A Section 8 Company is a type of non-profit organisation (NPO) that is registered under Section 8 of the Companies Act, 2013. It is formed with the primary purpose of promoting areas such as charitable and social objectives rather than earning profits.
Unlike the various traditional business entities, such as Private or Public Limited Companies, a Section 8 Company does not distribute and allot its profits to its company members. Instead, all income and profits are reinvested into the organisation for the purpose of furthering its objectives.
The Central Government grants a special license to such companies after being satisfied that they are genuinely established for charitable purposes. Once incorporated, a Section 8 Company enjoys several legal and tax benefits, similar to a trust or society, but with a stronger governance structure.
Objectives of a Section 8 Company
The major aim of a Section 8 Company is to promote purposes like social welfare and not to engage in profit-making activities. The primary objectives usually include: –
- To promote the arts, science, commerce, education or research.
- The Promotion of various social welfare, sports, charity and religious purposes.
- Advancement of environmental protection or sustainable development
- Promotion of trade, industry, or economic growth for public welfare
- Establishment of research institutions, training centres, or cultural organizations
In simple terms, the profits earned (if any) must be used for achieving these goals and not distributed as dividends to members or shareholders
Legal Framework and Meaning of Section 8
Section 8 of the Companies Act, 2013 provides that:
“A company having charitable objects such as the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object, may be registered as a Section 8 Company if it intends to apply its profits, if any, or other income in promoting its objects and prohibits the payment of any dividend to its members.”
This means:
- The company must have charitable objectives.
- It must apply all profits toward achieving those objectives.
- It must not distribute dividends to its members.
Eligibility Criteria
To form a Section 8 Company, certain eligibility conditions must be met: –
- Purpose: The company must be established for charitable or not-for-profit purposes.
- Application of Income: Profits must be used exclusively to promote the stated objectives.
- Prohibition on Dividend: The company cannot pay any dividend to its shareholders.
- Minimum Members:
- For a Private Limited Section 8 Company – Minimum 2 members.
- For a Public Limited Section 8 Company – Minimum 7 members.
- Minimum Directors: At least 2 for a private company and 3 for a public company.
- Name Restriction: The words “Private Limited” or “Limited” can be omitted from the name after approval from the Central Government.
Documents Required for Section 8 Company Incorporation
The following documents are generally required for registering a Section 8 Company in India:
- Director’s PAN Card and Aadhaar Card
- Passport-size photographs of directors
- Proof of office address (rent agreement or property ownership proof)
- The Electricity or utility bill of the registered office (should not be older than two months)
- Memorandum of Association and the Articles of Association
- Digital Signature Certificates (DSCs) and the Director Identification Numbers (DINs)
- The Declaration in the Form of INC-14 and Form INC-15, confirming the various charitable objectives
Step-by-Step Process of Section 8 Company Registration
The registration process for a Section 8 Company is conducted online through the Ministry of Corporate Affairs (MCA) portal. The steps are as follows:
Step 1: Obtain Digital Signature (DSC)
Each proposed director must obtain a Digital Signature Certificate, which is required for the purpose of signing electronic documents on the MCA portal.
Step 2: Apply for Director Identification Number (DIN)
Directors must apply for a Director Identification Number (DIN) through the SPICe+ form.
Step 3: Name Approval
Submit an application for the purpose of name reservation using Part A of the SPICe+ form. The name must reflect the company’s social or charitable objectives.
Step 4: Drafting MOA and AOA
The Memorandum of Association should clearly state the charitable purpose, and the Articles of Association should define the company’s internal and core management structure and framework.
Step 5: Apply for a License under Section 8
File an application in Form INC-12 to obtain the license to operate as a Section 8 Company. This requires submitting various documents, including INC-14 (Declaration by a professional) and INC-15 (Declaration by promoters).
Step 6: Incorporation
Once the license is granted, file the SPICe+ Form (INC-32) along with the necessary attachments to register the company. After approval, the Certificate of Incorporation is issued.
Benefits of a Section 8 Company
- Tax Exemption: Section 8 Companies are eligible for the purpose of tax exemptions under Section 12A and 80G of the Income Tax Act, 1961.
- Limited Liability: Members’ liability is limited to their shareholding, protecting personal assets.
- Separate Legal Entity: The company has its own legal identity and recognition, distinct from its members.
- Credibility and Recognition: Being registered under the Companies Act, it enjoys higher credibility compared to trusts or societies.
- No Minimum Capital Requirement: There is no prescribed minimum capital to start a Section 8 Company.
- Access to Grants and Donations: Eligible to receive domestic and foreign funding after FCRA registration.
- Perpetual Existence: The company continues to exist even after the death or exit of members.
Post-Registration Compliance
After incorporation, a Section 8 Company must adhere to certain compliance requirements:
- Maintenance of Books of Accounts
- Filing of the essential things like Annual Returns and Financial Statements with the Registrar of Companies (ROC)
- Conducting Board Meetings and Annual General Meetings regularly
- Filing of Income Tax Returns
- Renewal of 12A and 80G certificates (if obtained)
Non-compliance may lead to penalties, including cancellation of the license.
Why Choose a Section 8 Company?
If your major goal is to build a transparent, credible, and professionally managed non-profit organisation, a Section 8 Company is the ideal choice for you. It offers the various legal advantages of a company while aligning with the major spirit of social welfare. Whether you plan to work in education, health, art, or community service, this structure provides a strong foundation for sustainable social impact.
