Uncover the costs and processes of forming and complying with a Section 8 company, focusing on social welfare endeavours. Learn budgeting tips and compliance essentials.

Introduction

Establishing a Section 8 company, primarily known as a not-for-profit or non-profit organisation, is a noble endeavour aimed at promoting social welfare and specific causes. However, to ensure its effective functioning and compliance with regulatory requirements, there are certain costs associated with both its formation and ongoing compliance. In this article, we will delve into the breakdown of costs involved in setting up and ensuring compliance for a Section 8 company. We will outline the cost structure, provide insights into compliance costs, and conclude with essential budgeting tips for aspiring and existing Section 8 organisations.

Understanding Section 8 Company Formation

Before diving into the cost details, it’s essential to grasp the fundamental steps involved in setting up a Section 8 company.

• Name Reservation and Approval

Choosing a unique and appropriate name for the Section 8 company and getting it approved by the Registrar of Companies (RoC) is the initial step.

• MOA and AOA Drafting

Memorandum of Association (MOA) and Articles of Association (AOA) drafting follows, outlining the company’s objectives, rules, and regulations.

• License Application

Obtaining a license under Section 8 of the Companies Act, 2013 is crucial. This step involves submitting the necessary documents to the RoC.

• Incorporation Application

Filing the application for incorporation, including the drafted MOA and AOA, is the next step. This process is similar to other company incorporations.

• Registration and Compliance

Once approved, the company is registered, and compliance with various legal and regulatory requirements begins.

Cost Structure for Section 8 Company Formation

Setting up a Section 8 company involves specific costs that can vary based on several factors. Here’s a breakdown of the typical cost structure:

• Name Reservation: ₹ 1,000 to ₹ 2,000

This cost includes the application fee for reserving and approving the name of the Section 8 company.

• MOA and AOA Drafting: ₹ 2,000 to ₹ 5,000

Drafting the Memorandum of Association (MOA) and Articles of Association (AOA) is a critical step and involves professional fees.

• License Application Fee: ₹ 200 to ₹ 500

Applying for a license under Section 8 incurs a nominal fee.

• Incorporation Fee: ₹ 5,000 to ₹ 10,000

This fee is for filing the application for incorporation with the Registrar of Companies (RoC).

Stamp Duty: Varies by State

Stamp duty is payable based on the capital of the proposed company and the state in which it is being incorporated.

• Professional Fees: ₹ 10,000 to ₹ 30,000

Engaging professionals such as company secretaries, lawyers, or chartered accountants for legal and procedural assistance.

• Compliance Costs for Section 8 Companies

Ensuring compliance is an ongoing process for Section 8 companies, involving adherence to various legal and regulatory requirements.

• Annual Compliance: ₹ 20,000 to ₹ 40,000

This includes costs associated with maintaining statutory registers, conducting board meetings, and annual general meetings.

• Audit Fees: ₹ 10,000 to ₹ 20,000

Annual financial audits are mandatory for Section 8 companies and incur auditing fees.

• Tax Compliance: ₹ 15,000 to ₹ 25,000

Engagement of tax professionals to ensure compliance with tax regulations and filing of tax returns.

• Legal and Regulatory Compliance: ₹ 20,000 to ₹ 40,000

Costs related to compliance with various legal and regulatory requirements, including updates and changes in laws.

Conclusion 

Understanding the financial aspects of initiating and managing a Section 8 company is crucial. By prudent budgeting and adhering to compliance requirements, these organisations can concentrate on their primary mission of societal betterment. Vakilsearch, a prominent legal service provider, plays a pivotal role in aiding Section 8 companies throughout their journey, offering valuable guidance in financial planning and ensuring compliance with legal and regulatory obligations. With their expertise, Section 8 organisations can streamline financial processes and focus on impactful initiatives for societal welfare.