Section 8 Company
•Not all companies have objectives of making profits by carrying out trade and commerce. Many companies primarily have charitable and non-profit objectives. Such entities are referred to as a Section 8 Company because they get recognition under Section 8 of Companies Act, 2013. These companies dedicate all their incomes and profits towards the furtherance of their objectives. 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; an exception is 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. Further, the key feature of this Company is that the name of the Company can be incorporated without using the word “Limited” or “Private Limited” as the case may be.
• As per Section 8(1a, 1b, 1c) of the Companies Act, 2013, a Section 8 company can be established for the “promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object”. The Act further states that a Section 8 company can purse the above objects subject to the condition that it “intends to apply its profits, if any, or other income in promoting its objects” and “intends to prohibit the payment of any dividend to its members.”. In simple terms, a Section 8 company must promote a public cause and the proceeds generated by the entity must solely be used to support the stated public cause(s) only. According to the Companies Act, 2013, Section 8 companies can be formed either as Private Limited, LLP or Public. Famous examples of Section 8 companies include Federation of Indian Chambers of Commerce and Industry (FICCI) and Confederation of Indian Industries (CII). The objective of these companies is facilitating the growth of trade and commerce and India.
• Charitable objectives: Section 8 companies do not aim to make profits. Their objectives are purely charitable in nature. They aim to further causes like science, culture, research, sports, religion, etc.
• Charitable objectives: Section 8 companies do not aim to make profits. Their objectives are purely charitable in nature. They aim to further causes like science, culture, research, sports, religion, etc.
• Limited liability: Members of these companies can only have limited liability. Their liabilities cannot be unlimited in any case.
• Government license: Such companies can function only if they have the Central Government’s license. The Government can revoke this license as well.
• Privileges: Since these companies possess charitable objectives, the Companies Act has accorded several benefits and exemptions to them.
• Firms as members: Apart from individuals and associations of persons, Section 8 also allows firms to be members of these companies.
• Conversion into a One Person Company: A Section 8 Company cannot be converted into a One Person Company.
• Flexibility: Comparatively, this type of company has lesser legal formalities as to a public company. It has the benefits of special exemptions and privileges under the company law.
• Members have limited liability.
• No minimum capital requirements.
• They get several tax exemptions.
• Stamp duties and high fees are not payable for registration.
• They have perpetual existence and separate legal status.
• Exemptions from carrying out several procedural compliances.
• More credibility than compared to NGOs, societies, and trusts because they are recognized by the Central Government’s license.
• Members of the company cannot get any dividend.
• Officers and directors do not get benefits and allowances
• Can only use the profits for furthering charitable aims and objectives.
• Amendment of memorandum and articles requires Central Government’s permission.
• The license is revocable on several grounds.
1. Obtain the required documents and arrange them.
2. Obtain the Digital Signature Certificate (DSC) for the proposed Directors not having the Directors Identification Number (DIN). Obtain the DIN from the Ministry of Corporate Affairs by filing Form DIR-3, if the businessman does not have DIN.
3. Apply for the name of the company which is a crucial step in company registration. The name of a Section 8 Company must end with the words prescribed for this purpose like foundation, forum, association, federation, chambers, confederation, council, electoral trust, etc. The name approval process can be completed in 24-72 hours.
4. Draft the Memorandum of Association and Articles of Association of the proposed company in Form INC – 13.
5. Obtain the license under section 8 of new companies with a charitable objective. The person who is desirous to incorporate a company under section 8 is required to file an application in form INC 12 along with the prescribed fees to register for a license.
6. Certificate of incorporation – If after the filing of the requisite forms that is INC 7, INC 22 and DIR 12 for the incorporation with the registrar of the companies along with the prescribed fees, ROC gets satisfied with the contents of the documents that are filed, the Government would issue the incorporation certificate, RD license, PAN and TAN for the Section 8 Company. The entity can now use the details above to open a bank current account with banks like ICICI or DBS or Citi Bank in India.
7. It generally takes around 30-45 working days to register a Section 8 company. This duration can, however, be lesser in case the Regional Director approves the application earlier.
Section 8 companies require a grant of a license by the Central Government. All such licenses are revocable as well on the following grounds:
• terms of the license are violated;
• when its conduct is fraudulent, or it violates its own objectives and public policy.
Section 8 companies can wind-up or dissolve themselves either voluntarily or under orders given by the Central Government. If any assets remain after satisfaction of debts and liabilities upon such winding-up, the National Company Law Tribunal can order the transfer of these assets to a similar company. It can also order that they must be sold and the proceeds of this sale should be credited to the Insolvency and Bankruptcy Fund.
Any company that contravenes provisions of Section 8 is punishable with a fine ranging from Rs. 10 lakhs to Rs. 1 crore. Further, directors and officers of the company are liable to punishment with imprisonment up to 3 years and a fine between Rs. 25,000 to Rs. 25 lakhs. Such officers can also face prosecution under stringent provisions of Section 447 (dealing with fraud) if they conduct any affairs with fraudulent motives.
• Registration under Companies act with the registrar of companies makes the company a legal entity.
• Government regulations to manage the profits and losses of the company makes the company trustworthy
• Company is managed by the board of directors through MoA and AoA and not by other bodies.
• Section 8 Company Tax benefits: It is a non-profit organization that is why they are exempted from some provisions of the income tax. They are also given numerous other deductions and other tax benefits. They avail benefits under section 80G of the Income Tax Act, 1961. They also are required to pay less stamp duty as compared to other organizations.
• To apply for TAN, PAN and Bank Account
Non-profit organizations are always been seen as a special purpose vehicle (SPV) which act as instruments and are considered to be the driving force in helping out the government in doing the things which they always want to do, for the betterment of society, but could not do so due to of various factors. NPOs are the direct link between the society and their well-being and it provides a platform where one can join hands to work for the society and the community, and ultimately in order to make this world a better place. India being a diversified country lacks behind in many of the areas like employment generation, food, and safety, education, health care, etc. The fact that most of these issues are not addressed by the government policy due to many factors has created a demand and space for the organizations ‘that aim to address those’ and thus the idea of the non-profit organization came into a picture.
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