Have you been looking for some efficient information based on a company's registration as section 8? If yes, then this blog is surely going to help you.
In India, Section 8 companies, also known as Non-Profit Organizations (NPOs) or Non-Governmental Organizations (NGOs), play a vital role in driving social welfare and philanthropic activities. These organizations operate with the primary objective of promoting charitable causes without pursuing profits for their members. Registering a Section 8 company requires adhering to specific eligibility criteria, fulfilling incorporation requirements, and understanding the benefits it brings. In this comprehensive guide, we explore the essentials of Section 8 company registration in India.
Section 8 company- What is It?
The company has to acquire a license from the central government of India, for which the company has to have the objective intent to promote activities such as commerce, art, science, sports, education, research, social welfare, charity, religion, protection of environment or any other subject.
NGO organizations have been working tirelessly towards the development of underprivileged women, and children across India. They help in providing them with better opportunities, and an environment for them to grow their livelihood. For instance, A NGO named CRY(Child Rights and You) is considered a renowned NGO that strives toward the rights of children, has covered over 19 states in India, and works around key areas such as education that helps in Child’s development, health and nutrition that relates to the right to survive, safety and protection that ensures the child’s right of living with the sense of security and Child participation that enables the child to participate in the social activities and self-worth. Similar to other NGOs are driven toward the betterment of society in various forms and areas.
To promote these activities and ensure they are stimulated further to make changes in society, countries like India have offered exemptions and benefits for the founders, which can be acquired by registering the company under section 8.
Section 8 Registrations- Why?
Although the structure of the company would be similar to trust or society, section 8 companies possess some additional privileges and exemptions over the other two. The companies that have registered under section 8 avail better legal standing, and higher credibility among their donors, governmental departments, or stakeholders who are willing to promote the organization.
Moreover, the company or the founder of the company can enjoy several tax deductions under u/s 12AA and u/s 80G under the income tax act, get an exemption from stamp duties and the process is also comparatively easier, as it takes around 45 working days to acquire the approval. Also, the span of the company can be carried indefinitely, either until the life of the individual or until it attains its objective.
Eligibility Criteria for Section 8 Company
To qualify for Section 8 company registration, an organization must meet the following eligibility criteria:
Charitable Purpose
The company’s main objective should be to promote art, science, commerce, sports, education, research, social welfare, religion, charity, or any other beneficial purpose to society. The intention to apply profits, if any, solely for promoting these objectives is paramount.
Non-Profit Intent
The company must guarantee that any income, profit, or other assets generated will be exclusively applied towards the promotion of its objectives. No distribution of profits should be made among its members.
Restriction on Dividends
Section 8 companies cannot pay dividends to their shareholders. Instead, any surplus funds should be reinvested in furthering the organization’s charitable purposes.
No Minimum Capital Requirement
Unlike other types of companies, Section 8 companies do not have a minimum capital requirement. The organization can operate with any amount of capital deemed necessary to achieve its objectives.
Restriction on Name Usage
The name of the Section 8 company should not suggest any connection to a government agency or imply a purpose inconsistent with its charitable objectives.
Section 8 Company Incorporation Requirements
The process of registering a Section 8 company in India involves several essential requirements
- Memorandum of Association (MOA): The MOA must explicitly state the charitable objectives and the intention to apply profits for promoting those objectives.
- Articles of Association (AOA): The AOA outlines the company’s internal regulations and governing structure.
- Minimum Directors: A Section 8 company must have a minimum of two directors, and at least one of them must be an Indian resident
- Minimum Members: The company must have a minimum of two members for incorporation.
- Registered Office: A valid address within India must be provided as the company’s registered office. This address will be used for official communications.
- License from Central Government: Section 8 companies need approval from the Central Government, specifically the Registrar of Companies (RoC). The application for incorporation must be accompanied by a detailed project report, explaining the company’s objectives and how it intends to achieve them.
- Declaration: The company’s promoters must submit a declaration confirming their intent to operate the organization for charitable purposes and not for personal gain.
Forms Required for Section 8 Company Registration
The registration process involves submitting the following forms to the RoC
- Form INC-1: This form is used for name approval of the proposed Section 8 company.
- Form INC-12: An application for obtaining a license under Section 8 of the Companies Act, 2013, is filed through this form
- Form INC-7: This form contains the application for incorporating a company and includes details of the proposed directors and shareholders.
- Form DIR-12: This form is used for the appointment of directors of the Section 8 company.
- Form RD-1: In case the proposed name of the company is already in use by another organization, an appeal for the same can be made using this form.
Section 8 Company Benefits
Registering as a Section 8 company brings numerous advantages, including
- Tax Benefits: Section 8 companies enjoy tax exemptions under the Income Tax Act, 1961, making donations to them more attractive for potential donors.
- Limited Liability: The liability of the company’s members is limited to the amount they have invested in the organization
- Credibility and Trust: Section 8 companies are widely perceived as credible and trustworthy due to their focus on social welfare and philanthropic activities.
- Foreign Funding: These organizations are eligible to receive foreign contributions under the Foreign Contribution (Regulation) Act, expanding their financial resources.
- Perpetual Succession: The company’s existence is not dependent on the lives of its members, ensuring continuity and long-term impact.
Section 8 Company Registration Requirements
The below documents should be provided as they are necessary for Section 8 Company Registration Requirements
- A pan card copy
- ID proof, which could be a passport, Aadhar card, driving license, or voter Id.
- Address proof of the individual could be a telephone bill, another utility bill, or the latest bank account statement.
- Passport size picture
- Address proof of the company that could be any of the utility bills of the latest period.
- No objection certificate
- If the office is on rented premises, a copy of the rent agreement.
With the above given registration requirements, the registration of the company can be preceded.
Ways a Section 8 Company Can Acquire its Funding
- Foreign funds: the company is expected to acquire FCRA registration for it to take up donations from foreign donors. The registration takes 3 years, however, in the time urgency, permission from a commissioner would suffice.
- Equity funding: the company can decide to issue new equity shares for a higher value to raise funding.
- Domestic donations: Domestic donations are the most common way through which an organization obtains its primary funding.
Steps for Registration
With the online registration procedures, Section 8 Company registration is made easy, however, the applicant is expected to go through a series of processes and undergo a wait time for each step which are discussed in detail below:
Step 1: The registration process begins with acquiring DSC and DIN which will be used for proceeding with the procedures online. Acquiring the DSC for all the shareholders and directors is the first step to be done for the section 8 company registration. Parallelly, the procedure to acquire name approval should be carried out by the organization. Some companies might have already acquired DSCs for their directors/shareholders, so this step should be skipped.
Also choosing the name or reserving a name for the company is the crucial step that should state the objects of the company clearly. This step involves utilizing the RUN form and reserving the name after analyzing the available names.
Step 2: The next step involves preparing documents for the license, via filling out the form INC 12. This requires the most amount of time across the varied steps in the registration process. The document preparation involves information related to addresses, education qualification, of shareholders, details related to paid-up capital, registered office, shareholding pattern, and all the information related to the company, therefore this step involves filling the forms such as spice +, Spice MoA, Spice AoA, INC 22. Once they are all filled, they are sent for further processes which are done by MCA’s central processing center.
Step 3: Acquiring Incorporation certificate:
The individual is expected to submit the documents to the registrar of companies and get a certification of incorporation; this would take about 25 days. After the wait for any objections, the registrar will issue the license for the company. This certification is more like a birth certificate for your company and this brings an end to the registration of your company. Make sure to cross-check the details, as it must have contained the details such as the name of your company with registered address and a 21-digit alphanumeric identity number (CIN) of your company that has gotten the approval from MCA.
Step 4: Opening a bank account: The individual is then expected to start the application of PAN, TAN and get it within 7 working days. After acquiring PAN, and TAN, the company has to open a bank account by submitting MoA, AoA, PAN, TAN, and incorporation certificates.
Then the company is expected to deposit the capital amount in its bank account before commencing the operations.
Section 8 registered companies can acquire recognition across India and they are considered more trustworthy as they have acquired the license and thereby provide more benefits for the individual or the association of persons who run the company.
FAQ
How do you register a Section 8 company?
To register a Section 8 company, you must prepare the required documents, apply for name approval, obtain a license from the Central Government, and file the necessary incorporation forms with the Registrar of Companies.
Is GST registration mandatory for Section 8 companies?
Section 8 companies engaged in any taxable supply of goods or services are required to register under the Goods and Services Tax (GST) Act.
What is Section 8 of the Company Registration Act?
Section 8 of the Companies Act, 2013, pertains to the incorporation, regulation, and winding-up of companies with charitable objectives or promoting art, science, sports, education, research, social welfare, religion, charity, or any other beneficial purpose.
Is a Section 8 company eligible for MSME registration?
Yes, a Section 8 company can be registered as a Micro, Small, and Medium Enterprise (MSME) if it meets the eligibility criteria prescribed by the Government of India.
Conclusion
Section 8 companies serve as a powerful catalyst for positive social change and community development in India. By adhering to the eligibility criteria, fulfilling incorporation requirements, and leveraging the benefits offered by Section 8 company registration, philanthropic organizations can amplify their impact and contribute meaningfully to the betterment of society. The process may involve some complexity, but the rewards of creating a sustainable platform for charitable endeavors make it all the more worthwhile.
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