Difference Between Private Limited Company and Section 8 Company

Last Updated on March 6, 2026

A company form of business gives a formal structure to the business organisation and makes it a secure option for undertaking business operations. People usually incorporate a company for several benefits, namely legal status, a separate legal entity, limited liability, etc., helping them minimise risks and maximise profits. When a company is incorporated, it is treated as a separate entity distinct from the members who form it. It also has a separate legal and official status before the law. It is these features of a company that provide a sense of protection and assurance to owners against any risk or unlawful proceedings.

A company’s form of business is governed by the Companies Act, 2013 and is defined in Section 2(20) of the Act as ‘a company incorporated under this Act or any previous company law’.

A company is not a natural person, like a human being, but it is taken as a person in relation to the law. It is an artificial person created by law, having its own legal identity and a separate status wherein the company and its owners are not treated as the same entity but two distinct personalities. Therefore, the company is liable for its actions and practices, and the members are acting only on behalf of the company.

Private Limited Company

A Private Limited Company, according to the Companies Act of 2013, is a completely owned entity privately specified for small enterprises. This type of company works under the provisions of the Companies Act of 2013 but has limited liability to its shareholders. Such a company is more preferred to startups and small and medium-sized enterprises because of the inherent flexibility and advantages that the private limited company holds.

Features of a private company include:

1. Distinct legal personality – A Private Limited Company is a separate individual, except for its shareholders and directors. It shall have the right to be the owner of its assets and liabilities and carry on operations under its own name and identity.
2. Limited liability – As a result, the shareholders’ liability is strictly limited to their contributions to the company. Their other assets cannot be attached as a way of settling the debts of the company.
3. Restrictions on transfer of shares – Shares in a private company are not transferable freely. In general, there is a requirement for acceptance by other shareholders or the approval of the company itself for the transfer of shares.
4. Minimum number of directors – A minimum of two directors and a maximum of fifteen directors must be present at all times. Among those, at least one must be an Indian resident.
5. Minimum and maximum membership – A private limited company shall have a minimum of two members and a maximum of two hundred members other than the current and former employees.
6. Restrictions on public share issues –  A private limited company is prohibited from issuing shares or debentures to the public at large. They can also not accept deposits from the public.
7. Company name – Every private company must have the words “Private Limited” (e.g., XYZ Private Limited) at the end of its name at all times.
8. Continuity of Existence – The company continues to exist as it is, irrespective of any change in its membership or management due to death, insolvency or resignation.
9. Capital – The Companies Act 2013 determines the authorised capital of private companies to be at least Rupees One Lakh. There is no minimum paid-up capital. The capital structure of the company needs to be clearly mentioned in the Memorandum of Association (MOA).

Section 8 Company

As defined by the Companies Act, 2013 is any company that has been formed under Section 8, thus formed in India for such a purpose to encourage welfare, which is social, education, commerce, sports, science, religion, art, research relating to environment or conservation thereof and any other object with a permissible purpose. A Section 8 company does not operate just like a regular profit-making business, but it makes profits toward furthering its objectives.

The main features of a Section 8 company are:

1. Charitable Purpose: The main object should be to promote social welfare, charitable functions and not-for-profit organisations. All profits should be ploughed back into the company’s functions and cannot be declared as dividends.
2. Capital Requirement: No minimum paid-up capital is prescribed. A company can run, having such funds as are necessary for achieving its objectives.
3. Limited Liability: The liability of the members has always been limited to their respective holdings of shares, like any other corporate structure.
4. Restriction on Issue of Dividends: The income generated from the firm cannot be shared among its members or shareholders; it has to be applied to promoting the mission of the organisation.
5. Exemptions and Benefits: According to the Income Tax Act, 1961, some exemptions and benefits are provided for Section 8 Companies. Besides, several procedural directives in the Companies Act 2013 do not apply to section-8 companies.
6. Designatory Requirements: As a “non-profit” Section 8 company, the designation “Limited” or “Private Limited” is not to be included in its name.
7. Separate Legal Entity: A Section 8 Corporation shall be treated as a separate legal identity and shall operate independently of its members. Consequently, it may enter into contracts, sue, and hold property in its name.
8. License: Companies incorporated under Section 8 of the Act need to obtain a license from the Ministry of Corporate Affairs, Central Government, to operate as a not-for-profit organisation.
9. Membership: The membership structure of a Section 8 company depends on its incorporation, i.e., whether it is a public or private company. The same is the situation observed in the case of a minimum number of directors.
10. Transferability of Ownership: The ownership or membership of a Section 8 company cannot be transferred freely.
11. Perpetual Succession: It continues to exist perpetually even after the death, bankruptcy or resignation of any of its members.

Private Limited Company vs Section 8 Company

These organisations can be termed not-for-profit organisations that focus on welfare and philanthropy, whereas private companies primarily pursue profit-making activities. The primary difference between these two categories of organisations is their objective: compliance with regulations or other policies adopted regarding profit management. In Indian law, a clear-cut distinction is laid down between a private company and a Section 8 company. All fall under a distinct category of functions and regulations as encompassed by the Companies Act of 2013. Some specific differences are:-

1. Definitions

A Section 8 company is a not-for-profit company registered under the Companies Act 2013, whose activities are devoted to charitable purposes or whose activities are for the promotion of social welfare, religion, arts, commerce, education, research, science, sports and environment. Instead of distributing dividends to the shareholders, these companies reinvest their earnings to carry on their objective.

Section 2(68) of the Companies Act, 2013 defines a private company to be a company which has a minimum paid-up share capital as may be prescribed and which by its articles of association restricts the right to transfer shares, except for One Person Company, it caps its members at two hundred and prohibits any public offer to subscribe to the securities of the company.

2. Purpose

A Section 8 Company will be incorporated for the purpose of carrying out activities of social welfare, scientific research, education, or arts, while a Private Company will be formed for commercial activities with a profit motive.

3. Profit Motives

In a Section 8 Company, all profits arising from being in operation shall be applied for investment by the company in any of its programs furthering those charitable concerns. Profits are not paid to or shared with its members.

In contrast, a Private Company distributes its profit to the shareholders, usually in the form of dividends.

4. Name Requirements

Private company names must add the words “Private Limited” after their name.

Section 8 companies are not required to have “Private Limited” or “Limited” in their names and shall be subject to appropriate approvals.

5. Membership and Directors

Private companies must have at least two members and two directors, with a maximum of two hundred members.

The number of members in a Section 8 company depends on whether the said company is incorporated as a private or a public company. If it is a private company, then as specified before, the membership and directorship would be the same as a private company, but if it is a public company, then the minimum number of members would be seven and the minimum number of directors would be three.

6. Tax Exemption

Private companies do not have any specific tax exemption.

Tax benefits under Sections 80G and 12A of the Income Tax Act are available to Section 8 Companies.

7. Conversion and Licensing

A private company may convert to a public company or a Section 8 company.

But a Section 8 company needs a license to operate as a non-profit organisation from the Central Government, and is also required to seek the approval of the Central Government for conversion into a private or public company.

Conclusion

Both Private Limited Company Registration and Section 8 Company Registration fall under the Companies Act of 2013. However, each has its specific role. A Private Limited Company is primarily a profit-making entity; it focuses on generating profits to distribute among the shareholders. On the contrary, a Section 8 Company is a not-for-profit company that distributes all extra income generated to its mission of charitable or social objectives. The two types of companies differ in objectives, profit distribution, tax benefits, and regulatory compliance, and are thus suited to different purposes.

Frequently Asked Questions

1. What is a Section 8 company and a private limited company under the Companies Act of 2013?

Although they share some structural qualities, a Section 8 business differs from a private company. Developed under Section 8 of the Companies Act of 2013, it is a special form of company designed to promote educational, social welfare, research, religious, or environmental conservation projects. Unlike Section 8 businesses, private firms are not allowed to distribute earnings to their members; rather, they must reinvest them to further their objectives.

2. Is Tata Trust a Section 8 company?

Tata Trust falls under Section 8, not under this section. Under the Indian Trusts Act, it is enrolled as a public charitable trust. Though Section 8 businesses and trusts are sometimes utilised for philanthropic and non-profit objectives, their legal structures vary. While Section 8 companies are registered under the Companies Act, 2013, trusts like Tata Trust are governed by trust law and state-specific regulations.

3. Can a Section 8 company convert into a private company?

Though a Section 8 business can be transformed into a public or private entity, this requires Central Government approval and adherence to the proper procedures. Under the Companies Act of 2013, the business must ensure compliance with all legal requirements by modifying its memorandum and articles of association, getting the required approvals, and so on. After the transformation, the firm can operate as a profit-generating entity while complying with relevant regulations.

4. What are the four different types of companies?

Companies are mostly divided into different categories based on their ownership composition and aim under the Companies Act of 2013. Public limited companies, Section 8 companies, private limited companies, and one-person companies (OPCs) are among the four most prevalent kinds. Every category has particular ownership, financial needs, regulatory compliance, and objectives. While private and public businesses usually aim to make money, Section 8 firms, for example, are set up for non-profit goals.

5. What is the main difference between a private company and a Section 8 company?

Their aims and profit distribution define their main difference. Founded by a private firm is meant to carry on operations and produce profits for its investors. On the other hand, a Section 8 company is established for non-profit or philanthropic purposes such as environmental preservation, social welfare, or education. Though Section 8 businesses are obligated to reinvest their profits to meet their stated goals, private firms may pay dividends.

6. Can a Section 8 company distribute its profits among its members?

No, Section 8 companies are not permitted to pay profits or dividends to their directors or members. All earnings made by the corporation must be applied only to further its philanthropic goals. One of the main characteristics distinguishing it from private businesses, which are permitted to pay out earnings to their members, is this restriction. The non-profit classification guarantees that Section 8 businesses run mostly for the public good instead of for individual gain.

7. Are the compliance requirements different for private companies and Section 8 companies?

Indeed, the compliance rules of private corporations and Section 8 companies might differ. Section 8 businesses could face further regulatory scrutiny because of their charitable aim, even though both kinds must comply with the Companies Act, 2013 and submit the required paperwork to the Ministry of Corporate Affairs. They have to make sure their actions coincide with their claimed goals and keep open financial use meant for social or humanitarian projects.

8. Do Section 8 companies enjoy tax advantages as compared to private companies?

Part eight If companies are registered under appropriate sections of the Income Tax Act—like those pertaining to charitable organizations—they can usually receive tax advantages. These advantages could include tax cuts on earnings set for philanthropic endeavours. Private companies, on the other hand, are normally taxed on their profits at corporate tax rates unless they satisfy particular criteria for deductions or incentives as described in tax legislation.

9. Is the minimum capital requirement different for the Section 8 company and the private company?

There is no compulsory minimum capital requirement for either Section 8 or private firms under the Companies Act of2013. Still, sources of financing and capital structure could vary. Private companies generally need money for company growth and profit generation; Section 8 groups usually rely on donations, grants, and contributions to help their philanthropic or non-profit projects.

10. Who regulates the private and Section 8 companies in India?

Both Section 8 and private companies are subject to the Companies Act, 2013, and are monitored by the Ministry of Corporate Affairs (MCA). But their non-profit goals may make Section 8 firms face more investigation. Their activities must match the approved charitable goals and adhere to all legal requirements on governance, reporting, and financial transparency.

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