Here, we will discuss the benefits and exemptions of a non-profit organisation. Section 8 of the Companies Act 2013, 2013 made specific rules for such companies, and it is interesting to know about these rules and benefits.
Is It Mandatory for a Section 8 Company to Appoint an Independent Director?
The provisions of the Companies Act 2013 provides the guidelines for a Section 8 company. The provisions of the Companies Act deal with the promotion of religion, charity, social welfare, protecting the environment, education, arts, science, sports, etc. The companies registered under Section 8 of the Companies Act 2013 are formed with a motif to promote these genres of social welfare.
Primary Function Of A Section 8 Company
If you are confused about Section 8 and public companies, you must know that even a public or private company may be converted into a Sec 8 company. The government of India has the supreme authority to provide licenses for such companies. Even the alteration in any object of such companies needs approval from the government of India.
A Section 8 company can pursue its objective of earning profits while performing its primary objectives. However, such companies can not share the earned profits with their shareholders. The profit from their projects must be utilised to develop their primary objectives or projects further.
Role Of An Independent Director In A Company
An independent director for a company refers to a non-executive director to improves the corporate credibility and standard of the company’s governing capabilities. The independent director is not directly connected with the concerned company. Such a person can make an independent judgment for the welfare of the company or organisation.
The Companies Act 2013 defines the role and responsibilities of an independent director in a company. The act defines an independent director’s appointment, duties, and other duties. The appointment of Independent Directors comes under Section 149 of the Companies Act, 2013. An independent director is to work as an organisation’s mentor, guide, and advisor. Take a look at the role of an independent director.
- Withstands and counters the challenges an organisation faces and thus helps the owner overcome tough situations.
- It allows the owner and the governing body to make crucial decisions.
- The person can provide independent judgment in making practical strategies, ensuring better performance, controlling the risk management, controlling the resources, maintaining the key appointments, and developing the standards of conduct.
- The Independent Director must have an objective view to evaluate the performance and skills of the other members.
- It balances and safeguards the interests of the company’s stakeholders and shareholders for the company’s welfare.
Thus, if you are confused about a Section 8 company appointing an independent director, you must know that such a company can not appoint an independent director. The Section 8 Companies are exempted from any independent director requirement. They also don’t need any consequential provision relating to Independent directors under section 149(1) of the Companies Act, 2013, with an exemption notification dated June 05, 2016.
Benefits Of A Section 8 Company
Here are the advantages of section 8 company:
Limitation in Liability
Section 8 companies have limited liability status, and for this reason, they don’t have any liability toward’s company’s debts. The company and its members are termed separate persons, and the Company act 2013 states the company or organisation is an artificial juridical person.
Benefits of Paying Taxes
The companies are registered under Section 80G and 12A of the Income Tax Act, 1961. The function of a Section 8 company is like trust, and they have the permit to get donations. Such companies also are entrusted with special stamp duty concessions in some states for the formation and registration of property.
Specific Identity
A Section 8 company works as a legal organisation and has a distinct existence other than its directors and shareholders. The company has the legal power to own properties, and it can take loans or debts in the company’s name. The company also has a juridical status and can promote its objects. The company can also transfer its share and its ownership. The corporate restructuring for such compies is essential for merging, demerging, or acquisition, according to the Companies Act 2013.
Educational Institutions Establishment
Section 8 companies can start schools and colleges. In 2016 they got approval from the Medical Council of India to set up medical colleges. Previously, only Section 25 companies had the authority to start schools and colleges. 2013 approved Section 8 companies as well.
Exemptions of Section 8 Companies
Section 8 companies can enjoy several privileges. The special privileges Vide Notifications dated June 05, 2015, and June 13, 2017, are:
- A Section 8 company can hold its first board meeting within six months of its incorporation.
- The company secretary of a Section 8 company may be any person, and there is no need for such a person to be a member of ICSI.
- Unlike other companies, Section 8 companies can serve notice for a general meeting 14 days prior to its scheduled date. Other companies must serve a notice for the same purpose 21 days before their scheduled date.
- Section 8 companies can send copies of financial and consolidated financial statements. They can also send an auditor’s report or any valid document with their financial statements. Such a company can use these documents for presenting in their general meetings.
- There is no mandatory rule for these companies to keep the recording minutes of General Meetings, Board meetings, and other resolutions.
- Section 8 companies can appointment of directors according to their requirements. The case does not apply to other companies. The Public Limited Companies have a minimum of three directors, and the Private Companies have a minimum of two directors.
- Section 8 companies are exempted from appointing an Independent director.
- There is no need for such companies to constitute any committees of the Board like the audit committee, nomination, remuneration committee, etc.
- Under Section 179 of the Act, Resolutions permit such companies to borrow monies, invest the company’s funds, and provide loans or security by its circulating power.
Corporate Social Responsibility of Section 8 Companies
Suppose a public company wants to incorporate a Section 8 Company with provisions for CSR. In that case, the company doesn’t have to provide any track record in case the section company was used as an implementing agency. However, a Section 8 company must be registered under Section 12A and Section 80G of the Income Tax Act. This registration policy is essential to be a part of the CSR implementation agency.
Also, a Section 8 company has to file Form CSR-1 with MCA. After the documentation process, the company will get a CSR Registration Number in case the company wants to handle CSR projects on or after April 01, 2021. According to the rules, a Section 8 company is also eligible to hold assets from CSR contributions of the companies and can use them in their upcoming CSR objects.
Conclusion
The primary functions and objectives of a section 8 company are interesting as it gets several privileges and exemptions in its operations. However, there is no need for an independent director as per the Company Act 2013 that appoints a Section 8 company as a self-governing body. Vakilsearch will help you know more about any legal perspectives on the matter.
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