What is Section 8 Company?

In India, the Section 8 Company is regulated by the Indian Companies Act, 2013 (and the amendments thereof) and the rules & regulations that are made there under and it is administered by the Ministry of Corporate Affairs, Government of India through the Offices of Registrar of Companies (‘RoC’) in each of the state of India. The Company Incorporation rules, the requirements, process, and the procedures vary more or less depending particularly on the type of the company that is to be incorporated.

Section 8 Company is a Company that is licensed under Section 8 of the Companies Act, 2013 (the Act), erstwhile known as the Section 25 Company under the Companies Act, 1956, which had the main object; For promoting research, social welfare, religion, charity, commerce, art, science, sports, education, and the protection of the environment or any such other object, provided that the profits, if any, or the other income is applied for promoting only the objects of the company and Also, No dividend is paid to its members.

Therefore, Section 8 Company is a company which is registered for charitable or not-for-profit purposes. This Company is, however, similar to a Trust or Society; an exception is that a Section 8 Company is registered under the Central Government’s “Ministry of Corporate Affairs (MCA)”whereas the Societies and Trusts are registered under the State Government regulations. This, however, has various advantages when it is compared to Trust or Society and it also has higher credibility amongst the donors, Government departments, and other stakeholders. Further, the key feature of this Company is that the names of a section 8 company shall not include “Private Limited” or “Limited” at the end of its name and must end with any of the below words.

Procedure of Incorporation.

A. Name Approval in ‘RUN’ facility

You suggest your preferences and we’ll conduct Company Name Search. After your approval of the 3 options, we’ll apply for a unique name for your Company. Name availability has to be checked in the “Reserve Unique Name” or RUN facility.

B. Obtaining Digital Signature Certificate (DSC)

The proposed Directors who may also be the Promoters/Applicants of Sec. 8 Company have to obtain Class 2 DSC.

3. Procedure of Incorporation.

A. Name Approval in ‘RUN’ facility

You suggest your preferences and we’ll conduct Company Name Search. After your approval of the 3 options, we’ll apply for a unique name for your Company. Name availability has to be checked in the “Reserve Unique Name” or RUN facility.

B. Obtaining Digital Signature Certificate (DSC)

The proposed Directors who may also be the Promoters/Applicants of Sec. 8 Company have to obtain Class 2 DSC.

C. File form SPICe PLUS/SPICE MOA/SPICE AOA

After the name approval, File form SPICe PLUS with following attachments for incorporation of Sec. 8 Company.

PAN Card of subscribers

Id Proof of First Directors

Address Proof of First Directors

Address Proof of Registered Office (Rent Agreement/Sale Deed)

Latest Utility Bill of Registered Office (Electricity/Telephone/Gas)

NOC of Owner of Registered Office

Consent and Declaration from first Director in form DIR-2

Self Declaration from First Directors and Subscribers in form INC-9

4. Advantages/Dis-Advantages

Advantages

People generally prefer to conduct charitable activities by forming Section 8 companies instead of regular NGOs and associations. This is because they have limited liability, so their personal assets will not be used in paying debts of the company. Here are some advantages that these companies enjoy:

• Members have limited liability.

• No minimum capital requirements.

• They get several tax exemptions.

• Stamp duties and high fees are not payable for registration.

• They have perpetual existence and separate legal status.

• Exemptions from carrying out several procedural compliances.

• More credibility than compared to NGOs, societies, and trusts because they are recognized by the Central Government’s license.

Disadvantages

Despite numerous merits, these companies also have the following drawbacks:

• Members of the company cannot get any dividend.

• There could be no distribution of the profits among shareholders or partners.

• Officers and directors do not get benefits and allowances.

• Can only use the profits for furthering charitable aims and objectives.

• Amendment of memorandum and articles requires Central Government’s permission.

• The license is revocable on several grounds.

5. Important Exemptions

1. A general meeting may be called by giving notice not less than 14 clear days instead of 21 clear days.

2. It shall be enough for a Section 8 Company to hold at least one meeting within every six calendar months instead of holding four meetings a year.

3. Recording of minutes of General Meetings, Board Meeting and other resolutions has been withdrawn. However, the minutes of meetings may be recorded within 30 days of conclusion of the meeting in cases where the company’s articles provide for confirmation by way of circulation of minutes.

4. Conditions requiring and governing appointment of independent directors have also been waived off.

5. Any person can be appointed as Company Secretary even if he/she is not a member of Institute of Company Secretaries of India.

6. The maximum limit of 15 directors and appointment of more than 15 directors by passing special resolution has been withdrawn.

7. The bar on taking up directorship in more than 20 companies has been relaxed.

8. A firm can even be a member of a Section 8 Company.