Section 8 Company
Features Of A Section 8 Company
- Charitable objectives: Section 8 companies cannot carry out the business with an ambition to make profits. Their objectives are wholly charitable in nature. They ambition to auxiliary causes like science, culture, research, sports, religion, etc.
- No lowest segment capital: Section 8 companies, just like every other companies, make sure of not having a prescribed least amount paid-up capital.
- Limited liability: Members of these companies bottle no more than arranged partial liability.
- Government license: Such companies are able to run merely if they maintain the pivotal Government’s license. The management preserves annul this right as well.
- Privileges: Since these companies possess charitable objectives, the Companies perform has accorded a number of payback and exemptions to them.
A person or a group of person who wishes to form Section 8 Company can make an application to the Registrar of Companies with the help of the required forms to form a company with charitable purposes under Section 8 of Companies Act. If the Central Government is satisfied, it would allow such an application but on its own terms and conditions asked under the license granted by it. Once acquired, the Registrar of Companies will register the company when the applicant clears all the required fees.
It is important to remember that such companies can only be limited companies. The privileges and obligations of the limited companies apply to this case.
These companies do not require to include the words like” Limited” or” Private Limited” in its name like either companies have to.
Minimum Requirements
- Minimum 2 Shareholders (For Private Limited NGO) And 7 Shareholders (For Public Limited NGO)
- Minimum 2 Directors (For Private Limited Co.) And 3 Directors (For Public Limited Co.)
Documents Required For Registration
IDENTITY AND ADDRESS PROOF
Aadhar Card, Aadhar number is now a necessity for applying for any registration in India.
Income tax return can only be filed if the person has linked his PAN card with Aadhar number.
Address proof will be required for all directors and shareholders of the company to be incorporated.
For Indian nationals, PAN is mandatory. For foreign nationals, apostilled or notarised copy of passport must be mandatorily submitted.
Residence proof documents like bank statement or electricity bill should not be more than 2 months old.
All documents submitted must be valid.
Registered Office Proof
- Register office of all companies must be in India .If it is a Rented Property, Rent agreement and NOC from a landlord. If it is a Self-owned Property, Electricity bill or any other addresses proof.
- Documents submitted must be valid and not more than 2 month old.
Benefits
The following are the advantages of incorporating a Section 8 company over other modes of registering an NGO:
- It has organised operations and greater flexibility.
- Avoids meticulous registration process and no physical presence required.
- No requirement of a minimum paid-up capital.
- Seamless procurement of tax benefits under section 12AA and 80G of the Income Tax Act.
- Any partnership firm can be a member in its individual capacity and obtain Directorship.
Online Section 8 Company Registration – A Detailed Process
There are three major steps in incorporating a Section 8 company apart from the document collection, preparation and drafting.
STEP 1: Run Approval:
- Reserve Unique Name (RUN) is a form filed for reserving a name for a new company or for changing its existing name. This is the first step of incorporating a section 8 company.
- A section 8 company shall usually have words like Foundation, Federation, Society, Council, Club, Charities, Institute, Academy, Organisation, Federation, Chamber of Commerce, Development, Association, etc.
- The name so approved shall be valid for 20 days.
STEP 2: RD 1 License:
- This step is the most crucial in the process of incorporation.
- The name approval shall be valid at the time of applying for the RD 1 License.
- RD 1 license is a license granted under section 8 of companies act as they work on a specific objective which is for the upliftment of arts, science, commerce, environment, etc., and the profit they earn shall also be used towards their objectives. All crucial documents like the MOA, AOA, financial statements and other declarations are filed at this stage.
- The license so approved shall be valid for 30 days.
STEP 3: Spice Form:
Both the name and the license shall be valid at the time of filing the SPICe form.
This is the final stage of incorporating the section 8 company where the documents relating to the registered office like the rental agreements and utility bills are filed along with the RD-1 license and the name approval certificate.
This is the final stage of incorporating the section 8 company where the documents relating to the registered office like the rental agreements and utility bills are filed along with the RD-1 license and the name approval certificate.
Section 8 Compliances
- A Section 8 company has to comply with the annual compliances like other companies.
- In case of non-compliance, the company will be treated as a dormant company and it can be struck off from the register.
- A section 8 company is also required to do the CSR compliances and the CSR must be done.
Applicability of tax exemption
There is a general notion that a Section 8 company need not pay tax as they work towards the welfare of the public at large. But this is not true. A Section 8 company, like any other legal entity, is liable to pay tax. In order to be exempted from Tax, a Section 8 company is required to obtain certification for the said exemptions such as Section 12 A, 80G etc. from the Income Tax Authorities.
FAQs
Q.1 Who can apply for registration of a Section 8 Company?
Answer: Any person or an association of persons intending to register a limited liability company for objects specified below can opt to apply for registration of Section 8 Company.
Q.2 Who is authorized to issue license to Section 8 Companies?
Registrars of Companies of respective jurisdictions are delegated with the powers of Central government to issue license to Section 8 Companies.
Q.3 What is the meaning of persons or association of persons as mentioned in Section 8?
The term “person” is not defined under the Companies Act, 2013. Section 2(41) of the General Clauses Act, 1897 provides that “person” shall include any Company, or association or body of individuals, whether incorporated or not. Therefore such a person can be natural or a legal person.
Q.4 What is the procedure for incorporation of a Section 8 Company?
To incorporate a Section 8 Company, an application shall be made to the Registrar of Companies in Form no. INC.12, which shall be accompanied, inter alia, by the following documents.
i. Draft Memorandum of Association (MOA) and Articles of association (AOA) of the Company in prescribed format (Form no. INC – 13) where the photographs of subscribers are affixed.
ii. A Declaration is to be attached in Form no. INC-14 (on the stamp paper, duly notarized) by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, that the draft memorandum and articles of association have been drawn up in conformity with the provisions of section 8 and rules made there under and all the requirements under section 8 have been complied with.
iii. An estimate of the future annual income and expenditure of the company for next three years, specifying the sources of the income and the objects of the expenditure.
iv. A declaration (in Form no. INC-15) on stamp paper duly notarized by each of the persons making the application and
v. Form no. INC-9 from each subscriber and first directors, on appropriate stamp paper of the State and duly notarized.
Q.5 Can a Company with unlimited liabilities be registered as a Section 8 Company?
No. Rule 20(1) of the Companies (Incorporation) Rules, 2014 provides that only a limited company registered under this Act or under any previous company law shall make an application to the Registrar for issue of license. Therefore, a company with unlimited liabilities cannot be registered as a Section 8 Company.
Q.6 Is it necessary that Section 8 Companies are to be incorporated as a limited company with share capital?
Section 8 Company may be incorporated as a company limited by shares or by Guarantee (with or without share capital).
Q.7 Is it mandatory that the name of section 8 Company shall include the words like – Foundation, forum, association, federation, chamber, confederation, Council, electoral trust etc.?
Yes. As per rule 8(7) of the Companies (Incorporation) Rules, 2014, for the Companies under Section 8 of the Act, the name shall include the words foundation, Forum, Association, Federation, Chambers, Confederation, council, Electoral trust and the like etc.
Q.8 Whether a Section 8 Company can have objects incidental and ancillary to the attainment of the main objects?
Rule 19(2) of the Companies (Incorporation) Rules, 2014 provides that the memorandum of association of the Section 8 Company shall be in Form No.INC.13. Review of Form INC 13 clarifies that a memorandum of association of a Section 8 Company may inter-alia provide for the doing of all such other lawful things as considered necessary for the furtherance of the objects for which the company has been incorporated.
Q.9 Whether an Articles of Association of a Section 8 Company can have entrenchment clause?
Yes, an Articles of Association of a Section 8 Company can have entrenchment clause in terms of provisions of section 5(3).
Q.10 Is there any relaxation in stamp duty payment in incorporation of a Section 8 Company?
Stamp duty on memorandum & articles of association of a Company or on any increase in share capital is governed by Indian Stamp Act, 1899 as adopted by respective state or stamp act of respective state, as the case may be. Some of the states provide privileged rates for stamp duty on MOA/ AOA of Section 8 Companies or on increase in authorized share capital. Summary of rate of stamp duty in various states is placed at Annexure – E.
Q.11 Is there is any relaxation in Stamp duty payment on issuance of share certificate by a Section 8 Company?
Stamp duty on issue of share certificates is governed by Indian Stamp Act, 1899 as adapted by respective state or stamp act of respective state, as the case may be. No relaxation of special
rate of stamp duty has been provided by any of the state in respect of stamp duty payable on issue of share certificates by Section 8 Company.
Q.12 Is there is any relaxation in stamp duty payment on transfer of shares of Section 8 Company?
Stamp duty on issue of share certificates is governed by Indian Stamp Act, 1899 and no relaxation of special rate of stamp duty has been provided stamp duty payment on transfer of shares. However, as in case of other Companies, no stamp duty is payable on transfer of shares of section 8 company also, if made in demat mode.
Q.13 Whether a foreign Company can be registered as a Section 8 Company in India?
Section 2(42) of the Companies Act, 2013 defines the term “Foreign Company” and means any company or body corporate incorporated outside India which–
• has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
• conducts any business activity in India in any other
Now since a Company or a body corporate incorporated outside India for doing not for profit activities, which has opened a branch/liason office in India, cannot fall in definition of a foreign company as business activity is missing. Therefore, such company cannot be termed as foreign company. However, subject to compliance of FEMA regulations, it can open branch/liason offices.
Such not for profit companies or bodies corporate incorporated outside India can promote and register a Section 8 Company in India as a distinct entity.
Q.14 Can a One Person Company (OPC) be incorporated as or convert into a Section 8 Company?
No. Rule 3 of the Companies (Incorporation) Rules, 2014 prohibits a one-person company to be incorporated as section 8 company or to convert into a Section 8 Company.
Q.15 Can a one-person company become a member of Section 8 Company?
No, Rule 3(6) of the Companies (Incorporation) Rules, 2014 prohibits one-person company to invest in securities of anybody corporate.
Q.16 Can a partnership firm or a Limited Liability Partnership become a member of Section 8 Company?
Yes, under the Companies Act, 2013, a Partnership firm or an LLP can become the member of Section 8 Company. The provisions of respective Acts need to be complied with by the partnership firm or LLP as the case may be.
Q.17 If a Trust can become member of a Section 8 Company?
There is no restriction in the provisions of the Companies Act, 2013 for a registered Trust to become a member of Section 8 Company. In case of unregistered trusts, provisions of section 89 would be applicable.
Q.18 Whether a Co-operative society can become subscriber/ member of a Section 8 Company?
In terms of section 8, any person or an association of persons intending to register a limited liability company for objects specified in section 8(1)(a), subject to the restrictions provided in section 8(1)(b) and (c), can opt to apply for registration of Section 8 Company.
The term “person” has not been defined in the Companies Act, 2013. Section 2(41) of the General Clauses Act, 1897 provides that “person” shall include any Company or association or body of individuals, whether incorporated or not.
Section 11 of the Indian Contract Act, 1872 provides that every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is sound mind and is not disqualified from contracting by any law to which he is subject.
Therefore a Co-operative society can be regarded as Person and thus capable of becoming subscriber of a company including Section 8 Company.
Q.19 Can a company be treated as Section 8 Company as well as a small company provided that the company has not exceeded the thresholds prescribed for small companies under section 2(85)?
No. As per proviso to section 2(85), section 2(85) does not apply to a Section 8 Company and accordingly, a Section 8 Company cannot be treated as a small company.
Likewise, a small company on conversion to a Section 8 Company shall cease to be a small company.
Q.20 Can Section 8 Companies receive contributions from overseas or non-residents?
There are special requirements to be complied with under the Foreign Contribution and Regulation Act, 2010 before a Section 8 Company can receive any contributions or donations from overseas/outside India from non-residents. The provisions of the said Act are in addition to the provisions under the Companies Act.
Q.21 Can a Section 8 Company alter its Memorandum of Association or Articles of Association by only passing a special resolution?
A Section 8 Company can alter the provisions of its Memorandum or articles by passing a special resolution,
however, such alteration requires the approval of the Registrar of Companies [vide MCA notification dated 21st May, 2014].
Further, if alteration in Memorandum or Articles results in conversion of Section 8 Company to any other kind of company, prior approval of Central Government is required. Such power is delegated to Regional Director [vide MCA notification dated 21st May, 2014].
Q.22 Section 8 Companies are exempted to suffix Limited/ Private Limited with the name of the company. What is the significance of this exemption? Does it affect their limited liability?
No, the Section 8 Companies enjoy limited liability even without adding the words “Limited” or “Private Limited”. No, it does not affect their limited liability.
Q.23 Can section 8 companies be a holding company of another company?
Yes, section 8 company can promote another company and be a holding company of another company.
