Section 8 of the Companies Act, 2013, is a critical piece of legislation that governs non-profit organizations in India. These provisions are designed to facilitate the establishment and operation of companies with charitable objectives, ensuring legal compliance and offering various benefits. Understanding Section 8 is essential for anyone involved in the non-profit sector. Did you know that more than 20,000 Section 8 companies are actively working towards social causes in India?
What is Section 8 of Companies Act, 2013
Section 8 of the Companies Act, 2013, pertains to the formation of companies with charitable objectives. These companies operate for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any such other objective. They do not distribute profits as dividends to their members but reinvest them in their objectives.
Prerequisites for a Section 8 Company:
- Charitable Objective: Must be formed for promoting social welfare or charity.
- Profit Reinvestment: Profits must be used for promoting the company’s objectives.
- Compliance: Adherence to regulatory requirements and guidelines.
History of Section 8 Companies
The concept of Section 8 companies has evolved significantly over time. Initially governed by Section 25 of the Companies Act, 1956, the provisions were redefined and expanded under Section 8 of the Companies Act, 2013. This change aimed to provide a more robust legal framework, facilitating better governance and compliance for non-profit organizations. Notable Section 8 companies include Teach For India and CRY (Child Rights and You), which have made significant societal contributions.
Overview of Section 8 Company Registration
Registering a Section 8 company involves several steps:
- Application for the Desired Name: Choose and reserve a unique name.
- Application for Digital Signature: Obtain digital signatures for authorized signatories.
- Application for Incorporation: Submit necessary forms and documents to the Registrar of Companies (RoC).
- Certificate of Commencement of Business: Receive the certificate after fulfilling all requirements.
Authorities Involved: Registrar of Companies (RoC) Timeline: Typically takes 2-3 months from application to registration.
Features of Section 8 Company
Section 8 companies have unique features that distinguish them from other types of companies:
- Objectives: Focused on charitable or non-profit activities.
- Funding: Can receive donations, grants, and aid from government and non-government sources.
- Governance: Governed by a Board of Directors with specific roles and responsibilities.
Key Points about Section 8 Company Act
- Legal Provisions: Governed by Section 8 of the Companies Act, 2013.
- Benefits: Tax exemptions, credibility, and ability to attract grants.
- Obligations: Must adhere to strict compliance and reporting requirements.
Procedure for Incorporating a Section 8 Company
- Application for the Desired Name: Reserve the company name with the Ministry of Corporate Affairs (MCA).
- Application for Digital Signature: Obtain digital signatures for directors.
- Application for Incorporation: Submit Form INC-12 with all required documents to the RoC.
- Certificate of Commencement of Business: Receive the certificate after completing all formalities.
Eligibility to Apply for a Section 8 Company
Any individual, association of persons, or corporate entity with a charitable objective can apply to form a Section 8 company. The applicant must ensure that the company’s profits will not be distributed to its members but will be used to further its charitable objectives.
Incorporation of a Section 8 Company
Incorporating a Section 8 company involves meticulous compliance with legal requirements. It is essential to prepare accurate documentation and follow best practices to ensure a smooth incorporation process.
When the Company Already Has the License Number
For companies already possessing a Section 8 license number, ongoing compliance is crucial. This includes regular financial reporting, maintaining transparency in operations, and renewing the license as required.
Documents Requirement for the Registration of Section 8 Company
- Memorandum of Association (MoA)
- Articles of Association (AoA)
- Digital Signature Certificates (DSC)
- Director Identification Number (DIN)
- Proof of identity and address of directors
- Consent from directors in Form DIR-2
Accurate and complete documentation is vital for avoiding delays and ensuring successful registration.
Benefits of Opening a Section 8 Company in India
- Tax Exemptions: Eligibility for various tax benefits and exemptions.
- Credibility: Enhanced credibility among donors and stakeholders.
- Grants and Donations: Ability to attract grants and donations from national and international sources.
Number of Directors in a Section 8 Company
A Section 8 company must have a minimum of two directors. There is no upper limit, but it is advisable to keep the number manageable for effective governance.
Corporate Social Responsibility (CSR)
Section 8 companies play a vital role in fulfilling CSR obligations for businesses. A corporate lawyer in Ahmedabad can assist companies in aligning their CSR initiatives with Section 8 requirements, ensuring compliance, and maximizing social impact.
Advantages of Section 8 Companies
- Distinct Identity: A recognized legal entity separate from its members.
- Limited Liability: Directors and members have limited liability.
- No Minimum Capital: No requirement for minimum capital investment.
- Less Stamp Duty: Lower stamp duty on incorporation.
- Tax Benefits: Eligible for various tax exemptions and deductions.
Disadvantages of Section 8 Companies
- Limited Scope: Restrictions on business activities.
- Complicated Compliance: Rigorous compliance and reporting requirements.
- Increased Scrutiny: Subject to heightened regulatory oversight.
- Limited Control: Governance must align with charitable objectives.
- Limited Ability to Raise Funds: Difficulties in accessing capital compared to commercial entities.
Compliance Requirements for Section 8 Companies
Ongoing compliance includes annual filings, audits, and regular board meetings. Adhering to these requirements is essential for maintaining the company’s legal status and credibility.
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Conversion of a Section 8 Company into a Company of Any Other Kind
Converting a Section 8 company into another type involves specific legal provisions under Rule 21 of the Companies (Incorporation) Rules, 2014. This process requires compliance with additional regulatory requirements and approval from the appropriate authorities.
Exemptions Granted to Section 8 Companies
Section 8 companies enjoy various exemptions, including tax benefits and reduced stamp duty. These exemptions help in operational and financial management, facilitating the achievement of their charitable objectives.
Conclusion
Section 8 of the Companies Act, 2013, is pivotal for promoting social causes in India. These companies enjoy various benefits and play a significant role in societal development. Compliance with legal provisions ensures their smooth operation and long-term sustainability.
FAQS
Q. What are Section 8 companies under Companies Act, 2013?
A. Section 8 companies are non-profit organizations formed for charitable purposes under the Companies Act, 2013.
Q. What are the documents required for companies to be registered under Section 8 of Companies Act, 2013?
A. Documents include MoA, AoA, DSC, DIN, identity proofs, and consent from directors.
Q. Do the accounting standards apply to such companies?
A. Yes, accounting standards prescribed by the Institute of Chartered Accountants of India (ICAI) apply to Section 8 companies.
Q. Is there a limit on Section 8 companies from doing investments, furnishing loans, etc.?
A. Section 8 companies are restricted from undertaking activities that do not align with their charitable objectives.
Q. Can a partnership firm or a Limited Liability Partnership become a member of a Section 8 company?
A. Yes, both partnership firms and LLPs can become members of a Section 8 company.
Q. Who is authorized to issue licenses to Section 8 companies?
A. The Registrar of Companies (RoC) is authorized to issue licenses to Section 8 companies.
Q. Can a One Person Company (OPC) be incorporated as or converted into a Section 8 company?
A. No, an OPC cannot be incorporated as or converted into a Section 8 company.
Q. Will the directorship in a Section 8 company be counted for calculating the total number of maximum directorships (i.e., twenty) as prescribed under Section 165 of Companies Act, 2013?
A. Yes, directorship in a Section 8 company is counted towards the maximum limit of directorships.
