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Posted on April 26, 2021
Not all companies tend to make profits by working on trade and commerce. There are companies who have charitable and non-profit objectives and are referred to as a Section 8 Company. The incomes and profits of these companies are spend completely on their objectives and in helping other causes.
What is Section 8 Company?
The Companies Act explains a Section 8 company is a company registered to promote or improve various fields like arts, commerce, sports, research, science, education, environment protection, religion, charity, social welfare, or other objectives similar to the above. These companies are registered under Section 8 of the Companies Act, 2013 and it was previously registered under Section 25 of the Companies Act, 1956. The Section 8 companies use their profits on the furtherance of their objectives and do not take or share any profit among their members.
Attributes of a Section 8 Company
Here are the definite features of Section 8 Company which most other types of companies do not hold:
- Section 8 company with charitable objectives: These types of companies do not aim for profits or any income. The objectives of these types of companies are completely charitable in nature. Apart from charitable, they also cover other causes like science, research, sports, culture, social welfare, religion, and so on.
- No need for share capital: Section 8 companies are different from other companies as they do not require any minimum share capital.
- Limited liability: The members of these companies are allowed to have only limited liability and it cannot be unlimited in any situation.
- Government license: The Central Government’s license is a must to run this company. And it can also revoke the license if needed.
- Privileges: As the objectives of these companies are charitable, the Companies Act has granted several exemptions and benefits to them.
- Firms as members: Section 8 companies also allows any firm to be its member apart from individuals and groups of members.
How to start a Section 8 Company
A person or a group of persons together can submit an application to the Registrar of Companies with all required forms to start a company with the objectives of charitable under Section 8 of the Companies Act. The Central Government has to be satisfied and should accept the application considering all terms and conditions which are imposed under the license granted by the government. Once the government approved, the Registrar of Companies will register the company as Section 8 Company after the applicants settle up all required fees.
The important point here we have to note is all Section 8 Companies can only register as limited companies. All the freedom and responsibilities of limited companies apply to these companies too but they do not need to put the words “Private Limited” or “Limited” in their names, as all other limited companies do.
As the existence of these companies is completely depend on the authorization granted to them, they are not allowed to change or alter the articles of association or their memorandum without the permission of the Central Government. They are also not permitted to do anything that the license forbids.
Registering Section 8 Company in India
Section 8 company is a non-profit or charitable organization which is engaged in social work to improve the standard of society and the country by supplying the basic needs to the people who are in need and also working on various causes for its welfare. Registering Section 8 Company in India is itself a class. The process and procedure of Section 8 company registration is as follows-
Be ready with DSC and file Name Approval.
The very first step in registering Section 8 Company is to create DSC. DSC is nothing but Digital Signature Certificate which is used for online transactions. Mostly, Section 8 companies contain names like Society, Foundation, Association, Council, Charities, Club, Organisation, Academy, Institute, Federation, Development, Chamber of Commerce, and so on.
Get Section 8 Company registration license from Regional Director.
After Name approval, applying for Section 8 company registration license is the next step, this license is issued by Regional director. The authorised person or the regional director will review the company’s objectives, plans, and aims and grant the permit or license for Section 8 Company registration. Usually, this process will take around 15 days to issue a license.
File the Section 8 Incorporation Forms on MCA Portal
After the approval of the license from the regional director, you have to proceed with the next step that is filing the section 8 company registration application along with all the required documents before ROC. After all needed clarifications, the ROC shall provide a Certificate of Incorporation which includes Company Identification Number (CIN).
Submission of MoA and AoA
After getting the License, you need to file the MoA (Memorandum of Association) and AoA (Article of Association). The rules, and the by-laws of the company will be detailed in the AoA and the aims, plans and objectives of the company will be mentioned clearly in the MoA.
PAN, TAN and Bank Account
PAN, TAN and bank account are required to file the registration of Section- 8 Company registration in India, so be ready with these requirements.
Advantages or Privileges of Section 8 Company
People who want to be involved in charitable activities generally prefer to form Section 8 companies instead of other non-profit organizations like NGOs, associations and so on. The reason for this is because the section 8 company have limited liability, therefore the personal assets of the members of these companies are wont be used in paying debts of the company. Likewise, it holds various advantages and few disadvantages too. Following are some of the advantages of Section 8 companies:
- Members of these companies can hold limited liability.
- No minimum capital is required to start a Section 8 Company
- They enjoy several tax exemptions from the government than any other company.
- Stamp duties for registering these companies are not payable
- They have separate legal status with an option of perpetual existence.
- They enjoy various exemptions like on several procedural compliances.
- This type of company holds more credibility than other non-profitable organisations like NGOs, societies.
- The trusts on these companies is high as they are licensed by the Central Government.
Apart from various advantages, these companies also have the following disadvantages:
- Members of the Section 8 Company cannot share or receive any dividend.
- There are no benefits and allowances for the Officers and directors of the company.
- The profits of these companies can only use for furthering charitable aims and objectives.
- Any change or alteration in memorandum (MoA) and articles (AoA) needs the permission of the Central Government.
- The license of these companies can be revocable on several conditions.
Cancellation of License
To run a Section 8 companies, authorization or license issued by the Central Government is a must. All such licenses or authorization can be canceled anytime on the following conditions:
- If the company breaks or crosses over the provisions of Section 8;
- If the terms and conditions of the license are violated;
- If the conduct is fraudulent, or if the company violates public policy and its own objectives
Winding Up of Section 8 Company
Section 8 companies are allowed to wind-up or dissolve voluntarily or under the orders issued by the Central Government. If there are any assets remaining after satisfaction of all liabilities and debts after getting winding-up or dissolve, the National Company Law Tribunal can issue an order to transfer the assets of Section 8 Company to a similar company. And it also can be sold and the money from this sale can be credited to the Bankruptcy Fund under the National Company Law Tribunal.
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