Section 8 of the Companies Act, 2013 deals with the incorporation and registration of companies that are formed for promoting charitable or social objectives.
The Companies Act, 2013 is an important piece of legislation that governs the incorporation and functioning of companies in India. Section 8 of the Act is a special provision that allows for the incorporation of companies with charitable or social objectives. In this blog, we will explore the meaning, features, and benefits of Section 8 companies in India.
What is Section 8 of the Companies Act, 2013?
Section 8 of the Companies Act, 2013 provides for the formation of companies with charitable or social objectives. These companies are known as Section 8 companies, and they are exempt from many of the restrictions that apply to other types of companies.
Features of Section 8 Company
- Limited Liability: Section 8 companies have limited liability protection, which means that the personal assets of the company’s members are protected in case of any financial loss or liability.
- No Minimum Share Capital: Unlike other types of companies, Section 8 companies do not have a minimum share capital requirement.
- Name: The name of a Section 8 company must end with the words ‘Foundation’, ‘Association’, ‘Society’, ‘Council’, ‘Club’, ‘Charity’, ‘Institute’, ‘Organisation’, ‘Federation’, ‘Trust’, or ‘Academy’.
- Profits: Section 8 companies are not formed for profit, and any profits that are earned by the company must be used for charitable or social purposes.
- Directors: Section 8 companies must have at least two directors, and these directors must meet certain qualifications.
- Compliance: Section 8 companies are required to comply with certain legal and regulatory requirements, including filing annual returns, maintaining proper accounting records, and holding regular board meetings.
Benefits of Section 8 Company
- Tax Exemptions: Section 8 companies are eligible for a number of tax exemptions, including exemption from income tax, stamp duty, and registration fees.
- Credibility: Section 8 companies have a high level of credibility in the eyes of donors, investors, and other stakeholders due to their focus on social and charitable objectives.
- Funding: Section 8 companies can attract funding from a variety of sources, including individuals, organisations, and government agencies that are interested in supporting social causes.
- Limited Liability: Section 8 companies provide limited liability protection to their members, which means that the personal assets of the members are protected in case of any financial loss or liability.
- Recognition: Section 8 companies are recognised as a legal entity under the Companies Act, which means that they can enter into contracts, own property, and sue or be sued in their own name.
Procedure For Incorporating a Section 8 Company
- Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the proposed directors of the company.
- Choose a unique name for the company and apply for name approval with the Registrar of Companies (ROC).
- Draft the Memorandum of Association (MOA) and Articles of Association (AOA) of the company, which must comply with the provisions of Section 8 of the Companies Act.
- Obtain the necessary approvals and consents from various regulatory authorities, such as the Income Tax Department and the Charity Commissioner.
- File the incorporation form with the ROC, along with the necessary documents and fees.
- Obtain the Permanent Account Number (PAN) and Tax Account Number (TAN) for the company.
Compliance Requirements for Section 8 Companies
Compliance requirements for Section 8 companies are critical to ensure that the company operates within the legal framework and meets its obligations towards its members and stakeholders. Section 8 companies are required to comply with a range of legal and regulatory requirements, some of which are highlighted below.
- Maintenance of Books and Accounts: Section 8 companies are required to maintain proper books of accounts and other relevant documents. The accounts must be audited by a qualified auditor every year.
- Annual Filing: Section 8 companies are required to file an annual return with the Registrar of Companies (ROC) within 60 days of the Annual General Meeting (AGM). The return must contain the financial statements and other relevant information about the company.
- Board Meetings: Section 8 companies must hold at least four board meetings in a year, with a minimum gap of 90 days between two meetings. The board meetings must be properly documented and recorded.
- General Meetings: Section 8 companies are required to hold an AGM within six months of the close of the financial year. The AGM must be properly conducted, and minutes of the meeting must be recorded.
- Statutory Registers: Section 8 companies are required to maintain several statutory registers, such as the register of members, register of directors, and register of charges. These registers must be updated regularly.
- Compliance with Other Laws: Section 8 companies must comply with other applicable laws, such as the Income Tax Act, 1961, and the Foreign Contribution (Regulation) Act, 2010.
FAQ’s
What is Section 8 under the Companies Act?
Section 8 of the Companies Act, 2013, deals with the formation and registration of companies established for promoting commerce, art, science, sports, education, research, social welfare, religion, charity or any other object beneficial to the public.
What is a Section 8 company name?
A Section 8 company should not end with the terms Limited or Ltd. Instead, a Section 8 company must end with the words prescribed for this purpose like foundation, forum, association, federation, chambers, confederation, council, electoral trust, etc
What is the main object of Section 8 company?
A Section 8 company is a non-profit organization that aims to promote charitable activities, art, science, education, and sports. The profits of such companies are utilized for promoting these objectives and are not distributed among the company members.
What is the difference between Pvt Ltd and Section 8 company?
A private limited company (Pvt Ltd) is formed for profit-making purposes and has shareholders who receive dividends. A Section 8 company, on the other hand, is not-for-profit and its surplus funds are used for its stated objectives, not distributed as dividends.
Who is eligible for Section 8 company?
Any two or more individuals or associations can form a Section 8 company.
Is Section 8 company tax free?
Section 8 companies are exempt from income tax on the income generated and used for their stated objects. However, they may be liable to pay other taxes, such as customs duty and excise duty.
Can Section 8 company make profit?
Yes, a Section 8 company can make a profit, but it must utilize the profit for its stated objects and cannot distribute it as dividends.
Can Section 8 company director get salary?
Yes, Section 8 company directors can be paid salaries, however, their remuneration should be reasonable and not excessive.
Conclusion
Section 8 companies are a unique type of company that are formed for charitable or social objectives. They provide a number of benefits to their members and stakeholders, including tax exemptions, credibility, funding, limited liability, and recognition. The process for incorporating a Section 8 company involves several steps and requires compliance with legal and regulatory requirements. It is important to ensure that all the necessary documents are in order and that the company complies with all legal requirements.
One of the key advantages of Section 8 companies is that they are focused on contributing to society in a meaningful way. They can undertake a wide range of charitable or social activities, such as education, health, poverty alleviation, and environmental sustainability. By creating a Section 8 company, individuals and organisations can make a positive impact on society and contribute towards the betterment of the country as a whole.
Vakilsearch’s Role in Incorporating Section 8 Companies
Incorporating a Section 8 company can be a complex process that requires careful attention to legal and regulatory requirements. Vakilsearch, a leading legal service provider in India, offers a range of services to help individuals and organisations set up Section 8 companies.
Vakilsearch can assist in obtaining the necessary approvals and consents from regulatory authorities, drafting the MOA and AOA of the company, and filing the incorporation form with the ROC. The company can also help with the ongoing compliance requirements of Section 8 companies, such as filing annual returns and maintaining proper accounting records.
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