If you intend to start an organization with the objective to encourage social motives and use the revenue generated for such social purposes, then Section 8 Company is a right one for you. Section 8 company registration is a company provided under section 8 of the Companies Act 2013, with an objective to promote non-profit objectives such as promotion of arts, commerce, trade, religion, education, culture, social welfare etc. and similar motives.
A Non-profit Organization doesn’t necessarily mean an organization or entity that doesn’t make income or profits, a non-profit organization is such in the sense that the promoters/directors of the company cannot distribute profits for their own benefit, but re-invest profits towards their social objective. All incomes/profits must be applied for promoting objects of the company.
The concept of Non-Profit making Company is not new in India. Earlier, section 25 of the Companies Act, 1956 contained provisions for incorporation, functioning and management of a non-profit organization which has been replaced by section 8 of the Companies Act 2013 as per the 19 & 20 of Companies (Incorporation) rules 2013.
For undertaking such objectives, such non-profit organization is required to incorporate itself either as a limited company or as a private limited company under the provisions of Companies Act 2013 and additionally is required to apply and obtain a license from the central government of India , which allows them to avail certain exemptions and certain benefits from applicable laws.
Further, a Section 8 Company or a non-profit organization could obtain registration, which could be effectuated through any of the following-
- Executing a trust deed, under the provisions of the Indian Trust Act 1882.
- Registering itself as a society under the provisions of the Society Registration Act.
- Registering itself as a Non-profit company under the provisions of Section 8 of the Companies Act, 2013.
Some other prominent features of Section 8 companies include-
- The Memorandum of Association of such a company should have mentioned such non-profit & social motives such as promotion of art, culture, commerce, sports, education or religious purpose etc.
- Such an entity must apply all the income/profits earned towards its objects and not share any portion of such income or profits to either promoters or shareholders of the company as dividend or any other income.
- A section 8 company is in the nature of a limited company, which is registered under the provisions of the Companies Act, and on getting license to operate from the central government , is allowed to remove the phrase ”limited” or “private limited “ from its name. Thus, a section 8 company has the option to either register itself as a public company or a private company.
Section 8 Company Registration with Legalmart
The process of registration of a section 8 company in India is comparatively simple process requiring knowledge and experience in dealing with the same, as any mistake/error while filling the same could lead to rejection of the application and ultimately leading to greater costs and time for incorporation and licensing process. Therefore, at Legalmart, we have a strong and professionally qualified team to undertake and complete the registration of a section 8 company in a simple, quick and efficient manner at the comfort of your convenience. For which, Legalmart has gained experience in section 8 company registration under one roof.
Benefits of Section 8 Company
- Exemption & Benefits – Section 8 of the Companies Act 2013, allows various benefits including tax benefits to NPOs/NGOs including persons making donations to persons making contributions in the social purposes of such NGO/NPO for the sake of providing encouragement to such activities.
- No share capital/ minimum capital requirement – the greatest benefit of incorporating as section 8 company lies in the fact that it could be formed either without share capital or where a share capital is prescribed in the MOA of the company, there is no minimum use funds received through donations and/or subscriptions towards its business objectives. Accordingly, a section 8 company could be started with any amount of capital.
- Body Corporate – As provided above, a section 8 company could be incorporated as a private limited or as a public limited company, it is a legal entity which has a separate existence than its promoters or members. It enjoys a legal status, could sue or can be sued in its own name and enjoys perpetual succession.
- No stamp duty charges – Unlike other business entities that are required to pay stamp duty charges on MOA & AOA before submitting them for registration, a section 8 company is exempted from this requirement and is not required to pay for stamp charges on its MOA & AOA.
- Exempted from any name – Though, section 8 companies are required to either incorporate themselves as a private company or a public company, but have the benefit of not using any title such as private limited or limited due to the license issued by the central government. And further can conduct their business operations without disclosing their status of limited liability.
- Transfer of shared/ownership in the company – Further, section 8 company has the benefit to allow restriction -free transfer of ownership interests which is unlike in case of companies having limited liability. The Income Tax Act allows companies to transfer their ownership interests, allowing the transfer of both movable and immovable interests in the company.
- Better Credibility than other business entities – Unlike other entities such as Trust or society, Section 8 company holds better credibility as it possesses license from the central government, it is subject to stringent provisions, regulations and conditions imposed by the same. Further, it is not easy for them to alter its objects easily.
Disadvantages of Section 8 Company
Though there are numerous advantages attached with a section 8 company, but there are certain limitations regarding Section 8 company-
- Inability to distribute profits: A section 8 company is not restricted to earn any income/profits, it can do so but cannot distribute the earned profits/incomes among its members or promoters of the company. Further, such income/profits should only be re-invested towards the fulfilment of the objectives of the company which could be any such as promotion of arts, culture, sports etc.
- Restrictions from amendment in the objectives –Once incorporated and received license from the central government, a section 8 company cannot amend its objectives through any alteration in its Memorandum of Association or the Articles of Association until and unless it satisfies the Central government regarding the need of such alteration and obtains required approval from the same.
- No benefits or perks for the members/staff/employees- A section 8 company is mainly formed for the purpose of bringing improvement or any betterment in the society. Thus, no one including the shareholders of the company are allowed to receive any perks or benefits from the company. Only they are allowed to reimburse themselves of any expenses incurred by them out of their pockets which may have occurred during the course of fulfilment of the company’s objectives.
- Focused towards a particular objective only- A section 8 company is registered by looking for certain objects such as promotion of art, culture, sports, religion, education etc. However, such companies do function in only one such chosen objective only and not for any other social purpose.
- Stringent Compliances- A section 8 company is required to obtain an additional license from the Central Government of India for its functioning which may/may not be subject to certain conditions and compliances which should be included in the Memorandum of Association and Articles of Association of the company.
- Similar rate of taxation as companies- Despite the formation of the entity for non-profit objective, it is required to pay taxes at a rate similar to that of a company which is tax@30%.
- Cancellation of the license- As provided above, the license issued to a section 8 company is subject to such additional conditions and follows certain compliances. Thus, a section 8 company is bound by such rules & regulations and has to ensure such rules & regulations with strict adherence. In the event of failure to adhere to the same, the central government may cancel such a license on being satisfied of sufficient reasons of not complying with the same.
Eligibility criteria of Section 8 Company Registration
There is no specific criterion for the eligibility of a person to start a section 8 company. However, some important provisions provide the following-
- Any natural person either alone or along with a group of individuals can start a section 8 company on meeting the following requirements-
- Such a company shall be in the nature of either a “private Limited Company” or a “limited “company and shall be exempted from the requirement of adding “limited” or “private limited” only after receiving approval from the central government for this purpose.
- The social objectives of the proposed company shall be required to be affirmed to the satisfaction of the Central Government by way of additional license.
- Any objective chosen by the company such as activities related to the promotion of science, commerce, education, art, sports, research, charity, social welfare, protection of the environment, or any similar objective shall be required to be mentioned in the memorandum of association of the company.
- Where such company earns any income/profits out of the business activities undertaken, it shall not distribute the same among the promoters or pay dividends to its members. It shall mandatorily re-invest the same in pursuance of the objects of the company.
Documents required for Section 8 Company Registration
- Copy of drafted Memorandum of Association & Articles of Association.
- Declaration to be made by the initial subscribers and directors of the proposed entity.
- Proof of proposed business address of the company.
- A copy of utility bills such as electricity bill/ water bill etc.
- Copy of resolution passed by promoter company(wherever applicable).
- Disclosure of interest by the proposed directors of the company.
- Proof of identification & residential address of the initial subscribers and directors of the company.
- Proof of identification and residential address of the nominee.
- Declarations required to be files in Form INC – 14 & INC-15.
- Assessed Income and Expenditure of the proposed company for the next 3 years.
Section 8 Company Registration Registration Online
The process of incorporation of a section 8 company is same as that of a private limited or a limited company, which also includes all rights and obligations applicable to a private or a public company. The only point of difference that lies between the former and the latter is that unlike latter, a section 8 company needs to apply for an additional license from the central government of India which also exempts them from the requirement of adding “private limited” or “limited “ to its name.
Further, the Ministry of Corporate Affairs has notified Companies (Incorporation) Sixth Amendment Rules, 2019 dated 7th June 2019 to ease the Incorporation process through a new web integrated form SPICe+ to be effective from 15th Feb 2021.
Accordingly, for the purpose of reservation of name of the company, an applicant needs to either first fill Part A of the SPICe+ and part B later for incorporation or fill both at same time for processing. After filling Part A of the form and submitting it for approval, the name so approved shall be displayed on the dashboard and the user will be able to continue filling Part B of the application through a link displayed on the application number of the new dashboard on the portal.
STEP 1: APPLICATION FOR RESERVATION OF UNIQUE NAME
For the purpose of avoiding the situation where the name of a proposed company is similar to any existing company or even suggests relativity to the same, the Ministry of Corporate Affairs (MCA) has provided the “RUN” facility , also known as (Reserve Unique Name) , for making reservation of a unique name for the proposed company. Such facility is to be availed by proposing at least two names for submission on the portal. Further, it should have names such as Foundation, Federation, Society, Council, Club, Charities, Institute, Academy, Organisation, Federation, Chamber of Commerce, Development, Association, etc.
After submitting name reservation for the proposed company, the name approved shall be valid for a period of 15-20 days.
STEP 2: ACQUIRE A DIGITAL SIGNATURE CERTIFICATE (DSC)
Next, for the purpose of signing the e-forms digitally, it is necessary for the directors of the company to acquire a digital signature certificate. If the proposed section 8 company has seven or more subscribers to its memorandum and at least three directors, it shall apply for at least three digital signature certificates, while in case of a private company at least two digital signature certificates for incorporation purposes.
STEP 3: FILE & SUBMIT FORM FOR INCORPORATION AND OTHER PURPOSES
If the applicant has filled and submitted Part A for reservation of name and receives approval of name, then within a period of 20 days from the date of receipt of such name approval, it shall fill and submit Part B of the SPICe+ form along with all required attachments and documents, which includes application for various requirements such as-
- Reservation of unique name.
- Incorporation of a new company.
- Application for Allotment of DIN.
- Opening of Bank Account.
- Application for TAN, EPFO, ESIC, GSTIN etc.(wherever required).
After filling all required information and uploading attachments and documents, attach digital signatures and click “Submit” on the MCA website.
STEP 4: GET CERTIFICATE OF INCORPORATION & LICENSE FROM CENTRAL GOVERNMENT
After SPICe+ is submitted and uploaded on the MCA portal, the Registrar of Companies (ROC) shall undergo thorough verification of application and on satisfying himself that all the requirements of registration of the company have been complied with, may grant certificate of incorporation. After receiving certificate of incorporation, such section 8 company may apply for license from the central government. After which, the section 8 company can file for permission for initiating business operations within a period of 180 days from the date of incorporation of the company. After getting the certificate of incorporation, a section 8 company will be further required to make an application requesting permission to initiate business operations within a time-limit of 180 days from the date of incorporation.
Why you Choose Legalmart
Finally, the incorporation of a section 8 company comes with multifarious benefits which are way more advantageous than any other form of business. Further, MCA has eased the process of incorporation through launch of SPICe+ form, to remove any unwarranted hassle for applicants and entrepreneurs. However, it is always advisable to take assistance of someone who holds professional experience and knowledge in dealing with the same, and successfully handing over the certificate of incorporation to you. Further, our unique features include-
- Large team of professionals holding the qualifications such as Chartered Accountants, Company Secretaries, Lawyers, and Financial Executives.
- Quick, Hassle-free and a smooth experience of incorporation within 15-20 days.
- Expert guidance and end-to-end assistance in filling forms and submission.
- Constant assistance with 24*7 customer support.