Know more about a section 8 company in detail and get insights about different exemptions and board & general meetings in this blog.

Whenever a company registers as a Non-Profit Organization (NPO), i.e. when it has the intention to use its profits (if any) or other earnings for helping to promote the arts, commerce, education, charity, protection of the environment, sports, science, research, social welfare, or religion, the company is referred to as a Section 8 Company.

The money of an NPO cannot be utilised to pay out dividends to the company’s members and must instead be used to promote charity goals. These businesses are required to abide by the government’s regulations and receive an incorporation certificate from the central government.

According to the regulations, the corporation may be shut down on the direction of the government if the Central Government’s obligations are not met. In addition, if the company’s stated goals are false, harsh legal action will be taken against all members.

Eligibility to Apply for Section 8 Company

If a person or group of people possesses the following aims or goals, they may be entitled to register as a Section 8 Company. The objectives must be verified to the satisfaction of the Central Government:

• When the business aims to promote commerce, science, education, the arts, sports, research, charity, social welfare, environmental protection, or comparable goals.
• When the business intends to use any earnings (if any) or other income earned after incorporation exclusively for the promotion of those goals.
• When the corporation has no intention of paying its shareholders any dividends.

Exemptions Provided To A Section 8 Company Under The Companies Act, 2013

1. A directorship in a Section 8 company is not counted toward the maximum number of directorships allowed under Section 165 of the Act.
2. By giving notice, a general meeting may be convened.
3. Unlike other companies, Section 8 Company is not liable to notify members of the conduct of the general meeting before 21 days. The Act has reduced this time frame by seven days.
4. Four meetings per six calendar months are not permitted for a Section 8 corporation. They are only permitted to hold one meeting during the allotted term under the current law.
5. These companies are exempt from regulations, including keeping minutes of board, general meetings, and other resolutions. However, when the company’s article calls for confirmation through the distribution of minutes, the minutes of meetings may be recorded within thirty days after the meeting’s end.
6. Any business or establishment is eligible to join a Section 8 company.
7. The Section 8 entities are exempt from Section 149(1) of the Act and are not required to name the independent Director. Additionally, due to the reason as mentioned above, the audit committee of such a corporation is not required to include Independent Directors on its Board of Directors.
8. Entities covered by Section 8 are not required to name a practising CS as their company secretary.
9. Additionally, some businesses are excused from adhering to secretarial requirements.
10. The Section 8 Company is not covered by Section 178 of the Act. A Remuneration and Nomination Committee is therefore not required for these companies. Additionally, they are not required to establish a Stakeholders Relationship Committee.
11. Numerous sections, including Sections 150, 152(5), 160, and others, do not apply to Section 8 corporations.

Exemption Provided Under Income Tax Act, 1961

Certain exclusions made possible by the IT Act are accessible to Section 8 companies. They have the power to receive different benefits and a tax break under Section 80G of the Income Tax Act of 1961 because their goal revolves on a “charitable purpose.”

The list of exemptions or reliefs accessible to these companies generally is shown in the section below:

1. Companies covered by Section 8 are exempt from the stamp duty that applies to other companies. For these organisations, stamp duty costs are significantly lower.
2. The IT Act of 1961 allows the Section 8 entity’s donors to get a 50% contribution reimbursement. It will be valid for 1-3 years in accordance with Section 80G.
3. If a Section 8 company is registered under Section 12AA of the IT Act, its profits are exempt from taxation.
4. The Central Government issues regulations each year to relieve these businesses of their tax load.

Exemption Provided Under Indian Stamp Act, 1899

1. Indian Stamp Act, 1899 regulates stamp duty on MOA and AOA of the Section 8 company and any increase in share capital.
2. Most states, including Maharashtra, Delhi, and others, offer reduced stamp duty rates for AOAs, MOAs, or increases in the share capital of Section 8 companies.

Board Meeting For Section 8 Company

• Number of Meetings (Sec 173): The number of board meeting for section 8 company meeting is atleast one every six calendar months in light of the exemption read with section 173(1). The entirety of Section 173 of the 2013 Companies Act is irrelevant, save from this.
• The quorum for Board Meetings (Sec 174): The quorum for board meeting for section 8 company is either eight directors or 25% of its entire strength, whichever is lower, in accordance with section 174(1) read with exemption notification. The quorum, however, cannot be less than two people. For example, if a Section 8 Company has 10 Directors on board, then it needs to have at least 3 (nearest whole number) Directors on Board to fulfil the quorum and summon the meeting thereon.
• Passing of certain resolutions by circulation instead of holding a board meeting (Sec 179): Certain powers can only be used by the Board at a meeting, according to Section 179(3) of the Companies Act of 2013. However, the Board of a Section 8 Company may only employ the following powers by circulation out of all those stated in the Section:

To: 

1. Borrow money
2. Invest Company funds
3. Grant loans or provide guarantees for loans

General Meetings In A Section 8 Company

• Time, Date and Place of Annual General Meeting (Sec 96): According to section 96(2)’s second proviso, the board of directors must decide in advance the time, date, and location of each annual general meeting of section 8 company while taking into account the instructions provided by the Company at its previously held general meeting.
• Timeline of AGM Notice (Sec 101): A Section 8 Company may call an annual or extraordinary general meeting with as little as 14 days’ notice, as opposed to the 21 days’ section 8 company agm notice required by section 101 (1) of the Companies Act.

Minutes Proceedings Of Board And General Meetings (Sec 118) 

The exemption notification G.S.R. 466(E) dated June 5, 2015, states that Section 118 does not apply to Section-8 Companies in general, with the exception that the minutes may be recorded within 30 days of the meeting’s conclusion in cases where the articles of an association called for the circulation of the minutes for confirmation. It is not required to produce or distribute meeting minutes; nevertheless, if the articles of association do not mandate their recording.

Conclusion

In order to promote their charitable goals, Section 8 companies use government assistance. These institutions require consistent funding and exemptions to support their goals because profit is not their primary concern. The aforementioned exemptions are more likely to give these businesses the assistance they need. Also, with Vakilsearch, you can make your legal proceedings more swiftly related to your company. Get in touch with our team to know more.

Read More,

• Does a Section 8 company have to register for GST
• Section 8 Company Registration Process
• Can a Section 8 Company Be a Small Company?
• Checklist for Incorporation of Section 8 Company