Section 8 companies have many benefits when compared to a private limited company. Learn all the benefits, documents required and eligibility of Section 8 company registration.

Most of us are familiar with firms such as private limited companies, LLP, and public limited. These are actual businesses that render a service or produce any product in the market. On the contrary, Section 8 companies are incorporated for the welfare of society in multiple sectors. Reliance Research Institute, Reliance Foundation, TATA Foundation, and Infosys Foundation, are some of the famous Section 8 companies in India. These Section 8 companies drastically differ from other business firms. Some of the major benefits of a Section 8 company are discussed in this article.

Benefits of Section 8 Company

1) Tax Exemption

As most the Section 8 companies focus on benefiting the societal betterment they are provided with many tax exemptions. The tax exemption is not just limited to the company but also applies to the contributors who are participating in Section 8 companies, they can contend the tax exemption against the contribution they made to a Section 8 company.

2) No Minimum Capital Requirement and Stamp Duty

Another major advantage of a Section 8 company is it doesn’t require any form of minimum capital. There is no predetermined capital limit over Section 8 companies. Whereas other companies like public limited should report a minimum capital requirement. The equity structure of the Section 8 company can be modified at any stage as expected for the development of the firm.

A Section 8 company need not pay any form of stamp duty for registering as adequate in the case of other configurations such as private limited or a public limited corporation.

3) Separate legal Entity

A Section 8 company also functions like other corporate companies and has a different legal standing from its partners. A Section 8 company also has continual validity.

4) Credible

As it is licensed by the central government, the Section 8 company has more credibility than any other non-profit organization, be it a trust company or a society company. It is subjected to more restrictions such as no difference in Memorandum Of Association (MOA) and Article Of Association (AOA) can be performed at any stage in a Section 8 company.

5) No Title is Required

Unlike the name regulations of a private limited or a public limited company, a Section 8 company does not expect to utilise a suffix following its name.

Documents Required for Section 8 Company

• Directors’ DSC Signature Certificate (DSC) and Director Identification Number (DIN)
• Company goals and related documents
• Financial reports such as assets and liabilities, and 5-year forecasts
• Personal documents of directors
• Registration office address documents, like a rental or purchase contract on behalf of the company and invoice for utilities within 2 months

The Objective of Section 8 Company

As per the experts of Vakilsearch, Section 8 companies don’t provide any service or profits to the workers. Technically it is a non-profit organisation working towards the betterment of society in different ways. Apart from this here are some of the objectives of a Section 8 company. 

No dividend: No dividend is given to the partners of the firm

Profits: Any category of revenue or earnings of the company is utilised particularly for the growth of the firm

Special license: A Section 8 firm must get a special license from the central government. The full ordinance must be entered in the form and Rule 19 of the Companies Act, 2014 provides a protocol for authorisation for the Section 8 company.

Status: Section 8 company can access all the freedoms and shall be accountable for all the responsibilities

Use of suffix: Section 8 company cannot utilise any suffix like ‘Pvt. Ltd’ or ‘Ltd’ with its name

Power of Registrar Of Companies (ROC): The central government authorises the ROC, which has power over the state where the registered department or the firm is located. So most of the Section 8 companies are supported by the ROC.

Conversion into a One-Person Company: As per the rules a Section 8 company cannot be transformed into an individual company. 

Amendment in articles: Articles of Section 8 companies can only be revised with previous permission and approval of the central government

Firm as a member of the non-profit company: As per Section 8(3) of the Companies Act, 2013, a partnership firm can become a partner of the non-profit firm registered under Section 8

Transferable ownership: In a Section 8 company, the shares and other incomes of the partners are deemed as movable assets and can be transferred easily.

Shareholders and directors:

• The company should have at least two shareholders
•  It is mandatory to have a minimum of two firm managers
• The directors and the shareholders can be the same person for the company.

Share capital: The Section 8 company is not expected to have a minimum share capital. The received money is usually in the form of donations and payments from partners and the common public.

Limited liability: Limited liability is one of the major advantages of a Section 8 company. If any penalty arises, the members of the firm are not personally affected and are only responsible for the unpaid amount carried by them.

Flexibility: This kind of firm has small legal additions as a public company. It has the advantages of outstanding protection and licenses under the firm law.

Shares investment: Rule 3(6) of the Companies Rules (Incorporation), 2014 prohibits a company to capitalise on the occurrence of any corporate body.

Eligibility criteria for Section 8 Company

• The Section 8 company should focus on improving social welfare, arts, education, science, commerce, and financial service to the lower-income groups
• The revenue generated by the company must be used for the betterment of the society and towards the goal of forming the company
•  No revenue should be expended to any of their partners or managers of the company
• Managers or supporters of the firm cannot receive any compensation in any form
• There should be complete transparency in the operation schedule of the firm for the next 3 years.

What is a Section 8 company in India?

A Section 8 company is a type of non-profit organization (NPO) that is registered under the Companies Act, 2013. The main objective of a Section 8 company is to promote commerce, science, art, education, sports, research, welfare, religion, protection of the environment, and charity.

Unlike other types of companies, Section 8 companies cannot distribute profits among their members. Instead, any income or profits earned by the company must be used to promote its objectives.

Section 8 Company – Advantages and Disadvantages

Advantages of Section 8 Company

Tax Benefits: Section 8 companies are exempted from paying income tax.

Zero Stamp Duty: Section 8 companies are exempted from paying stamp duty on their registration documents.

Minimal Share Capital: Section 8 companies do not have any minimum capital requirement.

Separate Legal Entity: Section 8 companies are considered separate legal entities, which means that they can own property, enter into contracts, and sue or be sued in their name.

Improved Credibility: Due to its non-profit nature, Section 8 companies are often viewed as more trustworthy and credible than other types of companies.

Eligible for Grants: Section 8 companies are eligible to receive grants from the government, as well as from national and international organizations.

Disadvantages of Section 8 Company

No Share in Profit: Members of a Section 8 company cannot share the profits among themselves.

Government Approval: Any amendments to the Memorandum of Association of a Section 8 company require prior approval from the government.

Stringent Legal Action: If the objectives formulated by a Section 8 company are found to be bogus, stringent legal action can be taken against all members of the company.

Key Points about Section 8 Company

• A Section 8 company is a type of non-profit organization that is registered under the Companies Act, 2013.
• The main objective of a Section 8 company is to promote commerce, science, art, education, sports, research, welfare, religion, society, protection of the environment, and charity.
• Section 8 companies cannot distribute profits among their members.
• Section 8 companies are exempted from paying income tax.
• Section 8 companies are considered separate legal entities and are eligible for grants.
• Any amendments to the Memorandum of Association of a Section 8 company require prior approval from the government.
• Stringent legal action can be taken against all members of a Section 8 company if the objectives formulated by the company are found to be bogus.

How Vakilsearch Can Help in Section 8 Company Registration?

Vakilsearch has the best team of attorneys who can effectively complete Section 8 company registration online. Reach out to Vakilsearch experts they will address all your queries about entity selection and guide you to choose the appropriate one. In the next step, our experts will help you throughout the entire process and complete the registration. Vakilsearch will register the Non-governmental organization and handle all the formalities with ease. For any more queries, reach out to us now!

Also, Read;

• Forms and Purpose of a Section 8 Company
• Section 8 Company Registration Process
• Online Checklist for Incorporation of Section 8 Company

What is the benefit of a Section 8 company?

Section 8 companies have several benefits, including tax exemption, zero stamp duty, minimal share capital, separate legal entity, improved credibility, and eligibility for grants.

Can Section 8 companies make profit?

Section 8 companies can make profit however they cannot distribute profits among their members.

Is Section 8 company taxable?

Section 8 companies are exempted from paying income tax.

How to make money from a Section 8 company?

Unfortunately a Section 8 company cannot distribute profits between its owners, hence you cannot make money from a such a company.

What is the drawback of Section 8 company?

Section 8 companies have some drawbacks, including the inability to distribute profits among members, the need for government approval for any amendments to the Memorandum of Association, and the possibility of stringent legal action if the objectives of the company are found to be bogus.

What are the disadvantages of Section 8 company?

The primary disadvantage of a Section 8 companies is the extremely stringent compliance requirements and formal set up obligations.

Which is better NGO or Section 8 company?

If you want a simpler and less formal setup, an NGO may be a better choice. Ultimately, the best way to decide whether to form an NGO or a Section 8 company is to consult with a lawyer or accountant who specializes in nonprofit organizations.

Can Section 8 company director get salary?

Section 8 company directors can receive a salary, but it must be within the limits set by the Companies Act, 2013.

Can Section 8 company buy property?

Section 8 companies can buy property in their own name as they are considered separate legal entities.