Section 8 Company: Relaxation in Compliance norms under Company Law

Last Updated at: May 12, 2020
3788
Section 8 Company: Relaxation in Compliance norms under Company Law

The Ministry of Corporate Affairs now offers special benefits, conditions and rules for a company’s registered under Section 8 of the Companies Act, 2013.

Section 8 company

Here are some of the prime conditions:

  1. Objects for promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment or any such related objectives.
  2. Intention to apply its profits or other income for promoting its objectives.
  3. Intends to prohibit the payment of dividends to its members subject to Central Govt approval, by means of a license with prescribed conditions, this Section 8 on the registration of a company has the few privileges.

Other Conditions

Other than being a Limited Company, the central govt.’s approval is necessary for the conversion of these companies and alteration in the provisions of Memorandum and Article of such companies.

Implications of Non-Compliance

Central Govt. has exclusive powers in case of non-compliance of conditions in the license. However, remember that this can revoke the license if required. Additionally, it can compel winding up or compelled merger with similar registered Section 8 company. All the conditions specifically those of Central Govt.

Register Your Section 8 Company

Listed below are some dispensations which are amended:

Company Secretary

Company Secretary Requirement mentioned in Section 2(4) has been done away with so to appoint a Company Secretary is not mandatory for a Section 8 companies.

Capital requirements

Limited Liability Company is incorporated under Section 8 for which capital requirement is 5 lakhs and the same requirement has been done away so you don’t need this amount for registering a company under the company norms and law. As we know the working of a non-profit company can strongly be affected. This may be due to capital constraints and hence this amendment to exempt has become very useful.

Annual General Meeting

Companies require a notice of 21 days which now reduces to having only 14 days u/s 101(1). Also, there is no requirement to follow Section 96(2) which had rules for time/place/restrictions on AGM. But time, date and place of each annual general meeting are to be decided before-hand by the Board of Directors with due regard to the directions if any given in this regard by the company in its general meeting. This means an AGM can take place at other than registered office, city and place different than office timing subject to General meeting directions that can be given.

The minutes of the meeting is not necessary to be as per Section 118 provisions. But with the exception that if articles provide that minutes are required to be approved by circulation within 30 days requirements of financial statements, audit reports and other documents that are to be sent 21 days before AGM is done away with for these companies.

Directors

The requirement to have independent directors (Section 150) takes place which is necessary. And corresponding provisions of Section 149 are not applicable. So, there is no limit on the minimum and no maximum (Section. 165) of directors. But to conduct a board meeting there should be minimum 2 boards of directors.

Moreover, Section 8 companies under company norms do not require holding the first meeting of the board within 30 days of incorporation of the company under the company law. A meeting of the directors will still be necessary once every six months.

Also, individuals other than retiring directors to stand for directorship will not be enforceable in Section 8 companies which are similar to the exemption offered to private companies. However, this shall not be applicable for companies whose articles offer elections of directors by ballot.

Board Meetings

Other companies that need board meetings at least 4 times in a year (Section 173). But Section 8 company, under the company law, can meet in 6 months in a year i.e. only 2 times. Amendment takes place for Section 174 which stands for a quorum. And now for Section 8 company, we have either eight or twenty-five per cent of total strength whichever is less as quorum subject to a minimum of two members. Powers of board mainly borrowing of money, investment of funds, to grant a loan, or give guarantee could only be exercised in board meetings. But now for Section 8 Company, it can be done by a circulation only.

Related Party transactions and compliances under company law

Related party disclosures u/s 184(2) is for interest disclosure by a Director. And Section 184 is a Register for Contracts which interest Directors. Shall only be required if, as per the terms of the contract or agreement, the amount exceeds Rs. One lakh and Section 188 is applicable.

Conclusion

Being a Section 8 Company there are restrictions which one should follow when removal of extra compliances takes place. It mainly takes off the load from the organization working for the society. This is a great initiative by the Govt. to introduce such relaxations. Overall, makes the operations of these organizations smoother and more efficient.

 

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Section 8 Company: Relaxation in Compliance norms under Company Law

3788

The Ministry of Corporate Affairs now offers special benefits, conditions and rules for a company’s registered under Section 8 of the Companies Act, 2013.

Section 8 company

Here are some of the prime conditions:

  1. Objects for promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment or any such related objectives.
  2. Intention to apply its profits or other income for promoting its objectives.
  3. Intends to prohibit the payment of dividends to its members subject to Central Govt approval, by means of a license with prescribed conditions, this Section 8 on the registration of a company has the few privileges.

Other Conditions

Other than being a Limited Company, the central govt.’s approval is necessary for the conversion of these companies and alteration in the provisions of Memorandum and Article of such companies.

Implications of Non-Compliance

Central Govt. has exclusive powers in case of non-compliance of conditions in the license. However, remember that this can revoke the license if required. Additionally, it can compel winding up or compelled merger with similar registered Section 8 company. All the conditions specifically those of Central Govt.

Register Your Section 8 Company

Listed below are some dispensations which are amended:

Company Secretary

Company Secretary Requirement mentioned in Section 2(4) has been done away with so to appoint a Company Secretary is not mandatory for a Section 8 companies.

Capital requirements

Limited Liability Company is incorporated under Section 8 for which capital requirement is 5 lakhs and the same requirement has been done away so you don’t need this amount for registering a company under the company norms and law. As we know the working of a non-profit company can strongly be affected. This may be due to capital constraints and hence this amendment to exempt has become very useful.

Annual General Meeting

Companies require a notice of 21 days which now reduces to having only 14 days u/s 101(1). Also, there is no requirement to follow Section 96(2) which had rules for time/place/restrictions on AGM. But time, date and place of each annual general meeting are to be decided before-hand by the Board of Directors with due regard to the directions if any given in this regard by the company in its general meeting. This means an AGM can take place at other than registered office, city and place different than office timing subject to General meeting directions that can be given.

The minutes of the meeting is not necessary to be as per Section 118 provisions. But with the exception that if articles provide that minutes are required to be approved by circulation within 30 days requirements of financial statements, audit reports and other documents that are to be sent 21 days before AGM is done away with for these companies.

Directors

The requirement to have independent directors (Section 150) takes place which is necessary. And corresponding provisions of Section 149 are not applicable. So, there is no limit on the minimum and no maximum (Section. 165) of directors. But to conduct a board meeting there should be minimum 2 boards of directors.

Moreover, Section 8 companies under company norms do not require holding the first meeting of the board within 30 days of incorporation of the company under the company law. A meeting of the directors will still be necessary once every six months.

Also, individuals other than retiring directors to stand for directorship will not be enforceable in Section 8 companies which are similar to the exemption offered to private companies. However, this shall not be applicable for companies whose articles offer elections of directors by ballot.

Board Meetings

Other companies that need board meetings at least 4 times in a year (Section 173). But Section 8 company, under the company law, can meet in 6 months in a year i.e. only 2 times. Amendment takes place for Section 174 which stands for a quorum. And now for Section 8 company, we have either eight or twenty-five per cent of total strength whichever is less as quorum subject to a minimum of two members. Powers of board mainly borrowing of money, investment of funds, to grant a loan, or give guarantee could only be exercised in board meetings. But now for Section 8 Company, it can be done by a circulation only.

Related Party transactions and compliances under company law

Related party disclosures u/s 184(2) is for interest disclosure by a Director. And Section 184 is a Register for Contracts which interest Directors. Shall only be required if, as per the terms of the contract or agreement, the amount exceeds Rs. One lakh and Section 188 is applicable.

Conclusion

Being a Section 8 Company there are restrictions which one should follow when removal of extra compliances takes place. It mainly takes off the load from the organization working for the society. This is a great initiative by the Govt. to introduce such relaxations. Overall, makes the operations of these organizations smoother and more efficient.

 

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