Section 8 Company: Definition, Features and Formation

Last Updated at: January 10, 2020
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Section 8 Company: Definition, Features and Formation

Firstly, let us understand what Section 8 companies are.  

According to the Companies Act, 2013, Section 8 companies can be formed either as  Private Limited, LLP or Public. Section 8 companies are formed with a charitable objective of social welfare, without any intention to get any kind of profit or dividend. Section 8 Company is a legal entity for non-government or non-profit organizations.
Some of the Section 8 companies in India are Reliance Research Institute, OTC – Over the Counter Exchange of India, Infosys Foundation and various others.

Objectives

The main objective is to promote commerce, education, art, science, sports, social welfare, protection of human rights, protection of the environment or any other such objective. A Section 8 company is registered with the Central Government under the Ministry of Corporate Affairs.

Main features of Section 8 companies

No dividend:

The members of the company do not receive any dividend.

Profits:

Any type of profit or income of the company is utilized mainly for the promotion of the company.

Special license:

Unlike other companies, to initiate it is important for a Section 8 company to get a Special License from the Central Government. The entire requirement must be fulfilled and Rule 19 of the Companies Rules (Incorporation), 2014 offers the issue of the license for the Section 8 company under a procedure which is essential to be followed. 

Status:

Section 8 a company shall enjoy all the privileges and shall be subject to all the obligations of a Limited Company.

Incorporation under Form INC-29:

A Section 8 company cannot be incorporated by the Form INC-29.

Use of suffix:

Section 8 company cannot use the suffix ‘Pvt. Ltd’ or ‘Ltd’ with its name.

Not a small company:

Section 8 will not be treated as a small company.

Power of registrar of companies (ROC):

The Central Government’s power is delegated to the ROC, which has jurisdiction over the region where the registered office of the company is to be located.  Consequently, the application for registering the company is to be made to the ROC.

Register your Section 8 Company
Conversion into a One Person Company:

A Section 8 company cannot be converted into a One Person Company.

Amendment in articles:

Articles of Section 8 company can only be amended with prior approval and permission of Central Government; otherwise, the Articles cannot be amended.

Firm as a member of the non-profit company:

As per Section 8(3) of the Companies Act, 2013, a partnership firm can become a member of the non-profit company registered under Section 8. This type of membership of the firm shall cease upon dissolution of the firm. Although, partners of that dissolved firm can still maintain to be the members of the company in their individual capacity.

Transferable ownership:

In a Section 8 company, the shares and other interests of the members are considered as movable property and are easily transferable as provided by the Articles. 

Shareholders and directors:

a) The company must have a minimum of two shareholders,

b) It is important to have a minimum of two company Directors,

c) The Directors and the Shareholders can be the same person.

Share capital:

There is no requirement for a minimum share capital. The required funds are brought in the form of subscriptions and donations from members and the general public.

Limited liability:

Limited liability is one of the main benefits of a Section 8 company. If any liability rises, the members of the company are not personally affected and are only liable for the unpaid shares held by them.

Flexibility:

Comparatively, this type of company has lesser legal formalities as to a public company. It has the benefits of special exemptions and privileges under the company law.

Separate legal entity:

Here, the company and its members have absolute unique identities.

Shares investment:

As per Rule 3(6) of the Companies Rules (Incorporation), 2014 prohibits a person to invest in securities of any corporate body.

Section 8 company

Exemption for Section 8 companies

  • Company Secretaries are not mandatory
  • There is no requirement for minimum share capital
  • Prior and short notice period of 14 days for Annual General Meetings
  • The recording of the MOM is not required unless needed
  • Number of Directors (2) is required
  • A director can take up more than 20 Section 8 company positions in various other companies.
  • There is no requirement for any committees
  • Meeting are called only for some specific decisions

Income tax exemptions

As per Section 12AA, an application is to be filed to the Income-tax commissioner with the necessary supporting documents. On the satisfaction of the commissioner, he/she shall grant the tax exemption to the company.

How to form a Section 8 company?

  • Reserve a name by filing the form RUN form or Reserve Unique Form
  • The name approval may take at least 20 days. The name approval shall be valid at the time of applying for the RD 1 License. RD 1 license is a license granted under section 8 of companies act as they work on a specific objective which is for the upliftment of arts, science, commerce, environment, etc., and the profit they earn shall also be used towards their objectives.
  • The license so approved shall be valid for 30 days.
  • Next, all the documents like rental agreements and utility bills must be filed with the license and name approval certificate.

Our detailed blog will give an insight on everything related to Section 8 companies, its main features, the rules and exemptions. To know more, please speak our team of experts at Vakilsearch today.

 

Section 8 Company: Definition, Features and Formation

1227

Firstly, let us understand what Section 8 companies are.  

According to the Companies Act, 2013, Section 8 companies can be formed either as  Private Limited, LLP or Public. Section 8 companies are formed with a charitable objective of social welfare, without any intention to get any kind of profit or dividend. Section 8 Company is a legal entity for non-government or non-profit organizations.
Some of the Section 8 companies in India are Reliance Research Institute, OTC – Over the Counter Exchange of India, Infosys Foundation and various others.

Objectives

The main objective is to promote commerce, education, art, science, sports, social welfare, protection of human rights, protection of the environment or any other such objective. A Section 8 company is registered with the Central Government under the Ministry of Corporate Affairs.

Main features of Section 8 companies

No dividend:

The members of the company do not receive any dividend.

Profits:

Any type of profit or income of the company is utilized mainly for the promotion of the company.

Special license:

Unlike other companies, to initiate it is important for a Section 8 company to get a Special License from the Central Government. The entire requirement must be fulfilled and Rule 19 of the Companies Rules (Incorporation), 2014 offers the issue of the license for the Section 8 company under a procedure which is essential to be followed. 

Status:

Section 8 a company shall enjoy all the privileges and shall be subject to all the obligations of a Limited Company.

Incorporation under Form INC-29:

A Section 8 company cannot be incorporated by the Form INC-29.

Use of suffix:

Section 8 company cannot use the suffix ‘Pvt. Ltd’ or ‘Ltd’ with its name.

Not a small company:

Section 8 will not be treated as a small company.

Power of registrar of companies (ROC):

The Central Government’s power is delegated to the ROC, which has jurisdiction over the region where the registered office of the company is to be located.  Consequently, the application for registering the company is to be made to the ROC.

Register your Section 8 Company
Conversion into a One Person Company:

A Section 8 company cannot be converted into a One Person Company.

Amendment in articles:

Articles of Section 8 company can only be amended with prior approval and permission of Central Government; otherwise, the Articles cannot be amended.

Firm as a member of the non-profit company:

As per Section 8(3) of the Companies Act, 2013, a partnership firm can become a member of the non-profit company registered under Section 8. This type of membership of the firm shall cease upon dissolution of the firm. Although, partners of that dissolved firm can still maintain to be the members of the company in their individual capacity.

Transferable ownership:

In a Section 8 company, the shares and other interests of the members are considered as movable property and are easily transferable as provided by the Articles. 

Shareholders and directors:

a) The company must have a minimum of two shareholders,

b) It is important to have a minimum of two company Directors,

c) The Directors and the Shareholders can be the same person.

Share capital:

There is no requirement for a minimum share capital. The required funds are brought in the form of subscriptions and donations from members and the general public.

Limited liability:

Limited liability is one of the main benefits of a Section 8 company. If any liability rises, the members of the company are not personally affected and are only liable for the unpaid shares held by them.

Flexibility:

Comparatively, this type of company has lesser legal formalities as to a public company. It has the benefits of special exemptions and privileges under the company law.

Separate legal entity:

Here, the company and its members have absolute unique identities.

Shares investment:

As per Rule 3(6) of the Companies Rules (Incorporation), 2014 prohibits a person to invest in securities of any corporate body.

Section 8 company

Exemption for Section 8 companies

  • Company Secretaries are not mandatory
  • There is no requirement for minimum share capital
  • Prior and short notice period of 14 days for Annual General Meetings
  • The recording of the MOM is not required unless needed
  • Number of Directors (2) is required
  • A director can take up more than 20 Section 8 company positions in various other companies.
  • There is no requirement for any committees
  • Meeting are called only for some specific decisions

Income tax exemptions

As per Section 12AA, an application is to be filed to the Income-tax commissioner with the necessary supporting documents. On the satisfaction of the commissioner, he/she shall grant the tax exemption to the company.

How to form a Section 8 company?

  • Reserve a name by filing the form RUN form or Reserve Unique Form
  • The name approval may take at least 20 days. The name approval shall be valid at the time of applying for the RD 1 License. RD 1 license is a license granted under section 8 of companies act as they work on a specific objective which is for the upliftment of arts, science, commerce, environment, etc., and the profit they earn shall also be used towards their objectives.
  • The license so approved shall be valid for 30 days.
  • Next, all the documents like rental agreements and utility bills must be filed with the license and name approval certificate.

Our detailed blog will give an insight on everything related to Section 8 companies, its main features, the rules and exemptions. To know more, please speak our team of experts at Vakilsearch today.

 

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A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.