Section 8 of the Companies Act, 2013, includes non-profit organizations that promote arts, science, religion, research, education, and the like. These companies aim to serve the public and therefore have an edge over other companies and enjoy several advantages.
The Company’s Act, 2013 is quite an exhaustive legislation that houses different types of companies like public companies, private companies, Person Companies, etc. You Can Know more about Benefits of section 8 company in India.
While the predominant motive to establish a company is to run a business and thereby reap profits, there are also exceptions. Most often, entrepreneurs venture into philanthropy by evolving organizations that promote social welfare. By establishing such organizations, they intend to make a difference in the lives of the people at large.
These organizations function with the sole motive to help society, without eyeing monetary profits. Such companies are called non-profit organizations (NPOs) and are covered under Section 8 of the Company Act, 2013. Section 8 includes not only establishments that promote charity but also organizations that strive for the advancement of arts, science, research, commerce, sports, religion, and the social welfare of the environment. Read more to know about the section 8 company benefits.
Being NPOs, the members of these companies do not derive any dividends or paybacks from the companies. Further, the income or funds derived from the company shall be used in carrying out the activities of the company and for promoting its principal objectives. The Section 8 companies are similar to Trusts or Societies, the only difference being that these companies are licensed by the Central Government through the Ministry of Corporate Affairs (MCA) while the latter are licensed by the respective State Governments.
Section 8 Company Benefits
Below given are the section 8 company benefits:
- Tax Privileges: Being non-profits organizations, the Section 8 companies have the perks of being exempted from paying the income tax. The companies also exercise several other tax benefits and also enjoy certain merits by virtue of Section 80G of the Income Tax Act, 1961. The donations made towards the Section 8 companies by individuals and corporations can claim tax exemptions as well.
The charity organizations under this Section are also required to get registered under Sections 12A and 80G of the Income Tax Act, 1961 to avail the exemptions and deductions. Various other private and public limited companies can also make their donations to the Section 8 companies, as their contribution towards Corporate Social Responsibility (CSR) as per Section 135 of the Companies Act, 2013.
Know more: Section 8 Company Registration
- Zero Stamp Duty Payable: Section 8 companies are exempted from paying the stamp duty during the registration, unlike public and private limited companies.
- Unrestrained Transfer of Ownership: Section 8 companies are allowed to transfer the title and ownership of both movable and immovable properties without any restrictions, unlike Limited Liability Partnership companies.
- No Minimum Paid Share Capital Required: The Section 8 companies, being set up with the motive to carry out charitable acts or to accomplish research activities, are not required to hold a minimum share capital, unlike public limited companies. However, the capital can be raised as per the requirements of the company.
- Unique Legal Identity: Like other companies under the Companies Act, 2013, a Section 8 company is also considered to be a unique corporate structure and possesses a separate legal identity.
- Capacity to Own Property: Being a separate legal entity, a Section 8 company can own or alienate tangible or intangible property by itself. The property could be a residential property, non-residential property like a training center, research institute, schools, gallery etc. The property would belong to the company and no member or shareholder can claim the same.
- Perpetual Succession: Just like private limited companies, these companies also exhibit perpetual existence until the company is dissolved legally. Regardless of the death or termination of its members, the company continues to exist for eternity.
- Credibility: Section 8 companies, flaunt higher credibility, as against Trusts or Societies, as these companies are licensed by the Central Government. Although these companies are NPOs, there are rigid restrictions such as not being able to alter the MoA (Memorandum of Association) and AoA (Articles of Association) after registration. Due to such stringent measures, these companies are widely trusted and hold a reliable image.
- Limited Liability: A Section 8 company offers limited liability to its members, therefore their personal assets are not under threat if there should be any debts or discrepancies on behalf of the company. The shareholders of the company bear no personal liability to indemnify the creditors for the debts of the company.
- Members of the Company: Apart from individuals, firms, and corporates can also act as members of the company.
- Does Not Require Titles: The companies under the Companies Act, require titles like ‘private limited company’, ‘public limited company’ etc. However, Section 8 companies do not have such stipulations. Section 8 companies do not have the obligation to inform the public about the liability status of the company.
Board Meetings and General Meetings – Section 8 Company
In the world of Section 8 companies, meetings play a pivotal role. According to Section 173 of the Companies Act, 2013, these entities need at least one meeting within every six calendar months. The quorum for board meetings is either eight directors or 25% of the total strength, whichever is lower, ensuring efficient decision-making processes.
General Meeting Time, Date, and Place
Planning and executing general meetings in Section 8 companies are a breeze. The board of directors determines the time, date, and place of the annual general meeting based on prior directions from the company’s general meeting. Notably, the timeline for sending notices for these meetings is reduced to 14 days, offering a practical advantage.
Annual ROC Filings and Compliance
Compliance with the Registrar of Companies (ROC) and income tax authorities is crucial for Section 8 companies. This adherence ensures the smooth functioning of your organization.
From appointing an auditor to maintaining statutory registers and filing financial statements and annual returns, each step is meticulously outlined for your company’s welfare.
Disadvantages of Section 8 Company
While Section 8 companies boast numerous advantages, it’s essential to be aware of their limitations as well.
Profit Distribution Is Not Permissible
Unlike other types of companies, Section 8 entities are prohibited from distributing profits among their members. Instead, the earned profits must be directed towards fulfilling charitable objectives, contributing to societal welfare.
Profit Cannot Be a Prime Objective
Section 8 companies must refrain from making profit their primary goal. While generating income from legitimate sources or donations is allowed, the primary focus should always be on advancing charitable causes.
Stringent Compliances and Norms
Operating as a Section 8 company entails adhering to stringent compliances and norms. These regulations are outlined in your Memorandum of Association (MOA) and Articles of Association (AOA). While the advantages are numerous, it’s crucial to understand and manage these compliance aspects.
Prohibition on Appointing a Member as a Remunerated Officer
In Section 8 companies, members cannot hold positions as remunerated officers. This regulation emphasizes the non-profit nature of these organizations, ensuring that their endeavours remain rooted in their charitable objectives.
Compliances to be Mandatorily Followed by Section 8 Companies:
Despite the fact that the Section 8 companies are evolved with a benevolent motive and do not function to accrue monetary benefits, they still have to adhere to mandatory compliances as stipulated by the Companies Act, 2013 and the Income Tax Act, 1961. Non-compliance of the rules by the companies would attract penalties of up to ₹ 100,000 per year. Here is the section 8 annual compliance checklist:
- Appointment of Auditor: A Section 8 company is expected to appoint its auditor within 30 days from the date of incorporation of the company. The auditor would ideally file the company’s statements and annual financial accounts
- Conducting Board Meetings: A Section 8 company must execute its first Board Meeting with the Board of Directors within 30 days from the date of incorporation of the company. Subsequently, the Board would meet once, in every 6 months of the respective calendar year
- Conducting Annual General Meetings (AGM): A Section 8 company is required to hold its first AGM within 9 months from the end date of the financial year.
For the uninterrupted operation of the Section 8 companies, it is of pivotal importance to strictly comply with the stated provisions. For instance, by duly filing the annual returns and statements, the company could envisage a clear picture of its financial stability. The regular filing would also leverage the company’s chances to avail financial aid from the relevant sources. This in turn would build the company’s credibility and would leverage its market value.
These companies do have a few inherent disadvantages such as having very limited objectives and scope of operation. Also, the members of the company do not derive huge benefits from the company other than being reimbursed for the expenses from their own pocket during the course of conducting the business. However, it’s undeniable that the advantages of these companies outweigh the disadvantages. These companies evolved purely with the intent to benefit the public, the demerits of the Section 8 companies don’t really weigh more when looking at the bigger picture.
FAQs
Can Section 8 company directors get a salary?
Yes, directors of Section 8 companies can receive remuneration for their roles and responsibilities, subject to the guidelines and regulations set forth by the governing authorities.
Can Section 8 companies give donations?
Yes, Section 8 companies can contribute to philanthropic causes by making donations. In fact, the ability to support charitable initiatives is one of the key purposes of these organizations.
Can Section 8 companies sell property?
Yes, Section 8 companies can buy, sell, or hold property as long as it aligns with their charitable objectives. However, it's crucial to ensure that these transactions are conducted in compliance with the legal framework and the company's Memorandum of Association (MOA).
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