SECTION 8 COMPANY

A Section 8 Company is a type of non-profit organization in India that is formed for the purpose of promoting commerce, arts, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other charitable object. Section 8 of the Companies Act, 2013 governs the formation of these companies.

Unlike other types of companies that are set up to make profits, a Section 8 Company operates with the objective of promoting social welfare, and any income or profits must be used to further the company’s charitable goals, not distributed as dividends to its members or directors.

Key Features of a Section 8 Company:

1. Non-Profit Objective:
   • The primary purpose of a Section 8 Company is to promote charitable activities, not to make profits. Any income earned is reinvested into the organization to achieve its stated goals.
2. Limited Liability:
   • Like other types of companies, the members of a Section 8 Company enjoy limited liability, meaning their personal assets are protected in case of financial losses.
3. Separate Legal Entity:
   • A Section 8 Company has a distinct legal identity, separate from its members and directors. It can own property, enter into contracts, and initiate legal proceedings in its own name.
4. No Minimum Paid-Up Capital:
   • There is no minimum capital requirement to register a Section 8 Company. This makes it easier for non-profit organizations to form without the pressure of raising a specific amount of initial capital.
5. Perpetual Existence:
   • A Section 8 Company continues to exist even in the event of death or resignation of its members. The company’s existence is independent of its members and lasts until it is legally dissolved.
6. Exemptions and Benefits:
   • A Section 8 Company enjoys various tax exemptions and benefits provided by the Indian government under the Income Tax Act and other regulations. These benefits can be availed once the company registers under Section 12AA and Section 80G of the Income Tax Act.

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Benefits of a Section 8 Company:

1. Tax Benefits:
   • Section 8 Companies are eligible for various tax exemptions under the Income Tax Act. Once registered under Section 12AA, they can also attract donations, which may be tax-deductible for donors under Section 80G.
2. Credibility and Recognition:
   • Being registered under the Companies Act and governed by the Ministry of Corporate Affairs gives Section 8 Companies a higher degree of credibility and transparency. This makes it easier to attract donations and grants from individuals, government agencies, and international organizations.
3. Separate Legal Status:
   • Like any other registered company, a Section 8 Company is considered a separate legal entity, distinct from its members. This ensures the organization’s long-term existence, regardless of changes in its membership.
4. Limited Liability:
   • Members’ liability is limited to their contribution in the company. This protects personal assets in the event of financial difficulties.
5. No Dividend Distribution:
   • Since profits cannot be distributed to members or shareholders, a Section 8 Company is less prone to conflicts over profit-sharing and ensures that all resources are reinvested into the organization’s mission.
6. Perpetual Existence:
   • The company remains operational even if the original founders or members leave, ensuring the organization’s continuity.

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Steps to Register a Section 8 Company:

1. Obtain Digital Signature Certificate (DSC):

• The first step is to get a Digital Signature Certificate (DSC) for the proposed directors, which is required for signing documents electronically during the registration process.

2. Director Identification Number (DIN):

• The proposed directors must obtain a Director Identification Number (DIN). This can be applied for while filing the incorporation form.

3. Name Approval:

• The next step is to apply for the company’s name approval through RUN (Reserve Unique Name) service. The name must comply with the naming guidelines for Section 8 Companies, and it must include words like “Foundation,” “Society,” or “Association.”

4. File Form INC-12:

• After the name is approved, you must file Form INC-12 to obtain a license for a Section 8 Company. This form must include:
  • Memorandum of Association (MOA)
  • Articles of Association (AOA)
  • A declaration in Form INC-15 by the directors that the company will operate as a non-profit.

5. Incorporation Documents:

• Along with Form INC-12, the following documents need to be submitted:
  • Memorandum of Association (MOA): This document outlines the company’s objectives.
  • Articles of Association (AOA): This outlines the internal rules for running the company.
  • Declaration by professionals in Form INC-14 and INC-15.
  • List of directors and members along with their consent.
  • Proof of address for the company’s registered office (Rent Agreement, Utility Bill, etc.).

6. Issuance of License:

• After the submission and review of the above documents, the Registrar of Companies (ROC) issues a license under Section 8, confirming that the company is incorporated as a non-profit entity.

7. Certificate of Incorporation:

• Upon approval, the Registrar issues the Certificate of Incorporation, marking the official establishment of the Section 8 Company.

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Documents Required for Section 8 Company Registration:

1. For the Directors and Shareholders:
   • PAN Card (for Indian nationals) or Passport (for foreign nationals)
   • Proof of Identity (Aadhar Card, Voter ID, Passport, or Driving License)
   • Address Proof (Bank Statement, Electricity Bill, Mobile Bill, etc.)
2. For Registered Office:
   • Proof of Address (Rent Agreement, Utility Bill, or Property Tax Receipt)
   • No Objection Certificate (NOC) from the property owner, if the office is rented
3. Declaration by Promoters and Directors:
   • Declaration forms as required under the Companies Act, including INC-14 and INC-15.

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Post-Incorporation Compliance for Section 8 Company:

1. Annual General Meeting:
   • A Section 8 Company must hold an Annual General Meeting (AGM) every year.
2. Annual Filing:
   • The company must file its financial statements and returns with the Registrar of Companies (ROC) each year, along with the Income Tax Return.
3. Audit of Accounts:
   • The accounts of the Section 8 Company must be audited annually. If the company’s turnover exceeds ₹1 crore or the receipts exceed ₹10 lakh, the company must undergo a statutory audit.
4. Tax Exemptions:
   • To receive tax exemptions under the Income Tax Act, the company must apply for registration under Section 12AA and Section 80G.

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Conclusion:

A Section 8 Company is an ideal structure for individuals and organizations aiming to promote charitable and non-profit activities in India. With benefits like tax exemptions, limited liability, and a separate legal entity, Section 8 Companies provide a robust framework for advancing social welfare and charitable objectives. The registration process, while involving multiple steps, ensures transparency and credibility, helping non-profits operate effectively and in compliance with legal requirements.