What are Section 8 Comapanies?
The Section 8 Company, in India is regulated by the Indian Companies Act, 2013 and the amendments thereof. The rules and regulations that are made are administered by the Ministry of Corporate Affairs, Government of India through the Offices of Registrar of Companies also known as the RoC in each state of India. The company’s incorporation rules, requirements, process, and procedures vary depending on the type of company that is to be incorporated.
Why Register a Section 8 Company
A Section 8 Company is licensed under Section 8 of the Companies Act, 2013, formerly known as the Section 25 Company under the Companies Act, 1956, whose main objective is to promote research, social welfare, charity, commerce, art, religion, science, sports, education, and the protection of the environment or any such other object, provided that the profits if any or if the other income is applied for promoting only the objectives of the company. The dividend is NOT paid to its members.
Therefore, Section 8 Company is a company that is registered for the purpose of charity or not-for-profit purposes. A Section 8 Company company is similar to a Society or a Trust, an exception is that a Section 8 Company is registered under the Central Government’s Ministry of Corporate Affairs also known as the MCA whereas the Societies and Trusts are registered under the State Government’s regulations. This has various advantages when it is compared to a Trust or a Society and also has higher credibility among donors, government departments and other stakeholders. The key feature of this is that the name of the Company can be incorporated without using the word “Limited” or “Private Limited”.
The Minimum Requirements
- A minimum of two shareholders;
- A minimum of two Directors (Note: Directors and shareholders can be the same person)
- At least one of the Directors should be a resident in India;
- No requirement for minimum capital
- Income-tax PAN is mandatory in case of the Indian nationals
- Any one Identity Proof ie. Voter ID/Passport/Aadhar Card/Driving License is required. Passport is mandatory for the proof of identity in case of foreign nationals.
- Any one Proof of Residence (Electricity Bill/Bank Statement/Telephone Bill/Mobile Bill)
- The Registered Office address proof, the rental agreement along with the latest rent receipt. In case the premises are rented, a copy of the latest utility bill with the name of the landlord and a no-objection certificate (NOC) from the owner of the premises.
- In case the premises are owned either by the Director or the Promoters, any documents establishing ownership such as Sale Deed/House Tax receipt, etc in addition to the no-objection certificate.
Procedure for Section 8 Company Registration
- The businessman is required to obtain the necessary documents and arrange them.
The documents that are required are:
1.Identity Proof: Copy of the Permanent Account Number (PAN) of all the Directors/Promoters is mandatory
- Address Proof: Copy of a valid Passport/Electricity Bill/Driving Licence/Aadhar/Telephone Bill that is not older than 2 months
- Latest passport size photographs of all Directors and Promoters
- Rental Agreement or a Leave & Licence Agreement, if the registered office premise is rented
- Utility Bills of the proposed registered office
- Consent to act as a Director in Form DIR-2
- Director’s Directorship details in any other Companies/LLPs, if any.
- The second step is to apply for Digital Signature Certificate which is necessary for filing the forms electronically to the Ministry of Corporate affairs which can be obtained from any certified agency.
- Then the businessman must obtain the Digital Signature Certificate (DSC). The proposed Directors who do not possess the Directors Identification Number (DIN) must obtain the DIN from the Ministry of Corporate Affairs by filing Form DIR-3.
- The most crucial step is to apply for the name of the company which is an important step in company registration.
- The next step is to draft the Memorandum of Association and the Articles of Association of the proposed company in Form INC – 13.
- They must then obtain the license under section 8 of new companies with a charitable objective. The person who desires to incorporate a company under section 8 is required to file an application with form INC 12 along with the prescribed fees to register for a license.
7. Certificate of incorporation – After filing the requisite forms ie. INC 7, INC 22, and DIR 12 for incorporation, with the registrar of the companies along with the prescribed fees. If the ROC is satisfied with the contents of the documents that are filed, the company will receive a Certificate of Incorporation in Form INC 16.
Privileges Under the Company Law to Section 8 Companies:
- Formation of a Section 8 company is an easy procedure
- Minimum paid-up capital is not required
- Stamp duty registration exemption
- Any registered partnership firm in its individual capacity can be a member
- Tax deductions benefit u/s 12AA and u/s 80G of Income Tax Act, to the donors of the company
- Greater flexibility
- It generally takes 30-45 working days to register a Section 8 company. The duration can be less in case the Regional Director approves the application earlier.
Non-profit organizations have always been considered a special purpose vehicle (SPV) which act as instruments and are considered to be the driving force in helping out. The government is implementing various things which help the betterment of society, but could not do so due to various factors. NPOs help in bridging the gap between society and their well-being and provides a platform where one can work for the society and the community with an ultimate goal to make the world a better place. India being a diverse country falls back in many areas like education, health care, employment generation, food, safety, etc. Most of these issues are not addressed by government policies due to various factors and in turn, has created a demand and space for organizations which aims to address those aspects and leading to the idea of a non-profit organization into the picture.