Section 8

Introduction:

A Section 8 Company, also known as a Non-Profit Organization (NPO), is a unique form of business entity established for promoting social welfare and not for profit distribution to its members. These companies operate with the primary objective of promoting charitable activities, advancing education, promoting art and culture, or working towards a social cause. If you have a vision to create a positive social impact, our Section 8 Company Startup service is here to assist you in establishing your non-profit organization efficiently and effectively.

The main purpose of establishing a company as a Section 8 company is to promote non-profit objectives such as the following:

1. Commerce
2.  Art 
3. Science 
4. Sports 
5. Education 
6. Research 
7. Social welfare 
8. Religion 
9. Charity 
10. Protection of environment 
11. Any such other object related to the above objects

When the Central Government is satisfied that a person or association of persons propose to establish a limited company having the above-mentioned objectives, it shall grant a license to register as a Section 8 company under the Companies Act, 2013 (‘Act’). 

The profits/incomes of the Section 8 company, if any, are applied towards promoting the objectives of the company and are not distributed as dividends to its shareholders.

Section 8 Company Registration Eligibility:

• An Individual, HUF is eligible to start a Section 8 company in India.
• Two or more persons who will act as Directors or shareholders should fulfil all the compliances and requirements of the Section 8 company incorporation under the Act.
• There must be at least one director who should be a resident of India in the Section 8 company. 
• The objective must be one or more of the following – promotion of sports, social welfare, the advancement of science and art, education and financial assistance to lower-income groups.
• Founders, directors, members directors of the company cannot draw any remuneration in any form of cash or kind.
• No profit should be distributed among the members and directors of the company directly or indirectly.

Section 8 Company Benefits:

No minimum capital: There is no minimum capital requirement for a Section 8 company incorporation and the capital structure of Section 8 can be altered at any time as per the growth requirement of the company. Thus, the funds required for carrying the business operations can be brought in later, through donations and subscriptions from members and the general public.

Tax Benefits: The Company Auditor’s Report Order (CARO) does not apply to the Section 8 company. A Section 8 company enjoys tax benefits under 80G of the Income Tax Act, 1961. 

No Stamp Duty: There is no stamp duty imposed for Section 8 company incorporation in India. The Section 8 company need not pay the stamp duty imposed on the Memorandum of Association (MOA) or Articles of Association (AOA) of a private or public limited company.

Separate Legal Identity: Section 8 Company registration acquires a distinct legal identity from its members. A registered partnership firm can also become a member in its individual capacity and obtain Directorship of Section 8 company. It has perpetual existence and thus, the entry or exit of any member will not affect the operation of the Section 8 company.

Limited liability: The members of the Section 8 company have limited liability as per their share subscribed. They are not personally liable for the losses of the company.

Credibility: Section 8 companies are more credible and reliable than any other form of a charitable organisation. It is regulated under the provisions of the Act, thus they need to have mandatory audits every year and the Memorandum of Association cannot be altered relating to the non-profits objectives of the company.

Exemption to the donors: The tax exemption is granted to the donations received by the section 8 company under Section 12A and 80G of the Income Tax Act, 1961.

Section 8 Company Incorporation Requirements:

Directors 

A minimum of two directors is required if the Section 8 company is to be incorporated as a private limited company, and a minimum of three directors in case of incorporation as a public limited company. The maximum number of members is 200 in the case of a private limited company, whereas for a public limited company, there is no such limit.

Capital Requirement and Name

There is no requirement of minimum paid-up capital in the case of a Section 8 company incorporation. NGOs established as a Section 8 company need not use the words ‘Limited’ or ‘Private Limited’ in their name.

Charitable Objects

Section 8 companies are incorporated with non-profit objectives. The MOA and AOA must mention the non-profit objective or purpose for which it is established. Any profits earned by the section 8 company is utilised for the furtherance of its main objectives, i.e. charitable purposes or reinvested in the company. The profits will not be distributed among its members.

Management

Section 8 company is managed by the Board of Directors as per the MOA and AOA of the company, unlike other trusts that are managed by the Trustees as per the Trust Deed.

Regulation under Various Acts

A Section 8 company needs to follow the rules and regulations prescribed under the Companies Act, 2013. It needs to maintain books of account, and file returns with the Registrar of Companies. Section 8 company cannot make any changes to the provisions of MoA and AoA without the prior approval of the Central Government. It also needs to follow the provisions of the Income Tax Act and GST Law. 

 Obtain DSC (Digital Signature Certificate) 

Digital signatures of the proposed directors of the company are required as the forms for the registration process are filed online and should be digitally signed. Digital signature certificates (DSC) are issued by a government recognized certifying agencies. The list of such certified agencies can be accessed here. The cost of obtaining a DSC varies depending upon the certifying agency. You must obtain a Class 3 category DSC. 

Apply for Director Identification Number (DIN)

You have to apply for a DIN for the proposed directors of the company. The application for allotment of DIN has to be made in Form DIR-3 or along with the SPICe+ form for registration. You have to attach the scanned copy of the necessary documents such as a self-attested copy of PAN, Identity and Address proof of directors along with the form and submit it online on the MCA Portal. The form must be attested by a practicing professional who can be a chartered accountant, a company secretary, or a cost accountant.

Forms Required for Section 8 Company Registration:

Name of the form	Purpose of the Form
SPICE+	Application for Incorporation of Company
INC 12	Application for License
INC 13	Memorandum of Association
INC 14	Declaration from a practising Chartered Accountant
INC 15	Declaration from each person making the application
INC 16	License to incorporate as Section 8 company
INC 22	Situation of Registered Office
DIR 2	Consent of Directors
DIR 3	Application to ROC to get DIN
DIR 12	Appointment of Directors

FAQs of Section 8 Company startup:

What is a Section 8 Company?

A Section 8 Company, as per the Companies Act, is a non-profit organization established with the primary objective of promoting social welfare, charitable activities, or working towards a social cause. It is registered under Section 8 of the Companies Act, 2013 (or the equivalent provision in the applicable jurisdiction).

What are the requirements for incorporating a Section 8 Company?

To incorporate a Section 8 Company, you need a minimum of two directors (or more, depending on the jurisdiction) and a registered office address. The proposed company's objectives must be aligned with promoting social welfare or working towards a specific cause. You must comply with the legal and regulatory requirements set forth by the relevant authorities.

Can a Section 8 Company generate profits?

While the primary objective of a Section 8 Company is not to distribute profits to its members, it can generate surplus funds from its activities. However, these surplus funds are required to be reinvested back into the organization's social or charitable objectives and cannot be distributed as dividends.

Can foreign nationals or entities form a Section 8 Company?

Yes, foreign nationals or entities can form a Section 8 Company, subject to compliance with the foreign investment regulations and other applicable laws of the jurisdiction. However, there may be restrictions or additional requirements imposed on foreign involvement, such as obtaining prior approvals or appointing local directors.

How long does it take to incorporate a Section 8 Company?

The time required for incorporating a Section 8 Company varies based on factors such as the jurisdiction, the completeness of the documentation, and the efficiency of the registration process. Typically, it can take anywhere from a few weeks to a couple of months to complete the incorporation process.

What are the compliance requirements for a Section 8 Company?

Section 8 Companies have certain compliance obligations, including filing annual financial statements, holding board meetings, and maintaining proper books of accounts. Additionally, they need to adhere to the regulations governing their non-profit status, such as utilizing their income for charitable activities and maintaining proper records of the utilization of funds.

Tags regarding Section 8 Company Start up business services:

Charitable activities, Incorporation services, Startup services, Legal compliance, Corporate governance, Social impact, Philanthropy, Tax benefits, Fundraising, Credibility, Trust, Limited liability.

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