Section 8 Company

Understanding Section 8 Company

A Section 8 company, also known as a not-for-profit company, is a type of organization that is incorporated to promote art, science, education, charity, or any other social cause. In India, these companies are regulated by the Companies Act of 2013 and need to be registered with the Ministry of Corporate Affairs (MCA).

Process for Registration of Section 8 Company in India

• Obtaining Digital Signature and Director Identification Number

The first step in registering a Section 8 company is to obtain Digital Signature Certificates (DSC) and Director Identification Numbers (DINs) for all proposed directors. The DSCs are needed to sign electronic documents while DINs are required to identify each director uniquely. These can be obtained online through various agencies authorized by MCA.

• Choosing a Name and Structure for the Company

Once DSCs and DINs have been obtained, the next step involves selecting a unique name for the company and applying for it through Form INC-1 on MCA’s website. After submission of Form INC-1 along with requisite fees and necessary documents such as a Memorandum of Association (MoA) and Articles of Association (AoA), MCA conducts thorough scrutiny before approving or rejecting the application.

Once name approval has been received from MCA, one needs to file Form INC-12 within working days from the name approval date which contains details about capital structure including authorized share capital, etc., draft MoA&AoA, etc., along with fees prescribed under Companies Act 2013.

• Filing for Incorporation and Obtaining a Certificate of Incorporation

After filing incorporation documents electronically via SPICe+, Company Registration Certificate(CRC) would be issued by the Registrar Of Companies(ROC).

It should also be noted that unlike other types of companies where there is no restriction on minimum paid-up capital requirement; in the case of section 8 companies there mustn’t be any minimum paid-up capital requirement applicable during the registration procedure but after registration they need to maintain it based on their business plan & activities.

Apart from above mentioned steps, it is also essential to comply with various regulatory provisions and filing requirements applicable from time to time such as submitting Annual filings, updating the board of directors regularly about any significant changes in operations or financial position, etc.

• Applying for 12A and 80G Certificates

Furthermore, Section 8 companies are eligible for tax exemptions under Sections 12A/12AA and 80G of the Income Tax Act, 1961. For instance, if a company’s income solely goes towards promoting charitable activities or social welfare causes and not towards profit-making purposes then they can apply for tax exemption under section 12A and 80G of the Income Tax Act 1961.

Overall, registering a Section 8 company involves a detailed process that requires careful consideration and compliance with various legal formalities. However, it provides the opportunity to contribute towards social welfare causes while enjoying certain benefits such as tax exemptions.

Compliance Assistance

After successful incorporation, compliance requirements such as opening a bank account, filing annual returns, etc need to be taken care of. ComplianceBuddy consultants provides assistance in these compliances and obligations so that you can focus on growing your organisation without worrying about paperwork.

Highlights of Section 8 Company

• IN India, Section 8 company is popularly known as NGO. Below are the 3 ways in which NGOs can be incorporated:
• Charitable Society- Registered with Registrar of Societies
• Charitable Trust- Registered with Registrar of Respective Jurisdiction
• Section 8 Company- Registered with Registrar of Companies
• The funds generated by Section 8 Companies are strictly reserved for charitable purposes and cannot be utilized for any other objectives. Furthermore, these funds are prohibited from being distributed among shareholders.
• Bound by the Companies Act 2013, Section 8 Companies must uphold accounting standards, submit ROC returns, and adhere to GST and IT Act regulations.
• Obtaining governmental consent is imperative for any amendments to the charter documents such as the Articles of Association (AoA) and Memorandum of Association (MoA).

Advantages of incorporating Section 8 Company

• Most structured form of NGO– Section 8 companies are registered with ministry of corporate affairs (MCA) just like private limited and public limited companies and are subject to mandatory annual compliances, enhancing their credibility regarding legal standing. Unlike Societies and trusts, Section 8 company’s books of accounts are audited by chartered accountant annually, making them more trustworthy.
• No Minimum capital Requirement- Companies Act, 2013 don’t mandate Section 8 companies to have a minimum capital requirement like private and public limited companies. They can have a capital structure in proportion to their nature and size of operation, giving them more flexibility.
• Regulated by Companies Act, 2013- Unlike the other form of NGOs, section 8 companies are regulated organisation and it is regulated by Companies Act, 2013. All the compliance requiremnets are governed by the said act.
• Easy to transfer- Unlike the other form of NGOs, section 8 companies ownership can be transferred in more structured and transparent way.
• Tax Benefits- It is recommended to register Section 8 companies under section 12AA of the Income Tax Act and also apply for 80G registration. Section 8 companies registered with income tax may enjoy tax exemption upto 100% as they are not for profit organisations and they utilize their profits for charitable purposes.