Section 8 Company Registration

Section 8 Company Registration - An Overview

A Section 8 company registration under the Companies Act, 2013 or a Section 25 Company as per the Companies Act,1956 is an organisation registered with an objective of promoting the fine arts, science, literature, or knowledge sharing for a purposeful matter or for charity. Section 8 companies are regulated through the Companies Act, 2013. These are the limited companies established under the Companies Act. The Government grants these companies an exclusive license under Section 8 Companies Act. There are three main conditions for granting the license.

• The company should be registered for charitable purposes
• Income and profits should be used towards these objects
• The company should not pay any dividend to its members.

The Section 8 Company registration fees vary and is listed below:

Company Name Reservation: ₹1000/-
Digital signature registration & DIN: ₹3000/-
Notary and stamps: ₹2000/-
MoA & AoA & Government Fees & Incorporation Fees: ₹6000/- to ₹8000/-
Professional Fees: ₹8000/- to ₹10000/-

Benefits of Section 8 Company Registration

The companies registered under section 8, do enjoy certain benefits. The following are the advantages of section 8 company incorporation over other modes of online NGO registration:

• It has organised operations and greater flexibility
• Avoids meticulous registration process and no physical presence required
• No requirement of a minimum paid-up capital
• Seamless procurement of tax benefits under section 12AA and 80G of the Income Tax Act
• Any partnership registration can be a member in its individual capacity and obtain Directorship.

Donations/Funding of Sec 8 Company

Section 8 company registration may accept public donations but is not permitted to obtain capital through deposit Some of the methods it can use to raise money are listed below:

• Foreign Donations: Only after registering under the FCRA (Foreign Contribution Regulation Act of 1976) are foreign donations permitted. FCRA licence applications are only accepted three years following the registration date. However, you may request a prior clearance from the commissioner if certain extremely urgent international donations are required
• Funding for Equity: Sec 8 company may potentially be able to raise money by issuing new equity shares at a premium
• Donations Made Domestically: There are no restrictions on domestic donations. But a proper mechanism must be put in place to prevent situations of money laundering.

Requirements for Online Registration of Sec 8 companies

For section 8 company incorporation procedure, the following criteria must be fulfilled:

• Governed By: Companies Act, 2013
• Members: Minimum of 2 Directors/Shareholders
• Important Documents: MoA, AoA and financial statements
• Board: Directors
• Property Management: All the properties belonging to a company are vested in the name of the company. These can be sold in conformity to the provisions mentioned in the Companies Act, 2013. The Act says the sale can be done with prior consent of the Company Board of Directors, when they pass a resolution regarding the same.
• Closure or Winding up of a company: The property and funds of the society, upon its dissolution ( as per the society by-laws) and settlement of all liabilities & debts, may not be equally distributed among the company members. Rather, the same can be transferred or given to some other company, preferably with similar objects.
• Annual Compliance: The company must ensure its annual compliance by filing its annual returns and annual accounts with the RoC.

Name Approval of Section 8 Company Registration

The name provided for the sec 8 company incorporation should be short, simple, unique, include the right suffix, project the motif of the NGO and so on. It is necessary to officially register and approve the company's name. This assists in avoiding any copyright concerns and ensures that no other section 8 companies have already been registered under the same name. To obtain approval, a Form INC-1 application must be submitted to the company's Registrar (Central Registration Centre – CRC of Ministry of Corporate Affairs). The applicant will need to submit six unique names for name approval in order to reduce the likelihood of name recurrence. Following approval, the name is valid for up to 60 days. The recommended names must include words like foundation, association, forum, council, chambers, etc. in accordance with the Company (Incorporation) Rules, 2014 in order to be accepted as a legitimate section 8 company name.

Sec 8 Company Registration Eligibility Criteria

• An Individual or HUF or limited Company is eligible to start a Section- 8 company registration in India
• Two or more persons who will act as a shareholder or Director of the company should fulfil all the requirements and compliances of the Section 8 Company registration
• At least one of the directors shall be a resident of India. However, a firm may be a member of the company registered under this section
• The objective should be the promotion of sports, social welfare, the advancement of science and art, education and financial assistance to lower income groups
• The surplus generated must be used for meeting the principal objective of the section 8 company registration
• Founders, members, and directors of the company cannot draw any remuneration
• There should be no direct or indirect distribution of profits to the company's directors and members
• The business should have a defined three-year project plan and vision.

Documents Required for Registration of Section 8 Company

• DSC and DIN of the Directors.
• Objectives and proposed work of the company.
• Financial statements like assets and liabilities, the projection for five years etc.
• Directors personal documents.
• Registered office address documents viz. rental agreement or sale deed in the name of the company, utility bills not older than two months.

Online Section 8 Company Registration - A Detailed Process

There are three major steps in incorporating a Section 8 company apart from the document collection, preparation and drafting. They are:

Step 1: Run Approval:

• Reserve Unique Name (RUN) is a form filed for reserving a name for a new company or for changing its existing name. This is the first step of incorporating a section 8 company.
• A section 8 company registration shall usually have words like Foundation, Federation, Society, Council, Club, Charities, Institute, Academy, Organisation, Federation, Chamber of Commerce, Development, Association, etc.
• The name so approved shall be valid for 20 days

Step 2: RD 1 License:

• This step is the most crucial in the process of incorporation
• The name approval shall be valid at the time of applying for the RD 1 license
• RD 1 license is a license granted under section 8 of companies act as they work on a specific objective which is for the upliftment of arts, science, commerce, environment, etc., and the profit they earn shall also be used towards their objectives. All crucial documents like the MoA, AoA, financial statements and other declarations are filed at this stageThe license so approved shall be valid for 30 days.

Step 3: Spice Form:

• Both the name and the license shall be valid at the time of filing the SPICe form
• This is the final stage of section 8 company registration where the documents relating to the registered office like the rental agreements and utility bills are filed along with the RD-1 license and the name approval certificate.

Section 8 Company Compliances

• A Section 8 company has to comply with the annual compliances like other companies
• In case of non-compliance, the company will be treated as a dormant company and it can be struck off from the register
• A section 8 company registration is also required to do the CSR compliances and the CSR must be done.

Penalty for Non-Compliance

If the Section 8 Company Registration violates the Act's legal requirements, the Government will revoke it. The licence may be revoked if the Company's goals are mishandled or inconsistent with the ones that were established. A firm or other entity that violates the rules will be subject to a fine that starts at ₹10 lakh and can reach ₹1 crore. The Company's Officers & Directors who violate the terms will be subject to a fine of at least ₹25000 and up to ₹25 lakh, or both.

Applicability of Tax Exemption

There is a general notion that a Section 8 company need not pay tax as they work towards the welfare of the public at large. But this is not true. A Section 8 company, like any other legal entity, is liable to pay tax. In order to be exempted from Tax, a Section 8 company is required to obtain certification for the said exemptions such as Section 12 A, 80G etc. from the Income Tax Authorities.

Why Vakilsearch?

• Just tell us a little bit about your business and you'll have the registered trust deed in 20 working days (subject to government approval). It's that simple. In addition to yours, we'll be handling around 400 requests this month
• We make your interaction with the government as smooth as is possible by doing all the paperwork for you. We will also give you absolute clarity on the process to set realistic expectations
• Our team of experienced business advisors are a phone call away, should you have any queries about the process. But we'll try to ensure that your doubts are cleared before they even arise.