Section 8 Company Registration - An Overview
As per the Companies Act, 2013, Section 8 Company refers to a corporation that aims to incentivize arts, sciences, sports, education, environment preservation, social welfare, charity, or other similar objectives.
The ultimate objection of registering Section 8 Company is to incentivize non-profit goals such as trade, arts, commerce, education, charity, environment protection, sports research, social welfare, etc. To register a Section 8 entity, at least two directors are required. Also, there is no compulsion of securing minimum paid-up capital to set up such a company.
Key points regarding the Section 8 Company
- In India, an NGO can be registered under the Registrar of Societies or a Non-profit entity under the Section 8 Company of the Company Act, 2013.
- The profit generated by the section 8 companies cannot be utilized to fulfilled objectives other than charitable purposes. Further, such profit cannot be allocated to the shareholders.
- A section 8 company is similar to the Section 25 Company under the erstwhile Company Act, 1956. As per the prevailing company Act, Section 15 companies are now acknowledged as Section 8.
- A Section 8 entity is bound to comply with the provisions of the Companies Act, 2013. In view of this, these entities are mandated to administer the books of account, file returns with ROCs.
- Such companies have no right to alter the charter documents like AOA and MOA without the government's consent. Further, they are also required to comply with the GST laws and IT Act.
Potential benefits of opening Section 8 company in India
Following are some key benefits that one can experience after incorporating Section 8 Company in India;
The 100% tax exemption is available to Section 8 companies registered u/s 12AA of the IT Act. The profits generated by such entities are non-taxable in nature because they use the same for charitable purposes.
No minimum capital requirement
There is no underlying limitation over section 8 entities pertaining to minimum capital requirement, unlike other companies such as the public limited company. But these entities have the right to change their capital structure in accordance with the growth of the company.
No need for paying stamp duty
A section 8 Company is not liable to pay stamp duty for registration, unlike other companies such as public limited companies or private limited companies.
Separate Legal entity
A section 8 company holds its own legal identity just like other registered companies & rejoices autonomous legal standing from its member. These entities fit the concept of perpetual existence.
A Section 8 Entity is more credible in terms of compliances and legal standing. Such entities usually function under a tight legal framework developed by the concerned authorities. Unlike NGOs and trust, these entities follow stringent compliances post-registration.
No title required
Section 8 companies have the leverage to choose the name that suits their liking during the registration process. Unlike other registered structures, they are not bound to affix the term like "Section 8" after their name.
Incorporation Eligibility of the Section 8 Company
- An Indian national, HUF (Hindu Undivided Family), can incorporate a Section 8 Company in India
- Presence of at least 1 director is mandatory for establishing Section 8 company
- The object of the Section 8 company should revolve around the advancement of science and art, promotion of sport, charitable activities, education, and financial assistance to individuals belonging to lower-income groups.
Legal Requisites for Incorporating Section 8 Company in India
The below-mentioned are the mandatory perquisites that one needs to fulfil before applying for Section 8 incorporation process;
Numbers of Directors
If the section 8 company intends to function as a private limited company, then a minimum of two directors is required. Likewise, if such a section 8 entity aims to operate as a public limited company, then a minimum of 3 directors is required.
Number of Members
The number of members that can be a part of a Section 8 company has been capped at 200 by MCA if the entity aims to function as a private limited company. On the other hand, there is no such limit on section 8 entities having a business structure like Public Limited Company.
Capital Requirement and Name
Section 8 entities are not required to manage a minimum paid-up capital as per the Company Act, 2013.
NGOs operating as Section 8 entities are not liable to affix the terms like Private limited or limited in their name.
Entities with non-profit objectives are only eligible to secure Section 8 registration. The MOA & AOA must entail such objectives for which it is established. Any profit generated by the section 8 entity is used to serve its underlying objectives, i.e. charitable purposes or reinvested in the company. The profit of such entities is not available to its members in any form.
Documents required for Section 8 Company Incorporation Process
- Articles of Association (aka AOA) & Memorandum of Association (MOA)
- Declaration by the first director(s) as well as a subscriber(s) (Affidavit not required)
- Proof of office address
- Copy of utility bills such as electricity bill, water bill, or gas bill
- Copy of certificate of incorporation (COI) of an overseas body corporate (if any)
- A resolution passed by the promoter company
- Consent of Nominee (INC–3)
- Resident and identity proof of nominees & subscribers
- Applicant’s identity as well as residential proof
- Declaration of unregistered companies
- Proof regarding the principal place of business
- Evidence of appointment related to the Authorized Signatory for GSTIN
- Letter of Authorization or Resolution copy passed by BOD
- Managing Committee as well as Acceptance Letter
- Proof of identity related to Authorized Signatory for the opening of an account in designated bank
- Specimen Signature of Authorized Signatory for EPFO
The incorporation process of Section 8 Company
Following is the detailed process of incorporation for Section 8 companies in India;
Step 1: Secure DSC from the MCA authorized agencies
DSC, i.e. Digital Signature Certificate, serves as a digital tool for signing various e-forms and scanned copies of documents. It is primarily used by the authorized signatory of the company, such as the Director, partners, managing directors, etc. In this case, the proposed directors of the section 8 companies are required to secure the DSC for signing key documentations.
Step 2: Visit the MCA portal to file Spice+ Form
The next step is to visit the MCA portal and create an account on the same. After that, the applicant is required to select the Spice+ form option from the Service section located on the top menu of the home page. This would lead the applicant to a brief e-form which entails the two vital parts, A and part B.
Part A helps the applicant to register the proposed company name, and PART B offers the given services:
- Company Incorporation
- DIN allotment
- PAN allotment
- TAN Allotment
- GSTIN Allotment
- EPFO Allotment
- ESIC Allotment
- Opening of Bank Account for the Company
- Profession Tax Registration (only for Maharashtra)
Step 3: Upload mandatory documents and submit the Form
Upload the mandatory documents as mentioned above and make your way to the payment section to submit the standard fees. Once done, tap on the submit button to wrap up the application submission formalities.
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Frequently Asked Questions
In Feb 2020, MCA, i.e. Ministry of Corporate Affairs, came up with an e-form, viz SPICe form, that aims to simplify the incorporation process significantly. This Form has overcome the intricacy of the erstwhile incorporation process that also entails massive paperwork.
Section 2 (85) proviso (B) clearly states that the Section-8 company cannot be treated as a small company.
Companies Act, 2013 allows the LLP or a Partnership firm to be a member of a Section 8 Company.
An NGO intending to serve a charitable purpose in India could be registered under society, trust, and section 8 company. A charitable purpose is defined u/s 2 (15) of the IT Act.
The cost factor involved in trusts is considerably minimal when contrasted with entity u/s 8 of the company Act. Section 8 companies have limited access to government-driven subsidies.
The tax obligations addressed by the section 8 company is more or less similar to the other registered organization (except NGOs). The profit is subjected to the tax slab rate of 30 %. If section 8 company is registered u/s 12AA of the IT Act, then its profits shall remain isolated from taxes.
The auditor is appointed in the purview of Section 139 of the Companies Act. Every first auditor of Section 8 entity is to be appointed within thirty days from the incorporation date. The auditor can be a person or a company. The auditors also dig down the financial filings of the company.
The maximum of 200 members in case of a private limited company, meanwhile for a publically held company, there is no such cap.
According to the Company Act, 2013, it is mandatory for the section 8 entities to conduct AGM in accordance with prescribed guidelines.
Companies Act, 2013 mandates section 8 companies to produce director reports and share them with assigned authority.