporation in Form INC-16. This certificate confirms the incorporation of the Section 8 Company.
Forms to be used: INC-16
In summary, the forms used for Section 8 Company registration are DIR-3, DSC, INC-1, INC-32, MOA, AOA, INC-12, and INC-16.
Connect with KRB Finarch for Section 8 Company Registration
Suppose you wish to avoid the hassle of the complicated steps and accurate paperwork involved in the Section 8 registration company process. In that case, you can rely on the professional services and licensing assistance provided by KRB Finarch.
Donations/Funding of Section 8 Company
A Section 8 Company cannot collect capital through deposits but can accept donations from the public. Several methods are available to raise funds, such as foreign donations, equity funding, and domestic donations.
- Foreign contributions are permissible only if FCRA registration is obtained, which can be applied for three years after registration.
- If immediate foreign contributions are required, prior permission from the commissioner can be requested.
- Equity funding can be achieved by releasing new equity shares at a premium price. Domestic subsidies have no restrictions, but it is vital to establish a comprehensive system to prevent money laundering.
Proprietorship vs Limited Liability Partnership (LLP) vs Company
Features | ||||
Definition | Unregistered type of business entity managed by one single person | A formal agreement between two or more parties to manage and operate a business | A Limited Liability Partnership is a hybrid combination having features similar to a partnership firm and liabilities similar to a company. | Registered type of entity with limited liability to the owners and shareholders |
Ownership | · Sole Ownership | · Min 2 Partners · Max 50 Partners | · Min 2 Shareholders · Max 15 Directors · Max 200 Shareholders · 1 Director · 1 Nominee Director | |
Registration Time | 7-9 working days | |||
Promoter Liability | Unlimited Liability | |||
Documentation | · MSME | · LLP Deed · Incorporation Certificate | · MOA · AOA | |
Governance | – | Under Partnership Act | ||
Transferability | Non Transferable | Transferable if registered under ROF | Transferable | |
Compliance Requirements | Income tax filing if turnover is more than Rs.2.5 lakhs | · ITR 5 | · Form 11 · Form 8 · ITR 5 | · ITR 6 |