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What are The Rules Applicable to Section 8 Company

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Section 8 Companies Rules and Regulations

Section 8 businesses have become well-known in the business and entrepreneurial worlds for their purpose-driven operations. These businesses, usually referred to as not-for-profit companies, are established with the primary goal of advancing social welfare, charity endeavours, or other admirable causes. For the company registered under Section 8 company registration to operate under the law and in the proper manner, company registration is done by all businesses, whether they be private, public, or non-profit organizations that assist the less fortunate members of society. The laws governing Section 8 companies in India differ from those managing conventional businesses, highlighting their dedication to the public good.

In this article, we will delve into the complexities of Section 8 companies, clarifying the rules and regulations that govern them and making it easier for prospective social entrepreneurs and philanthropists to traverse this path.

Understanding Section 8 Companies

A Section 8 Company, sometimes referred to as a Section 8 of the Companies Act, 2013 or a Section 25 Company under the Companies Act, 1956, is a kind of nonprofit entity. These companies are established primarily to advance trade, the arts, sciences, sports, education, research, social welfare, religion, charity, environmental protection, or any other philanthropic cause. The section of the Companies Act under which these organizations are registered is whence the name “Section 8” originates. The company’s goals can be accomplished using the profit its operations produce.

The key features of a Section 8 Company are as follows:

  • Non-profit Nature: A Section 8 Company must utilize its income and profits to promote its objectives. It cannot distribute dividends to its members.
  • Limited Liability: The members of a Section 8 Company have limited liability. This means that their assets are safe if the company faces financial difficulties.
  • No Minimum Capital Requirement: Unlike other companies, there is no minimum capital requirement for registering a Section 8 Company.
  • Exemptions and Privileges: Section 8 Companies enjoy various exemptions and privileges under the Companies Act, such as simplified compliance procedures.

Navigating the Rules for Section 8 Company Registration

Setting up a Section 8 Company in India requires adherence to specific rules and procedures. The registration of a Section 8 company is broken down into the following steps, important rules and requirements highlighted at each stage.

Online Application

The process of registering a Section 8 Company begins with the completion of an online form available on the official website. This application is the first step in expressing your intention to find a nonprofit with charitable objectives. It gives important details about the organisation’s intended name, goals, and key individuals.

Digital Signature Certificate (DSC) and Director Identification Number (DIN)

Getting a Director Identification Number (DIN) and Digital Signature Certificate (DSC) within three business days of submitting the online application is essential. The Registrar of Companies (RoC) and other pertinent authorities accept these digital signatures as proof of the authenticity of electronic documents. Each director is given a unique identifying number called a DIN, which promotes accountability and transparency.

Name Approval

After obtaining the DSC and DIN, the following stage entails requesting Ministry of Corporate Affairs (MCA) approval for the name of the Section 8 Company. The proposed name must adhere to the standards outlined by the RoC and be original, distinct, and unrelated to the name of any other existing business. Your organization will stand out if it has a distinctive name that captures its primary objectives.

Section 8 License

Once your business name has been approved, you should approach the Ministry of Corporate Affairs Director to request a Section 8 Licence. This licence provides the legal standing required to function as a non-profit organization, making it the cornerstone of a Section 8 Company. It represents the organization’s dedication to charitable initiatives and conformity to the established rules and regulations.

SPICe+ Form for Incorporation

Once you have the Section 8 licence, you can continue to file the SPICe+ (Simplified Proforma for Incorporating Company Electronically) Form with the RoC for the Section Company’s final incorporation. The company’s organizational structure, registered office address, director information, and the Memorandum and Articles of Association (MOA and AOA) are all included in this detailed document. The MOA and AOA define the company’s goals and internal regulations.

PAN and TAN Application

You must electronically submit applications for a Permanent Account Number (PAN) and a Tax Deduction and Collection Account Number (TAN) as part of the registration process. For financial transactions and tax compliance, these figures are essential. Delivering the PAN card through courier is a critical step in the registration procedure.

Bank Account Opening

The Section 8 Company may create a bank account within 30 working days after receiving the PAN and TAN. The management of the organization’s finances, receiving donations, and distributing money for charity purposes all depend on this account. For Section 8 Companies, accurate record-keeping and financial transparency are crucial.

80G and 12A Registration

Your Section 8 Company is formally formed and prepared to conduct charity activities. Still, you can increase its appeal to potential donors by requesting 80G and 12A registration with the Income Tax Department. These registrations provide tax advantages to your donors, encouraging them to donate to your charity. While the 12A registration exempts the corporation from paying income tax, the 80G registration enables donors to deduct contributions from their taxable income.

Legislative Standards for a Section 8 Company

  • Charitable Purpose: Section 8 companies primarily promote noble causes like art, education, and social welfare, evident in their Memorandum of Association.
  • No Dividend Distribution: They cannot distribute profits to members; income must go toward their objectives.
  • Registration Process: Registration involves submitting required documents outlining charitable objectives to the Registrar of Companies (RoC).
  • Minimum Directors and Members: Must have at least two directors; no minimum members, but seven for government grants.
  • Name Approval: Names should reflect charitable goals, follow RoC guidelines, and not resemble existing companies.
  • Tax Exemptions: Eligible for tax exemptions under certain conditions, for income and donations, with proper accounts and adherence to tax regulations.
  • Alteration of Objects Clause: Central Government approval is required for any changes to charitable objectives.
  • Annual Compliance: Must file annual returns and financial statements with the RoC; non-compliance leads to penalties and loss of tax exemptions.
  • Utilization of Profits: Surpluses must be used solely for charitable activities, not for other purposes or member distribution.
  • Winding-Up: Remaining assets during dissolution must be transferred to another organization with similar charitable objectives.
  • Short Notice AGM: Can conduct Annual General Meetings (AGM) on short notice.
  • Tax-Free Income: Income is tax-free with 80G and 12A registration.
  • Director Roles: Directors can hold positions in more than 20 companies.

Challenges Faced by Section 8 Companies

While Section 8 Companies offer several advantages, they also face some challenges:

  • Stringent Regulations: The stringent regulations imposed on these companies can sometimes be complex and time-consuming to navigate.
  • Fundraising: Raising funds can challenge Section 8 Companies, as they cannot distribute profits to investors or shareholders.
  • Annual Compliance: Meeting the annual compliance requirements, including audits and filings, can be burdensome for smaller organizations.
  • Change of Objectives: Obtaining approval for changing the company’s objectives from the Central Government can be lengthy.

Conclusion

In India, Section 8 businesses are crucial for promoting philanthropic and social welfare activities. These organizations offer a structured framework for people and organizations wishing to positively impact society, even if they are subject to particular rules and regulations.

Understanding and following the rules for Section 8 companies is critical to their success. By doing this, philanthropists and social entrepreneurs can direct their money and efforts towards deserving projects and significantly improve the lives of those in need. Section 8 businesses can affect beneficial change in our society while adhering to their charitable goals, whether it is through supporting environmental causes, advancing healthcare programmes, or educating underprivileged children.

Navigating the intricacies of Section 8 Company registration and compliance can be complex. Still, it’s a challenge worth undertaking for those genuinely committed to making a positive impact. Fortunately, professional services like Kanakkupillai can provide invaluable assistance throughout this process.

Kanakkupillai is a trusted partner specialising in helping individuals and organizations navigate the legal landscape of Section 8 Companies. We can guide you through the intricate registration steps, ensuring you meet all the requirements and adhere to the relevant rules and regulations. With our expertise and support, you can confidently establish your Section 8 Company, knowing that you are on the right path to making a meaningful difference in your chosen charitable field.

So, whether you’re driven by a passion for education, healthcare, environmental conservation, or any other noble cause, Kanakkupillai can be your guiding light in the world of Section 8 Companies. By enlisting our assistance, you can focus your energy on the important work of making a positive impact on society, secure in the knowledge that you have a knowledgeable partner to handle the intricacies of compliance and regulation.

Pradeep

Welcome to www.kanakkupillai.com! Greetings, I am Pradeep, an Audit & Assurance Manager deeply committed to assisting businesses in navigating the intricate realm of financial compliance and transparency. With a wealth of experience in audit and assurance, I am your trusted ally in ensuring the integrity and reliability of your financial statements and operations. My dedication extends to advocating for diversity and inclusivity within the business landscape. I firmly believe that every organization, regardless of its background, should have access to expert financial guidance and assurance services that foster trust and credibility. I am honored to accompany you on your journey toward financial excellence through this blog, where I will provide valuable insights and strategies tailored to your business's audit and assurance needs. Thank you for entrusting me with the privilege of contributing to your path to financial success. For more information and resources, please visit www.kanakkupillai.com.