Section 8 Company

Which One Should I Choose- Trust, Society Or Section 8 Company?

Check out this blog for details of a Section 8 company under the Companies Act, 2013. Also, learn about its functions, features, how it is different from other companies, exemptions provided, and other relevant details.

What is a Section 8 Company?

When a company is registered as a non-profit organisation (NPO), it is known as a Section 8 Company. The company is registered as per the rules specified in U/s 8 (1a, 1b, 1c) of the Companies Act, 2013. The motive of these companies is not money-making but channeling their income/profits towards promoting social welfare, commerce, arts, education, protecting the environment, research, science, charity, sports, and others. The registration process for Section 8 companies is similar to that of other companies, and it also requires an additional license.

Section 8 Companies cannot use their income to pay dividends to their members. The income is to be spent on charitable objectives. The Central Govt. India issues an incorporation certificate to these companies. 

Features of a Section 8 Company

A Section 8 Company has the following features:  

  • Charitable Objectives

The aim of a Section 8 company is not money-making. The income of all such companies goes to charity. Their objective is social welfare, research, science, environmental protection, etc. 

  • No Minimum Share Capital

Section 8 companies do not need a fixed minimum paid-up share capital. Funding is done through donations and subscriptions made by the general public

  • Limited Liability

The liability of the members of Section 8 companies is limited. The members cannot have unlimited liability under any circumstances

  • License Issued by Central Government

These companies can be registered and start functioning only when they are issued a license by the Central Govt. The Govt. has the authority to cancel this license as and when needed

  • Privileges

Section 8 companies are provided several exemptions and benefits as the nature of the company is to perform charity:

  1. According to U/s 165 of the Act, 2013, a company can have a maximum of 15 directors. In Section 8, company directorship will not be considered while calculating the ceiling
  2. Instead of twenty-one clear days, a general meeting can be arranged by issuing a notice of not less than fourteen clear days
  3. Instead of conducting four meetings in a year, it is permissible for a Section 8 Company to hold one meeting every 6 months 
  4. It is not mandatory for Section 8 Companies to record minutes of Board and General Meetings. It can be recorded in cases where articles of the company provide confirmation by minutes circulation. This should be done within 30 days after the meeting is concluded
  5. Sec 149(1) of the Companies Act, 2013 is not applicable to Section 8 Companies. So, a Section 8 Company does not require appointing an Independent Director. Also, the company’s Audit Committee does not need an Independent Director as a member of the Board
  6. A Section 8 Company doesn’t need to appoint a qualified CS professional as the Company Secretary of the organization. The organization is also exempted from secretarial standards
  7. Section 178 of the Companies Act, 2013 does not apply to Section 8 Companies. It is not mandatory for Section 8 companies to have the Stakeholders Relationship Committee and the Nomination and Remuneration Committee
  • Firms as members

Firms, too, can be members of Section 8 companies

  • Shares investment

Companies Rules (Incorporation), 2014, Rule 3(6) prohibits a person from investing in securities of a corporate body

  • Power of Registrar of Companies (ROC): 

The application to create a company must be sent to the ROC that has jurisdiction in the area where the company’s registered office will be set up

  • Transfer of Ownership

Interests and shares of Section 8 company members are seen to be a movable property that is transferable based on the Articles

  • Directors and shareholders:
  1. a) There should be minimum 2 shareholders
  2. b) There should be minimum 2 Directors
  3. c) The same person can be both a shareholder and a director. 
  • Separate legal entity

The members and the company hold unique identities. They are two separate entities.

Difference between a Section 8 company, Trust, and a Society

 Here are the details regarding Societies vs section 8 company vs trust 

Basis Section 8 Company Society Trust
Definition  It is established to promote social welfare, commerce, arts, education, protection of the environment, research, charity, sports, and others. All its profits are further used to promote its objectives.  When persons with a similar charitable purpose come together, a society is formed. Not limited to charitable purposes alone, it may move on to other fields also.   This is the oldest form of a Charitable organisation in which the owner of the property, through mutual understanding, lets another party hold ownership over the property. 
Governing Legislation  The Companies Act, 2013 The Societies Registration Act,1860. A private trust is established under the Indian Trust Act, 1882. For public trusts, the general law is applied but for Maharashtra and Gujarat where the State laws are applicable.  
Registered as Non-Profit Organisation/ Non-Government Organisation. But they are allowed the privileges of a limited company Pvt. Ltd., to their name. Non-Profit organisation/ Non-Government Organisation  Non-Profit organisation/ Non-Government Organisation 
Document of constitution Memorandum of Association and Articles of Association  Memorandum of Association and rules and regulations.  trust deed registration
Registration Authority  Registrar of Companies/ Regional Director Registrar/ Deputy Registrar of the State where the Society is registered. Deputy Registrar of the state
Minimum members  Requires 2 shareholders and 2 Directors. The Directors can also be Shareholders.  Requires a minimum of 7 members (5 in case of Telangana and J&K) Requires minimum 2 trustees
Annual compliances The annual returns and accounts must be filed with the Registrar of Companies.  Every year a list of the names, addresses, and occupations of members of the Society’s managing committee should be submitted to the Registrar. No mandatory year compliance.
Cost factor High  Medium  Low 
Grants and subsidies from the government Substantial Minimum Minimum 
Preference in registration under FCRA  Preferred  Low preference  Low preference 
Registration under The Income Tax Act, 1961 Permitted Permitted Permitted
Transparency  High Low  Low 
Legal right over the property Held in the name of the company Held in the name of the Society  Held by the trustee
The registration period (approximately) 30 to 45 days 20 to 25 days 15 to 20 days
Stamp duty Not Applicable Not Applicable According to the state Stam Duty and the cost of the property involved. 

Conclusion

Section 8 companies are liable to function according to the Government’s rules and regulations. This article should give you a fair idea of the differences between a  Trust society and Section 8 company. With these comparisons in mind, you can better choose between them in case you’re thinking to start a new venture. 

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