Section 8 company is a Non-Profit Organization (NPO). It is referred to as a section 8 company when that company is promoting education, arts, commerce, science, social welfare, religion, and protection of the environment. They intend to use their profit to promote these objectives.
The income from the NPO cannot be used to pay dividends to the company’s members and the purpose of the use of the funds should be solely for charitable objectives. These corporations obtain a certificate from the central government and they are responsible to adhere to the rules prescribed by the government.
The rule says that, if the company fails to comply with the prescribed rules, the central government has the authority to order the winding up of the company. Also, strict legal actions shall be taken against the company if the objectives promoted by the company prove to be bogus.
Eligibility to Apply for Section 8 Company
- An individual or a group of individuals are eligible to apply if the company holds the below-mentioned intentions or objectives. The objectives need to satisfy the Central Government.
- When the company intends to promote science, commerce, education, art, sports, research, religion, charity, social welfare, protection of the environment, or alike other objectives;
- When the company holds an intention to invest all the profits (if any) or any other income generated after incorporation in the promotion of such objects only;
- When the company does not intend to pay any dividend to its members.
Privileges and the advantages under the Company Law to Section 8 companies:
- Forming of Section 8 company is an easy process
- The Minimum paid-up capital is not required
- It is exempted from Stamp duty registration
- Any of the registered partnership firms can be a member in its individual capacity
- The Tax deductions benefits u/s 12AA and u/s 80G of Income Tax Act to the donors of the company
- It has Greater flexibility
- It generally takes around 30–45 working days to register a Section 8 company. This duration can, however, be lesser in case the Regional Director approves the application earlier.
How to register a section 8 company
1. The Companies Act, 2013 deals with the registration of a section 8 company. An application in Form No. INC 12 needs to be submitted along with the below-mentioned documents to the Registrar of the company.
2. Form no. INC — 13 — Company’s Draft Memorandum of Association (MOA) and Articles of association (AOA) in Form No. INC — 13 (as specified in Act) along with the affixation of subscribers’ photographs.
3. Form no. INC-14 — A Declaration is to be affixed in Form no. INC-14 that the draft MOA & AOA are compliant with the provisions & norms of section 8 and the requirements as per Section 8 have been duly taken care of.
The declaration needs to be made on a stamp paper and it should be notarized by any of the following people:
2. Company Secretary
3. Chartered Accountant
4. Cost Accountant.
4. Form no. INC-15 — A declaration in Form no. INC-15 on stamp paper & notarized by each member of the company who is applying.
5. Form no. INC-9 — Form no. INC-9 form first directors as well as each subscriber, on the relevant State’s stamp paper and appropriately notarized.
The company’s future annual income and the expenditure about the companies next three years, also mentioning the source of the income and the purpose of the expenditure.
New & Simplified Process of Incorporation of Section 8 Companies
- Companies (Incorporation) Sixth Amendment Rules, 2019 dated 7th June 2019 to ease the Incorporation process has knocked off the need for filing Form no. INC 12, which was initially needed.
- This amendment has made the Process of Incorporation of Section 8 Companies as easy & simple as that of other companies.
- Section 8 Companies can be incorporated by reserving names in part A of Spice+ followed part B of Spice+ form or by directly filing Spice+. License No. shall be given to section 8 company during the incorporation.
Documents Requirement for the Registration of Section 8 Company
1. Digital Signature Certificate
2. Memorandum of Association
3. Articles of Association
4. Passport Size Photographs
5. Members’ Id Proof such as Aadhar Card, Passport, Voter Id
6. Details of Director (When the Members Are Other Companies/LLPs)
7. Address Evidence
8. Director Identification Number
Number of Directors in a Section 8 Company
- Section 149(1) of the Companies Act 2013 — prescribed minimum of 3 & 2 directors for public limited & private limited company respectively and a maximum of 15 directors.
But there is no minimum or maximum prescription for section 8 company.
- The second proviso to section 149(1) — prescribes a woman director in a specified class of companies.
- Section 149(3) of the Companies Act 2013 — prescribes resident director in every company.
- Section 165 of the Companies Act, 2013 — says Directorship in Section 8 Companies will not be summed up when the total number of directorships will be calculated i.e. it will not be counting while adhering to the maximum limit of twenty Directorship as prescribed in the Act.
- Section 149(1) of the Companies Act, 2013 — vide exemption notification dated June 05, 2016 stated that Section 8 Companies are not under obligation to appoint an independent director and are free from all the consequential provisions concerned with Independent directors.
- Under Section 149(3) — Section 8 company must have a minimum of one Resident Director i.e. a director who has resided in India at least for a total period of 182 days (one hundred and eighty-two days) or more within the previous calendar year.
Total Number of Board Meetings and its Quorum
As per the exemption notification read with section 173(1) and 174(1), Section 8 companies must have at least one meeting within a period of 6 calendar months and the quorum for its board meetings is 8 directors or 1/4th of its total strength, whichever is less, respectively. However, the quorum should have a minimum of at least two members.
The following criteria must be fulfilled for registering a Section 8 Company in India
- Registration Under: Companies Act, 2013.
- License: License to be applied to MCA.
- Directors: A Minimum of 2 Directors for a Private Limited Company and 3 Directors for Public Limited Company must be there. The maximum limit is 15 Directors. More than that can be appointed after passing a special Resolution in a general Meeting.
- Indian Resident: At least 1 director must be a resident of India, i.e., have stayed in India for a total period of not less than 182 days in the previous calendar year [(Section 149(3)].
- Subscribers to MoA: If the Company is proposed to be incorporated as a private company or public company respectively, its MoA must have at least 2 or 3 subscribers.
- MoA & AoA: Decide about the name to be applied for, objects to be carried by the Company, planned registered office address, number of Directors and promoters, authorized capital, and number of shares to be subscribed by each promoter. They must mention the plan laid-out to meet your social objectives. The ROC (Registrar Of Company) is entitled to ask about it.
- Initial Capital: Whatever amount of initial capital has been proposed for the Company, it must get invested in the Company within 2 months.
- Property Management: The ownership of the property lies in the name of the Company and it can only be sold as per the rules mentioned under the Companies Act. (Ex: With the consent of the Board of Directors in the form of a resolution).
- Dissolution: The Section 8 Company may be wind-up only by following the bye-laws of the society. Upon dissolution and after settling all debts and liabilities, the funds and property of the society are not to be distributed among the members of the company. Instead, the remaining funds and property would be given or transferred to some other Section 8 Company, someone that has a similar object.
- Annual Compliance: Annual filing of accounts, statements and the returns of the company with the ROC are necessary to meet the compliance required.
- Documents: All the Directors must have their valid DIN (Director’s Identification Number) & DSC (Digital Signature Certificate).