Section 8 Companies

by | Jan 9, 2021 | Articles

What is Section 8 Company?

Section 8 Company is a Company that is licensed under Section 8 of the Companies Act, 2013 (the Act), which has the main object for promoting research, social welfare, religion, charity, commerce, art, science, sports, education, and the protection of the environment or any such other object, provided that the profits, if any, or the other income is applied for promoting only the objects of the company. Therefore, Section 8 Company is a company which is registered for charitable or not-for-profit purposes.

This Company is, however, similar to a Trust or Society with an exception that a Section 8 Company is registered under the Central Government’s “Ministry of Corporate Affairs (MCA)”whereas the Societies and Trusts are registered under the State Government regulations. This, however, has various advantages when it is compared to Trust or Society and it also has higher credibility amongst the donors, Government departments, and other stakeholders.

Main features of Section 8 Companies

  • The members of the company do not receive any dividend;
  • Any type of profit or income of the company can only be utilised for promoting its objectives;
  • Section 8 a company shall enjoy all the privileges and shall be subject to all the obligations of a Limited Company. Every officer in default shall be liable for action under Section 447 of Companies Act for punishment of fraud. The punishment is imprisonment for a term not less than 6 months which may extend to 10 years and shall be liable for a fine which shall not be less than the amount involved in the fraud which may extend to three times the amount involved in the fraud. It is a non-compoundable offence. (Proviso to Section 8(11). *
  • Section 8 company cannot use the suffix ‘Pvt. Ltd’ or ‘Ltd’ with its name;
  • Section 8 will not be treated as a small company, whereas small company is company other than public company whose paid up share capital does not exceed Rs.50 lakhs or such higher amount as may be prescribed and whose turnover does not exceed Rs.2 crore or higher amount as maybe prescribed.
  • Articles of Section 8 company can only be amended with prior approval and permission of Central Government; otherwise, the Articles cannot be amended;
  • Only Partnership firm or LLP may become a member of a company registered u/s 8.Also there is no restriction in the provisions of the Companies Act, 2013 for a registered Trust to become a member of Section 8 Company. No another private/public company become a member of a Section 8 Company;
  • A Section 8 company cannot be converted into a One Person Company;
  • A company registered under section 8 which intends to convert into any other company shall pass a special resolution in its General Meeting for approving such conversion.

Eligibility/Minimum Requirements

The minimum requirements for the companies registered under section 8 are:

  • There must be Minimum of two shareholders;
  • There must be Minimum of two Directors (Directors and shareholders can be the same person);
  • At least one of the Director shall be the resident in India;
  • There is No requirement of Minimum capital. The required funds are brought in the form of subscriptions and donations from members and the general public;
  • The Income-tax PAN is a mandatory requirement in case of the Indian nationals;
  • Any one of the Identity Proof be it Voter ID/Aadhaar Card/Driving License/Passport is required; Passport is, however, a mandatory requirement for the proof of identity in case of the foreign nationals;
  • Any one of the Proofs of Residence (Electricity Bill/Telephone Bill/Mobile Bill/Bank Statement);
  • The Registered Office address proof (that is the rent agreement along with latest rent receipt and a copy of the latest utility bill in the name of the landlord and a no objection certificate from the owner of the premises, in case of rented premises);
  • In case the premises are owned by either the Director and the Promoters, any of the documents establishing the ownership such as Sale Deed/House Tax receipt etc along with the no objection certificate.

Procedure for incorporation of Section 8 Company under Companies Act 2013

1. Application for name availability in form RUN

Application for name availability must be made in “Reserve Unique Name” facility. The name of Section 8 Company shall include the words Foundation, Forum, Association, Federation, Chambers, Confederation, Council, Electoral Trust, and the like etc.
You can propose maximum 2 names at a time and 1 resubmission is allowed in RUN facility. Fees for RUN is Rs. 1000/-. It is advisable to attach the object clause of the proposed company. This facility is available online in MCA website.

2.Preparation of Memorandum of Association and Articles of Association

Memorandum of association is the charter of the company and defines the scope of its activities. An article of association of the company is a document which regulates the internal management of the company.
Memorandum of Association of Section 8 Company must be in form INC-13 while there is no format prescribed for Articles of Association for Section 8 Company. One can adopt table F as per the Companies Act 2013 for the preparation of Articles of Association for the company which is limited by shares.
Memorandum and articles of association of the company shall be signed by each subscriber to the memorandum who shall mention his name, address, description and occupation, if any, in the presence of at least one witness who shall attest the signature and shall likewise sign and add his name, address, description and occupation.

3.Application in Form INC-12

After approval of name by Central Registration Centre (CRC), one can make an application in Form INC-12 to the Registrar for a license under sub-section (1) of section 8. Fees for INC-12 is Rs. 2,000/-
Attachments of INC-12:
1. Memorandum of Association in Form INC-13;
2. Articles of Association; (No Specified format)
3. Declaration in Form INC-14 by CS/CA/CWA 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 thereunder and that all the requirements of the Act and the rules made thereunder relating to registration of the company under section 8 and matters incidental or supplemental thereto have been complied with;
4. Declaration by each of the persons making the application in Form INC-15;
5. 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;
6. Name Approval Letter received from Central Registration Centre (CRC);
*These are compulsory attachments to form INC-12. It is advisable to attach note on work proposed to be undertaken by the Company after incorporation and Grounds of application for issue of license under section 8.
Once the form INC-12 will be approved, License under section 8 will be issued in Form INC-16 which required to be attached in form SPICe.

4. Filing of SPICe 32 Form

After receiving Central Government approval i.e approval of form INC-12, one may go ahead with filing of form SPICe 32.

Attachment of SPICe 32:
1. Memorandum of Association in Form INC-13;
2. Articles of Association; (No Specified format)
3. Consent and Declaration by first Directors in form DIR-2;
4. Affidavit by the first subscriber in Form INC-9;
5. PAN card of first directors and subscribers;
6. Aaadhar card of first directors and subscribers;
7. Proof of Registered office like Sale Deed/Lease Deed/Rent Agreement etc;
8. Latest Utility Bill of Registered office like Electricity Bill;
9. NOC of owner/director if registered office is taken on rent/lease;
10. License issued in form INC-16;
*SPICe 33 and 34 i.e e-MOA and e-AOA can’t be used for Section 8 Company. Section 8 companies are mandatorily required to file MOA and AOA as pdf attachments to SPICe-32.

Advantages of Section 8 Company Registration:

  • Exemption from Stamp Duty;
  • Tax benefits under Section 12AA and 80G of Income Tax Act;
  • Section 8 Companies can be formed with or without share capital, in case they are formed without capital, the necessary funds for carrying the business are brought in form of donations, subscriptions from members and general public;
  • Section 8 Companies are not required to add the suffix Limited or Private Limited at the end of their name;
  • Any Partnership Firm can be a member of its individual capacity and obtain directorship;
  • A Section 8 Company has more credibility as compared to any other Non-profit organization structure like Trust or Society.

Disadvantages of Section 8 Company

  • The profit of the company can only be utilised for the charitable aims and objectives of the company;
  • There could be no payment of dividend to the shareholders unlike in other limited companies.
  • Such a company cannot alter or amend its Memorandum of Association and Articles of Association without prior approval of the Central Government;
  • The Central Government had imposed various conditions which has to be complied with and such regulations and the impositions have to be necessarily included in their Memorandum of Association and Articles of Association or as directed by the Central Government;
  • The license is revocable under several grounds.