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A Company Under Section 8: A Simple Guide
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Managing a not-for-profit organisation is becoming a trend today. While there are many different countries in the world that enable people to start such organisations, here we shall specifically discuss India and section 8 companies. The best part about section 8 companies is that they do not require capitalisation. Here we will talk about everything you ought to know about Indian Section 8 Companies and the Section 8 Companies Act 2013.
What is a Section 8 Company?
The aim of Section 8 companies is similar to a 501 (c) organisation in the United States or a trust formed in India. The aim of Section 8 Companies is to promote activities such as;
Education
Art and culture
Science
Sports
Social welfare
Environmental protection
# As mentioned before, unlike regular companies, Section 8 companies do not aim to make profits; however, all of the income earned is put into achieving their goals.
Key Features of a Section 8 Company.
- Motive Of Non-Profit: As all these ideas are charitable, companies formed under Section 8 are non-profit centres with no profit-making.
- No Minimum Capital Liability: You can set up a company under Section 8 without a minimum capitalisation requirement.
- Benefits In Taxation: Companies that are classified as Section 8 companies should be allowed certain tax exemptions defined in the Income Tax Act.
- Limited Liability: A company under Section 8 protects personal or private assets, maintaining the liability of its members within the business.
- No Share Distribution: Under Section 8 companies no profit shall be shared among the shareholders or the members of the company.
The Process of Registering a Section 8 Company in India .
To form a Section 8 business in India, you must first:
- Apply for DSC and DIN: Get DSCs and DINs for all directors of the firm.
- Reserve your Company Name: Through the MCA portal, reserve a distinctive name for your business.
- Filing for Incorporation Forms: Issuance of Incorporation Certificate which together with MOA, AOA, and proof of address is the initiating step to registering a company in India.
- License Application: A license is granted after the ROC reviews all the relevant documentation.
- Commence the operations: The license is then retained by the company’s Secretary allowing it to conduct operations.
Pros of Incorporating a Section 8 Company
Better Credibility: Registration under Section 8 increases the level of credibility of your organisation.
Secured Donations: It provides easier access to funding or receiving donations and government support.
Even if the company incorporates the majority of the shareholders and significantly alters the business, the company will continue to exist.
What Do I Need to Register?
- Directors’ identity and address verification documents (PAN, Aadhaar, Passport, etc.)
- Proof of registered office address.
- MOA and AOA.
- Income and Expenditure Statement.
Required Compliance
- While Section 8 businesses are legally permitted to operate as non-profits, they also have to follow a few rules:
- Annual return filers with the ROC.
- Keeping correct financial records. Holding frequent board meetings and making sure all AGMs (Annual General Meetings) are conducted.
Most Frequently Asked Question
Yes, but any surplus must be reinvested into the company’s objectives, not distributed to members.
Annual financial statements, AGMs, and filing returns with the Registrar of Companies (RoC).
Yes, it can receive donations and may apply for tax exemptions under Section 80G.
At least 2 directors for a private company and 3 directors for a public company.
Yes, foreigners can be directors, subject to necessary legal compliance.
No, a Section 8 company cannot be converted into a for-profit entity.