A Section 8 company registration under the Companies Act, 2013 or a Section 25 Company as per the Companies Act,1956 is an organization registered with an objective of promoting the fine arts, science, literature, or knowledge sharing for a purposeful matter or for charity.
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A Section 8 company under the Companies Act, 2013 or a Section 25 Company as per the Companies Act,1956 is an organization registered with an objective of promoting the fine arts, science, literature, or knowledge sharing for a purposeful matter or for charity.
These are the limited companies established under the Companies Act. The Government grants these companies an exclusive license under Section 8 Companies Act. There are three main conditions for granting the license is.
The company should form for the charitable purpose.
Income and profits should be used towards these objects.
The company should not pay any dividend to its members.
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.
The following are the advantages of incorporating a Section 8 company over other modes of registering an NGO:
It has organised operations and greater flexibility.
Avoids meticulous registration process and no physical presence required.
No requirement of a minimum paid-up capital.
Seamless procurement of tax benefits under section 12A and 80G of the Income Tax Act.
Any partnership firm can be a member in its individual capacity and obtain Directorship.
For registering a Section 8 company, the following criteria must be fulfilled:
Governed by:Companies Act, 2013.
Members:Minimum of 2 Directors/Shareholders.
Important Documents:MoA, AoA and financial statements.
Board:Directors.
Members:Minimum of 2 Directors/Shareholders.
Important Documents:MoA, AoA and financial statements.
Board:Directors.
Property management:All the properties belonging to a company are vested in the name of the company.
These can be sold in conformity to the provisions mentioned in the Companies Act, 2013.
The Act says the sale can be done with prior consent of the Company Board of Directors, when they pass a resolution regarding the same.
Annual compliance:The company must ensure its annual compliance by filing its annual returns and annual accounts with the RoC.
DSC and DIN of the Directors.
Objectives and proposed work of the company.
Financial statements like assets and liabilities, the projection for five years etc.
Directors personal documents.
Registered office address documents viz. rental agreement or sale deed in the name of the company, utility bills not older than two months.
There are three major steps in incorporating a Section 8 company apart from the document collection, preparation and drafting. They are
Reserve Unique Name (RUN) is a form filed for reserving a name for a new company or for changing its existing name. This is the first step of incorporating a section 8 company.
A section 8 company shall usually have words like Foundation, Federation, Society, Council, Club, Charities, Institute, Academy, Organisation, Federation, Chamber of Commerce, Development, Association, etc.
The name so approved shall be valid for 20 days.
This step is the most crucial in the process of incorporation.
The name approval shall be valid at the time of applying for the RD 1 License.
RD 1 license is a license granted under section 8 of companies act as they work on a specific objective which is for the upliftment of arts, science, commerce, environment, etc., and the profit they earn shall also be used towards their objectives. All crucial documents like the MoA, AoA, financial statements and other declarations are filed at this stage.
The license so approved shall be valid for 30 days.
Both the name and the license shall be valid at the time of filing the SPICe+ form.
This is the final stage of incorporating the section 8 company where the documents relating to the registered office like the rental agreements and utility bills are filed along with the RD-1 license and the name approval certificate.
A Section 8 company has to comply with the annual compliances like other companies.
In case of non-compliance, the company will be treated as a dormant company and it can be struck off from the register.
A section 8 company is also required to do the Corporate Social Responsibilty (CSR) compliances and the CSR must be done.
There is a general notion that a Section 8 company need not pay tax as they work towards the welfare of the public at large. But this is not true.
A Section 8 company, like any other legal entity, is liable to pay tax. In order to be exempted from Tax, a Section 8 company is required to obtain certification for the said exemptions such as Section 12A, 80G etc., from the Income Tax Authorities.
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