Advantages of Section 8 Company Registration: Distinct legal identity, stamp duty exemption, no minimum capital requirement, tax benefits, and more.
Not all businesses are focused on making money through trade and commerce. Many businesses are primarily focused on philanthropic and nonprofit goals. Because they are recognised under the Companies Act, 2013, such entities are referred to as Section 8 Companies in India. These businesses spend all of their earnings and profits to achieve their goals. In this blog, we have covered the complete details on “What is Section 8 Company?” and the Advantages and disadvantages of it.
What is Section 8 Company?
A Section 8 company is defined by the Companies Act as one whose goals are to promote the arts, commerce, science, research, education, sports, charity, social welfare, religion, environmental protection, or other similar goals. These organisations also use their profits to further their cause and do not pay dividends to their members. The Federation of Indian Chambers of Commerce and Industry (FICCI) and the Confederation of Indian Industries (CII) are two well-known Section 8 companies.
How is a Section 8 Company Different from Other Types of Companies?
A Section 8 company has the following distinguishing characteristics that most other types of businesses lack:
- Section 8 firms have charitable goals and do not seek to generate a profit. Their motivations are entirely benevolent. They work to further issues such as science, culture, research, sports, and religion, among others
- Section 8 corporations, unlike all other corporations, are exempt from having to have a minimum paid-up share capital
- Members of these corporations can only be held liable to a certain extent. In any case, their liabilities cannot be endless
- These businesses can only operate if they receive a licence from the federal government. This licence can also be revoked by the government
- Because these organisations have charitable goals, the Companies Act provides them with a number of benefits and exemptions
- Other firms can also be members of these companies in addition to individuals and associations of persons.
How to Form a Section 8 Company?
Under the Companies Act, a person or a group of people can apply to the Registrar of Companies with the necessary forms to incorporate a charitable corporation. If satisfied, the Central Government can accept such an application on any terms and conditions set by the licence it has granted. After the company has been accepted, the Registrar of Companies will register it after the applicants have paid all of the required costs.
It’s crucial to keep in mind that such businesses can only be limited. In this circumstance, all limited company advantages and liabilities apply. Furthermore, unlike all other companies, these do not have to include the words ‘Limited’ or ‘Private Limited’ in their names.
Because such firms’ existence is based on the licence granted to them, they are unable to change their memorandum or articles of the organisation without the authorization of the Central Government. They also aren’t allowed to do anything that the licence forbids.
People generally prefer to conduct charitable activities through Section 8 companies rather than traditional Non-governmental organization and associations. Because they have limited liability, their personal assets will not be used to pay the company’s debts.
Benefits of Section 8 Company Registration
- Separate Legal Identity: Section 8 Companies have a distinct legal entity separate from their members, ensuring perpetual existence and operational flexibility.
- Stamp Duty Exemption: Unlike other company structures, Section 8 Companies are not required to pay stamp duty on their Memorandum of Association and Articles of Association.
- No Minimum Capital Requirement: Section 8 Companies have no minimum capital requirement, allowing for easy capital alteration based on business needs and accepting funds through donations and subscriptions.
- Tax Exemptions for Donors: Donors to Section 8 Companies enjoy tax benefits under Section 12A and 80G of the Income Tax Act.
- Membership Flexibility: Registered partnership firms can become individual members and directors of Section 8 Companies in India.
- Name Flexibility: Section 8 Companies can choose unique names without the need to add ‘Limited’ or ‘Private Limited’ to their legal name.
- Tax Benefits: Section 8 Companies are eligible for various tax benefits in India.
- Credibility and Reliability: Section 8 Companies are highly trustworthy charitable organisations strictly regulated under the Companies Act, 2013, with mandatory annual audits and protected Memorandum of Association and Articles of Association.
Closure of a Section 8 Company
Section 8 corporations can dissolve themselves voluntarily or on the Central Government’s directives. If any assets remain after debts and liabilities have been satisfied in a winding-up, the National Firm Law Tribunal might decide that they be transferred to a similar company. It also has the power to order that they be sold, with the revenues going to the Insolvency and Bankruptcy Fund.
FAQs:
What is the concept of Section 8 company?
A Section 8 Company is a non-profit organisation dedicated to advancing charitable activities, arts, science, education, and sports. Its profits are reinvested to support these goals and are not distributed among its members.
What is an example of a Section 8 company?
Section 8 Companies, such as Infosys Foundation, Reliance Foundation, Tata Foundation, and others like FICCI, CII, Pratham Education Foundation, and India International Trade Centre, are registered under the Companies Act, 2013.
How to make profit from a Section 8 company?
A Section 8 company can generate revenue from multiple sources, including donations, grants, sponsorships, and service fees. This income is utilised to cover the organisation's expenses and fulfil its objectives.
If the accounting standards are subjected to apply to the section 8 company?
Yes, accounting standards are applicable to Section 8 companies, ensuring accurate financial reporting and transparency in their operations. Compliance with accounting standards helps maintain financial integrity and credibility for the organisation.
Conclusion
Sec 8 organisations have traditionally been viewed as special purpose vehicles (SPVs) that operate as instruments and are seen as the driving force in assisting the government in accomplishing the things that they always want to do, for the welfare of society, but are unable to achieve due to a variety of circumstances. In this blog we have covered the maximum details of “What is Section 8 Company?”
These firms are the direct link between society and people’s well-being, and they give a platform where people may come together to work for the betterment of society and community, and eventually, the globe. For more information on Section 8 companies such as the registration process, visit our Vakilsearch website. If you want to get your section 8 company registered, simply register yourself. An expert will reach out to you for assistance as soon as possible.
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