What Is Section 8 Company?
In India, a Section 8 Company is governed by the Indian Companies Act (2013). It is administered by the Ministry of Corporate Affairs of India through the Registrar of Companies (RoC) present in each state of India. The rules, requirements, processes, and procedures for creating Companies vary to some extent and depend on the type of company that will be created.
Section 8 Company registration is done under Section 8 of the Companies Act of 2013, formerly known as the Section 25 Company under the Companies Act of 1956. Its primary objective: to promote research, charity, trade, arts, science, sports, education, and the environment or any other similar subject, provided that the benefits if any, or other income, are used only for the objectives of the assets of the Company. No dividends will be paid to its members.
Requirements For Section 8 Registration
- There must be at least two shareholders.
- There must be at least two directors (the directors and the shareholders can be the same person).
- At least one of the directors must be a resident of India.
- There is no need for minimum capital.
- There must be a registered office address where the registered office of the company shall be situated and the details for the same shall be filed to the registrar.
Documents Required For Section 8 Company Registration
Documents Required For Directors & Shareholders
- Passport Size Photo
- Id Proof (Voter Id/Passport/Driving License)
- Address proof (Bank statement/Electricity bill/Mobile bill/Telephone bill)
Documents Required For Office Address:
- Rent agreement or sale deed of the registered office
- Utility Bill (Electricity bill/Mobile Bill/Telephone bill/Gas bill) and the bill should not be older than 2 months.
- No objection certificate from the person whose name is mentioned in the bill
Process Of Section 8 Company Registration
In India, an NGO may be registered as a Section 8 Company under the Companies Act 2013. One of the entities mentioned in Section 8 (formerly, Companies established under section 25 of the 1956 Act) is a legal entity for non-governmental or non-profit organizations.
Step 1 - Name Approval Of Section-8 Company
The name should be unique and it should not be similar to the existing company name. The name approval application shall be filed to the registrar in relevant form along with the details of the activity which the company is going to do after registration.
There is an exemption provided to the section-8 companies from the use of “private limited” or “limited” at the end of the name, they can use the words like “Foundation”, “Association”, “Organization”, etc. at the end of their names
In one application 4 names can be applied on preference basic and the registrar will approve such name which will be available. The availability of a name can be checked on the MCA website.
Step 2 - Drafting Of Documents
Once the name gets approved it will be valid for 20 days from the date of approval, after the name reservation, there are certain documents that are needed to be drafted in which all the details of the directors and the company shall be mentioned.
Step 3 - Drafting Of MOA And AOA
Suitable Memorandum of Association and Articles of Association have to be drafted along with other documents. The MOA shall be drafted in INC-13 form.
Step 4 - Apply For DSC & DIN
Every Director shall have Digital Signature Certificate before filing the registration application because the form cannot be filed without DSC. But the DIN application can be filed along with the registration form, there is no need to apply for DIN separately.
Step 5 - Submit License application
Earlier the license for the section-8 company is applied in INC-12 separately and it was filed before the filing of the registration form, but now the application for a license shall be filed along with the registration form. Now there is no need to file INC-12 for grant of license separately.
Step 6 - Submit Registration Application
After completion of name approval, documents drafting and signing, and granting of DSC the final application shall be submitted to the registrar for their approval. It will be submitted online to the respected ROC in whose jurisdiction the registered office of the company is situated.
Step 7 - Receive Certificate of Incorporation
If the ROC is satisfied after due scrutiny of various information provided in the form then he will grant the license as well as a certificate of incorporation. After the issuance of the certificate, the section-8 company can start its work toward the welfare of society.
Along with the certificate of incorporation and license, the government will issue PAN and TAN simultaneously to the company.
Revocation Of Section 8 Company
The Central Government may revoke the license of the company if it does not comply with any of the requirements of this section or the conditions or activities of the company which are carried out is held to be fraudulent or contrary to the public interest.
However at any time, the company can convert its state into a public limited company or private limited company and change its corporate name by adding the words “Limited” or “Private Limited,” and the Registrar shall amend its records related to the company accordingly. The central government may require that the company be dissolved or merged with another company which is also incorporated in this section. However, these orders can only be placed after the company has received a reasonable opportunity to be heard.
Penalty Payable By Section 8 Company
If a company violates the clause established in Section 8 then under subsection 11 of Section 8 of the Companies Act, the company is subject to the penalty due to fraudulent behaviour.
- There can be fine, not less than INR 10 lakhs and extending up to INR 1 crore, and
- Every official and director who is in default can be fined to the tune of INR 25,000 and extending to INR 25 lakhs
Exemption For Section 8 Company
- No need for a Company Secretary – Section 8 Companies are not required to appoint a company secretary. This relaxation leads to lower costs for Section 8 companies
- No minimum paid-up capital – Same as private limited and public limited companies, Section 8 companies no longer need any minimum paid-up capital.
- Relaxed notice period – Under new rules, an AGM or Annual General Meeting can be called with 14 days notice. This is reduced from the previous 21 clear days requirement.
- No need for minutes – There has to be no statutory requirement for recording proceedings of records of a meeting or minutes maintained.
- Meeting required– The company has to hold at least one board meeting within every six calendar month instead of four board meeting in a calendar year.
- Tax-exempt status – A Section 8 company can be fully exempted from paying income tax. To this end, an application has to be made to the local income tax commissioner with supporting details for tax-exempt status.
Donations Made To Section 8 Company
Those who donate to a Company incorporated under Section 8 receive certain benefits under Section 80G of the Income Tax Act 1961.
How to raise donation in Section 8?
- They can apply for government grants and aids.
- They can raise donations from individuals through a campaign. The campaign may be carried out by word of mouth or through advertising on tv, in a newspaper or via social media.
- Make presentations to high net worth individuals to help their cause. They also petition companies to support them through their corporate social responsibility
- Some Section 8 Companies even make a door to door campaign to raise funds
The Salary Structure Of Section 8 Company
A Section 8 Company can pay sitting fees to its directors up to INR 1 lakh per meeting. The company has no restrictions on the payment of salary to its officers. It is run in the same way as other companies and is entirely free to hire management and personnel by paying them suitable remuneration. The employees of a Section 8 company are entitled to Employee Provident Fund as in other companies. The salary structure in Section 8 company is created with the same goals in mind as in a private or public company.
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