A company that is registered as a Non-Profit Organization (NPO) is called Section 8 Company. In our country, it is regulated by the Indian Companies Act 2013. It is further administered by the Ministry of Corporate Affairs and Offices of Registrar of Companies. Section 8 of companies act 2013 has several rules, processes, requirements and procedures. These may vary depending on the type of company that has to be incorporated.
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Definition of Sec 8 Company
As per Section 8 company registration process, the company must have the motivation and will to promote different types of arts, education, commerce, protection of the environment, charity, science, research, sports, religion and social welfare. It must have the intention to use the profits or other form of income to promote these aspects.
As per Section 8 of companies act, the income cannot be shown using for the payment of dividends to the members of the company. These types of companies, in turn, get an incorporation certificate from the central government. Section 8 company means that it is liable to adhere to the specified rules mentioned by the government.
Features of the Company under Section 8
Under Sec 8 of companies act, the company must be a non-profit source that is dedicated to promoting welfare in the country. Some of the notable features are:
No dividend
Any type of income or profit can be utilized for the promotion
A requirement of special license from Central Government
Section 8 company registration provides all types of privileges that are subject to the obligations.
Formation of Section 8 Company
The registration process of Section 8 company and Private Limited Company is a lot similar to each. It requires having a minimum of two directors to start a Sec 8 company. It is pivotal for one of the directors to be an Indian Resident and Indian Citizen. The other person/s can be Foreign or Indian National. Section 8 company registration requires a registered office address in India.
Cancellation of License under Section 8 of Companies Act 2013
As per Section 8 of companies act, a company must abide by the norms and standards specified by the Central Government. However, licenses are prone to revoke a company:
Violates the terms and condition
Contravenes provisions of Section 8 company registrationConduct fraudulent operations or violates public policies
Based on the violation's terms and circumstances, the government can even order the company to unite with similar companies to form an NPO structure.
Winding up a Section 8 company requires abiding several rules which are based on an array of compliance laws and procedures. To prevent legal compliances, it is important to stay aware of the legal formalities right from the inception of the company. When a Sec 8 company winds up, the liabilities and assets are disposed of by the liquidator in order to bring it to an end. It is an act through the government that makes sure that no business or action is conducted under Section 8 of companies act 2013, and it is done under legal parameters.
Punishment for Contravention
Due to any contravention of the provisions under Section 8 company examples, if it is discovered that a company is running fraudulent actions or affirms in a violating way which is not accepted for a public interest, then the Central Government has the right (delegated by the Regional Director) to revoke the license of the company to form punishing examples for Section 8 companies. The company may be ordered later by the Central Government to convert it into a private or public limited company.
Advantages and Disadvantages
Minimum capital is not required
The company is exempted from registration of Stamp duty
It has more flexibility
Income tax rates are the same as other companies
Possibility of license cancellation has a greater chance
Looking at the advantages and disadvantages, it's not always that an NPO cannot secure commission or profits. Companies can certainly earn profits but cannot get benefits from them. Directors, before stepping into the industry, must take a clear look at the norms mentioned by the government to stay away from consequences.
FAQs on Section 8 Companies Under Companies Act 2013
1. What is a Section 8 Company as per the Companies Act, 2013?
A Section 8 Company is a specific type of company registered under the Companies Act, 2013, with the primary goal of promoting non-profit objectives. These objectives can include the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, or environmental protection. It is licensed by the Central Government and is prohibited from distributing any profits or dividends to its members, instead reapplying them towards its main objectives.
2. What are the main objectives for which a Section 8 Company can be formed?
A Section 8 Company must be formed for one or more of the following charitable objectives, as defined by the Companies Act, 2013:
- Promotion of commerce, art, or science
- Advancement of sports or education
- Conducting research activities
- Furthering social welfare, religion, or charity
- Protection of the environment
A key condition is that any income or profit generated must be used solely for promoting these objectives and not for paying dividends to its members.
3. How is a Section 8 Company different from a Trust or a Society?
While all three are non-profit structures, they differ in key aspects:
- Governing Law: A Section 8 Company is registered and governed by the Ministry of Corporate Affairs (MCA) under the Companies Act, 2013, whereas Trusts are governed by the Indian Trusts Act, 1882, and Societies by the Societies Registration Act, 1860.
- Legal Status: A Section 8 Company has a distinct legal identity separate from its members, providing limited liability protection.
- Credibility: Due to stringent compliance and reporting requirements under the Companies Act, Section 8 Companies are often perceived as having higher credibility and transparency compared to Trusts and Societies.
4. Can a Section 8 Company earn profits? If yes, what are the rules for using them?
Yes, a Section 8 Company is permitted to earn profits just like any other company. However, the critical difference lies in the application of these profits. According to the Companies Act, 2013, any profit or other income earned must be used exclusively for promoting its charitable objectives. The profits cannot be distributed as dividends to the company's members. This rule reinforces its non-profit character.
5. What are the key privileges and exemptions granted to a Section 8 Company?
Section 8 Companies enjoy several exemptions and privileges to support their non-profit operations. Key benefits include:
- No Minimum Capital: There is no requirement for minimum paid-up share capital.
- Name Usage: They are exempt from using the words “Limited” or “Private Limited” in their name, which enhances their charitable image.
- Tax Benefits: They are eligible for tax exemptions under Sections 12A and 80G of the Income Tax Act, 1961, upon registration.
- Stamp Duty Exemption: They are often exempt from paying stamp duty on their registration documents.
6. How can one identify if a company is a Section 8 Company?
You can identify a Section 8 company through a few key indicators. Firstly, their name often includes terms like 'Foundation', 'Federation', 'Association', 'Council', 'Chambers', or 'Confederation' and will not end with 'Pvt. Ltd.' or 'Ltd.'. Secondly, its legal documents, specifically the Memorandum of Association (MoA) and Articles of Association (AoA), will explicitly state its non-profit objectives and the prohibition of dividend distribution. Finally, its status can be officially verified on the Ministry of Corporate Affairs (MCA) portal.
7. What is the basic process for registering a Section 8 Company in India?
The registration process for a Section 8 Company involves several key steps under the Companies Act, 2013. The main stages are:
- Obtaining Digital Signature Certificate (DSC) and Director Identification Number (DIN) for all proposed directors.
- Applying for name approval using the SPICe+ Part A form on the MCA portal.
- Drafting the Memorandum of Association (MoA) and Articles of Association (AoA), specifying the non-profit objectives.
- Filing the SPICe+ Part B form for incorporation, which includes the application for the Section 8 license.
Once the forms are approved by the Central Government (through the Registrar of Companies), a Certificate of Incorporation is issued.
8. Can you provide some real-world examples of well-known Section 8 Companies?
Many prominent organisations in India operate as Section 8 Companies to carry out their social, educational, and charitable missions. Some famous examples include:
- Reliance Foundation
- Infosys Foundation
- Federation of Indian Chambers of Commerce and Industry (FICCI)
- Confederation of Indian Industry (CII)
