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Section 8 Company Registration
A Section 8 Company is a non-profit organization dedicated to promoting charitable activities, art, science, education, and sports. The profits generated by these companies are channeled towards advancing these objectives and are not distributed among the company's members. Bmcs offers comprehensive services for registering Section 8 companies in India. Our team of experts provides seamless and professional assistance to facilitate the swift and efficient establishment of a Section 8 company. Feel free to contact us today to access our professional services for registering your Section 8 Company in India.
Definition of Section 8 Company – Companies Act, 2013
In accordance with the Companies Act of 2013, a Section 8 company is defined as an organization with objectives focused on promoting arts, commerce, science, research, education, sports, charity, social welfare, religion, environmental protection, or other similar activities and goals. These entities utilize their profits to fulfill their mission and do not distribute dividends to their shareholders.
Overview of Section 8 Company Registration
A Section 8 Company is a type of corporation created to promote non-profit activities, including but not limited to education, social welfare, environmental preservation, arts, sports, charity, and more. This aligns with the provisions of the Companies Act 2013. The primary objective of establishing a Section 8 Company is to facilitate non-profit purposes, which may encompass trade, arts, commerce, education, charity, environmental protection, sports, research, and social welfare, among others. To register a Section 8 Company, a minimum of two directors is required, and there is no obligation for a minimum paid-up capital to establish such an organization.
Key Points about Section 8 Company
- In India, Non-Governmental Organizations (NGOs) can be registered under the Registrar of Societies or as a non-profit entity under Section 8 Company of the Companies Act, 2013.
- Profit generated by Section 8 Companies cannot be used for purposes other than charitable objectives and cannot be distributed among shareholders.
- Section 8 Companies are similar to the erstwhile Section 25 Company under the Company Act 1956. As per the prevailing Company Act, these are now recognized as Section 8 Companies.
- Section 8 Companies are required to comply with the provisions of the Companies Act 2013. They are mandated to maintain books of accounts, file returns with the Registrar of Companies (ROCs), and comply with GST and IT Act.
- Any changes to the charter documents like the Articles of Association (AoA) and Memorandum of Association (MoA) require the government's consent.
Benefits of Opening a Section 8 Company in India
Incorporating a Section 8 company in India offers numerous advantages, as highlighted below:
Tax Exemption
Section 8 companies registered under section 12AA of the Income Tax Act are indeed eligible for a 100% tax exemption. These entities utilize their profits for charitable purposes, and as a result, the profits generated by such organizations are non-taxable. This tax exemption is a substantial benefit that encourages and supports their charitable activities.
No Minimum Capital Requirement
Unlike public limited companies, Section 8 entities do not have a minimum capital requirement. They can adjust their capital structure according to their growth, giving them more flexibility.
Separate Legal Entity
Section 8 companies have a distinct legal identity and enjoy perpetual existence, much like other registered companies. This characteristic enhances their credibility and provides them with greater autonomy and legal standing in their pursuit of charitable and non-profit activities.
Increased Credibility
Section 8 companies are indeed subject to rigorous legal compliance frameworks, which contribute to their credibility and legal standing. In comparison to NGOs and trusts, Section 8 entities adhere to stringent post-registration compliances, which makes them more trustworthy and reliable in their operations and objectives.
No Title Required
Section 8 companies have the flexibility to choose a name that suits their preference during the registration process. Unlike other registered structures, they are not obligated to affix the term "Section 8" after their name. Establishing a Section 8 company in India indeed provides numerous benefits, such as tax exemption, no minimum capital requirement, exemption from paying stamp duty, separate legal identity, enhanced credibility, and freedom in choosing their name. These advantages make Section 8 companies an attractive choice for entrepreneurs seeking to initiate a business with a charitable or social purpose.
Eligibility Criteria for Incorporation of the Section 8 Company
Specific eligibility criteria must be met to establish a Section 8 company in India.
- An Indian national or Hindu Undivided Family (HUF) can incorporate a Section 8 Company.
- The entity must have at least one director.
- The primary object of the Section 8 Company should be related to promoting art and science, sports, charitable activities, education, or providing financial assistance to individuals from lower-income groups.
These eligibility criteria ensure that the Section 8 Company operates to promote social welfare and contribute to the greater good of society.
Mandatory legal requirements for Section 8 Company
Before initiating the incorporation process of a Section 8 company in India, certain legal requirements must be met. These requirements include:
Number of Directors
In the case of a Section 8 company, a minimum of two directors is required if the entity intends to operate as a private limited company. However, if the entity aims to operate as a public limited company, a minimum of three directors is required.
Number of Members
If a Section 8 Company intends to function as a private limited company, the Ministry of Corporate Affairs (MCA) imposes a maximum limit of 200 members. However, there is no such member limit for Section 8 entities with a business structure similar to that of a public limited company.
Capital Requirement and Name
Under the Companies Act 2013, Section 8 entities are not required to maintain a minimum paid-up capital. Additionally, NGOs operating as Section 8 entities are not obligated to include terms like "private limited" or "limited" in their name, which is a unique feature that distinguishes them from other company structures.
Company Objects
Section 8 companies are exclusively designated for entities with non-profit objectives. The Memorandum of Association and Articles of Association must explicitly outline the charitable goals for which the company is established. Any profits generated by the Section 8 entity must be dedicated to charitable purposes or reinvested in the entity. In accordance with these legal requirements, the profits of Section 8 entities are not distributed to their members in any form. These provisions ensure that Section 8 companies operate transparently and in alignment with their intended purpose of promoting social welfare.
Documents Required for Section 8 Company Incorporation
The following documents are required to complete the incorporation process for a Section 8 company in India:
- Articles of Association (AOA) and Memorandum of Association (MOA)
- Declaration by the first director(s) and subscriber(s) (an affidavit is not required)
- Proof of office address, such as a copy of utility bills like electricity, water, or gas bill
- Copy of the certificate of incorporation (COI) of an overseas corporate body (if any)
- A resolution passed by the promoter company
- Consent of Nominee (INC-3)
- Residential and identity proof of nominees and subscribers
- Applicant's identity and residential proof
- Digital Signature Certificate (DSC)
- Declaration of unregistered companies.
By providing these documents, you can ensure smooth and efficient Section 8 company incorporation processes.
Section 8 Company Incorporation Process
The process of incorporating Section 8 companies in India involves the following steps:
Step 1: Obtain Digital Signature Certificate (DSC)
The initial step in registering a Section 8 Company is to acquire a Digital Signature Certificate (DSC) for the proposed directors of the company. This certificate is essential for the online filing of documents with the Ministry of Corporate Affairs (MCA). The Form DIR-3 is utilized to obtain the Director Identification Number (DIN) and should be filed alongside the DSC of the proposed directors. Relevant Forms: DIR-3, DSC
Step 2: Obtain Director Identification Number (DIN)
Once the Digital Signature Certificates (DSCs) have been obtained, the next step is to apply for a Director Identification Number (DIN) for the proposed directors. The DIN is a unique identification number issued by the Ministry of Corporate Affairs (MCA) to individuals who wish to become directors of a company in India.
Relevant Form: DIR-3
Step 3: Reserve the Company Name
The subsequent step is to reserve the name for the proposed Section 8 Company with the Ministry of Corporate Affairs (MCA). The chosen name for the Section 8 company must be unique and not resemble the name of any existing company. To reserve the company name, Form INC-1 is used.
Relevant Form: INC-1
Step 4: File the Application for Incorporation
The subsequent step is to reserve the name for the proposed Section 8 Company with the Ministry of Corporate Affairs (MCA). The chosen name for the Section 8 company must be unique and not resemble the name of any existing company. To reserve the company name, Form INC-1 is used.
Relevant Form: INC-1
Step 5: Obtain a License for Section 8 Company
Once the application for incorporation is approved, the next step is to obtain a license for the Section 8 Company. Form INC-12 is used for obtaining the license. It should be filed along with the necessary documents.
Forms to be used: INC-12
Step 6: Obtain a Certificate of Incorporation
Following the acquisition of the license, the Ministry of Corporate Affairs (MCA) issues a Certificate of Incorporation in Form INC-16, which serves as confirmation of the incorporation of the Section 8 Company.
Forms used for Section 8 Company registration include: DIR-3, DSC, INC-1, INC-32, MOA, AOA, INC-12, and INC-16.
Connect with Bmcs for Section 8 Company Registration
If you prefer to avoid the complexities and intricate paperwork associated with the Section 8 company registration process, you can rely on the professional services and licensing assistance offered by Bmcs. They can provide expert guidance and support to facilitate the smooth and efficient registration of your Section 8 company.
Donations/Funding of Section 8 Company
A Section 8 Company is not permitted to raise capital through deposits from the public. However, it can accept donations from the public. There are various methods available for raising funds, including foreign donations, equity funding, and domestic donations, which can be utilized to support the charitable and non-profit objectives of the company.
- Foreign contributions are permissible only if FCRA registration is obtained, which can be applied for three years after registration.
- If immediate foreign contributions are required, prior permission from the commissioner can be requested.
- Equity funding can be achieved by releasing new equity shares at a premium price. Domestic subsidies have no restrictions, but it is vital to establish a comprehensive system to prevent money laundering.
Proprietorship vs Limited Liability Partnership (LLP) vs Company
| Features | Proprietorship | Partnership | LLP | Company |
|---|---|---|---|---|
| Definition | Unregistered type of business entity managed by one single person | A formal agreement between two or more parties to manage and operate a business | A Limited Liability Partnership is a hybrid combination having features similar to a partnership firm and liabilities similar to a company. | Registered type of entity with limited liability to the owners and shareholders |
| Ownership | Sole Ownership | Min 2 Partners Max 50 Partners | Min 2 Shareholders Max 15 Directors Max 200 Shareholders 1 Director 1 Nominee Director | |
| Registration Time | 7-9 working days | |||
| Promoter Liability | Unlimited Liability | Limited Liability | ||
| Documentation | LLP Deed Incorporation Certificate | |||
| Governance | – | Under Partnership Act | LLP Act, 2008 | Under Companies Act,2013 |
| Transferability | Non Transferable | Transferable if registered under ROF | Transferable | |
| Compliance Requirements | Income tax filing if turnover is more than Rs.2.5 lakhs | |||
Frequently Asked Questions
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