Are Section 8 companies private or public? This is a question that often arises when setting up a Section 8 company. Read on to understand the classification and important considerations when setting up such a company.
Section 8 companies, also known as non-profit organisations, are entities formed for the purpose of promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other such useful objective. They are governed by the Companies Act, 2013, and have become increasingly popular in recent years due to their unique characteristics. However, a question that often arises is whether a Section 8 company is considered private or public. In this blog, we will delve into this question Whether Section 8 Company is Private or Public and provide important insights into the matter.
Understanding Section 8 Companies
Before we explore the classification of Section 8 companies, let’s first understand what they are. Section 8 companies are non-profit organisations that are established with the purpose of promoting social welfare and other useful objectives. These companies are granted special status under the Companies Act, 2013, which exempts them from certain provisions of the Act applicable to other types of companies. This allows them to operate without the constraints of profit-making and enables them to focus on their social welfare objectives.
Classification of Companies
To understand whether a Section 8 company is private or public, we must first understand the classification of companies under the Companies Act, 2013. The Act classifies companies into three categories:
- Private Company: A private company is a company that has a minimum of two members and a maximum of 200 members. It is not allowed to invite the public to subscribe to its shares or debentures.
- Public Company: A public company is a company that has a minimum of seven members and no maximum limit on the number of members. It can invite the public to subscribe to its shares or debentures.
- One Person Company (OPC): An OPC is a company that has only one member.
Classification of Section 8 Companies
Based on the above classification, it is clear that a Section 8 company cannot be classified as a private company as it is required to have a minimum of two members. However, it can be classified as a public company or an OPC. The classification depends on the number of members it has.
If a Section 8 company has more than seven members, it can be classified as a public company. This means that it can invite the public to subscribe to its shares or debentures. However, if it has only one member, it can be classified as an OPC.
Importance of Classification
The classification of a Section 8 company as public or OPC is important as it determines the compliances that the company needs to adhere to. If a Section 8 company is classified as a public company, it will be required to comply with the regulations applicable to public companies under the Companies Act, 2013. This includes filing of annual returns, conducting board meetings, and appointing auditors. On the other hand, if it is classified as an OPC, it will have to comply with the regulations applicable to OPCs.
Considerations When Setting Up a Section 8 Company
When setting up a Section 8 company, there are several considerations that need to be taken into account. These considerations will help ensure that the company is set up in accordance with the requirements of the Companies Act, 2013, and that it is able to effectively achieve its social welfare objectives. In this section, we will discuss some of the key considerations when setting up a Section 8 company.
Objective and Purpose
The first and most important consideration when setting up a Section 8 company is the objective and purpose of the company. The company must have a clear objective and purpose that is in line with the provisions of the Companies Act, 2013. The objective should be related to promoting social welfare and other useful objectives such as art, science, sports, education, research, social welfare, religion, charity, or protection of the environment.
Name Approval
The name of the Section 8 company is also an important consideration. The name must be unique, and it must not be similar to the name of any other company registered in India. It is essential to check the availability of the name on the website of the Ministry of Corporate Affairs (MCA) before submitting the application for registration.
Minimum Requirements
Section 8 companies are required to have a minimum of two members and two directors. At least one of the directors must be a resident of India. It is important to ensure that the minimum requirements are met while setting up the company.
Memorandum and Articles of Association
The memorandum and articles of association of the Section 8 company must be drafted in accordance with the provisions of the Companies Act, 2013. The documents must clearly define the objectives, powers, and rules of the company. It is essential to ensure that the memorandum and articles of association are compliant with the law and that they reflect the objective and purpose of the company.
Registration Process
The registration process for a Section 8 company is similar to that of other companies. However, there are some additional documents that need to be submitted, such as a declaration by the promoters, a statement of the assets and liabilities of the company, and a statement of the estimated income and expenditure for the first three years. It is important to ensure that all the documents are correctly filled out and submitted to the MCA.
Conclusion
Vakilsearch is an online platform that provides legal, taxation, and compliance services to businesses and individuals in India. As an expert in the field, Vakilsearch plays an important role in guiding individuals and companies through the process of setting up a Section 8 company, ensuring that all legal requirements are met and all necessary compliances are adhered to. With its team of legal experts, Vakilsearch can provide assistance in drafting and filing the necessary documents, as well as providing guidance on the various considerations that need to be taken into account when setting up a Section 8 company.
