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Section 8 Company
"GST registration is essential for legal business operations and unlocking tax benefits."
Section 8 Company
Do you want to use a non-profit to change the world? One excellent first step may be to form a Section 8 Company. This framework assists you in building a solid and reliable foundation, regardless of your areas of passion—education, healthcare, or social welfare. Additionally, it gives you tax advantages and reputation. Unlike other businesses, a Section 8 Company is motivated by purpose rather than profit. All of the money you raise is reinvested in the mission, increasing its impact, opening up new avenues for growth, and gaining the confidence of authorities and funders.
A company established to further non-profit goals like education and research, social welfare, charity or religion, the environment sustainability, Encouragement of sports, science, and art projects is known as a Section 8 Company.
Profits are not divided among members of a Section 8 company. Rather, every revenue is reinvested to meet the goals of the organization. These businesses are essential to promoting social progress and tackling important problems including environmental sustainability, poverty alleviation, and education for disadvantaged children. They are the go-to structure for people and groups who want to promote social change while gaining legal recognition, receiving tax breaks, and building confidence with stakeholders, donors, and government agencies.
Eligibility and characteristics of Section 8 Company
The following requirements must be fulfilled in order to register a Section 8 Company:
i) Purpose-Driven Entity: The Company must function with an emphasis on advancing social or charitable goals.
ii) Member and Director Requirements: A minimum of two directors, one of whom must reside in India.
iii) Directors and shareholders may overlap: A minimum of two stockholders must be at least eighteen years old.
iv) Limited Liability: The amount of a member's liability is capped by their guarantee or investment.
v) Separate legal entity: A separate legal entity ensures continuity after the founders by providing unique legal status.
vi) Transfer of assets: Upon dissolution, assets must be moved to a different Section 8 company with comparable goals.
vii) Government Licensing: Prior to registration, Central Government approval is required.
viii) Additionally, Section 8 companies to ensure transparency, businesses must adhere to strict financial restrictions and reporting criteria. To make sure the money is being used for the specified charitable objectives, they are regularly audited and inspected. These companies can successfully accomplish their social objectives and uphold a favourable reputation among stakeholders with sound governance.
Why Section 8 Company is beneficial
Registering a Section 8 company of the Companies Act of 2013 has several benefits, including the following:
i) No minimum capital: A Section 8 company's capital structure can be changed at any moment to suit the company's growing needs, and there is no minimum capital needed to incorporate. As a result, the money needed to run the company can be raised later on by subscriptions and donations from members and the public.
ii) Tax Benefits: Section 8 company is exempt from preparing the CARO Report Company Auditor's Report Order (CARO). Under Section 80G of the Income Tax Act of 1961, a Section 8 corporation is eligible for tax incentives.
iii) No Stamp Duty: In India, Section 8 company incorporation is exempt from stamp duty. The stamp duty levied on a private or public limited company's Memorandum of Association (MOA) or Articles of Association (AOA) is not required to be paid by the Section 8 Company.
iv)Different Legal Identity: When a Section 8 company is registered, it gains a different legal identity from its members. A registered partnership firm may also apply for directorship of a Section 8 company and become a member in its own right. Because of its continuous life, the Section 8 Company’s operations will not be impacted by the arrival or departure of any members.
v) Limited liability: Depending on the shares they have subscribed for, the members of the Section 8 company have limited liability. They are not held personally responsible for the business's losses.
vi) Credibility: Compared to other types of charitable organizations, Section 8 companies are more reputable and trustworthy. Since it is governed by the Act, they must conduct required audits annually and the Memorandum of Association cannot be changed in relation to the company's non-profit goals.
vii) Donor exemption: Under Sections 12A and 80G of the Income Tax Act of 1961, gifts received by a section 8 company are exempt from taxes.
Section 8 company Registration Requirement
Directors
If the Section 8 company is to be incorporated as a private limited company, it must have a minimum of two directors; if it is to be incorporated as a public limited company, it must have a minimum of three directors. A private limited company can have up to 200 members, but a public limited company can have an unlimited number of members.
Name and Capital Requirement
When a Section 8 company is incorporated, there is no minimum paid-up capital requirement. Non-profits that are formed as Section 8 companies are exempt from using the terms "Limited" or "Private Limited" in their names.
Charitable Objects
Section 8 companies are established with non-profit goals in mind. The non-profit goal or purpose for which it was founded must be mentioned in the MOA and AOA. The section 8 company uses all of its earnings to support its primary goals, which include reinvesting in the business or donating to charitable causes. Its members will not receive a portion of the revenues.
Management by BOD
In contrast to other trusts, which are run by the Trustees in accordance with the Trust Deed, Section 8 companies are run by the Board of Directors in accordance with the company's MOA and AOA.
Regulation in accordance with many Acts
A Section 8 company must abide by the guidelines set forth in the 2013 Companies Act. It must file returns with the Registrar of Companies and keep up with its books of accounts. Without the Central Government's prior consent, a Section 8 company is not permitted to alter any of the terms of the MoA and AoA. It must also abide by the rules set forth in the GST Law and the Income Tax Act.
Get a Digital Signature Certificate, or DSC
Since the forms for the registration process are submitted online, the proposed directors of the firm must have digital signatures. Government-approved certifying organizations issue digital signature certificates (DSC). You may find the list of these authorized agencies here. Depending on the certifying organization, getting a DSC can cost different amounts. A Class 3 category DSC is required.
Get a Director Identification Number (DIN) by applying
For the company's potential directors, you must apply for a DIN. The DIN allocation application must be submitted on Form DIR-3 or with the SPICe+ registration form. Along with the form, you must submit it online via the MCA Portal with a scanned copy of the required paperwork, including a self-attested copy of your PAN and verification of directors' identities and addresses. A practicing professional, such as a chartered accountant, company secretary, or cost accountant, must attest the form.
Incorporation process of Section 8 Company
1.Obtain a DSC for the Section 8 Company's proposed directors. After receiving a DSC, submit Form DIR-3 to the ROC in order to obtain a DIN. To receive a DSC, you must attach proof of identity and proof of address.
2.Submit the SPICe+ Form and necessary documents to the ROC for incorporation. The application for the company's incorporation is the SPICe+ form. In the first section of the SPICe+ plus form, the company can be reserved. Nevertheless, this form only allows for the declaration of one name for approval. Before selecting a name, applicants are advised to use the MCA portal's free name search feature for already-existing businesses. Based on the search parameters, the system will present a list of names of the current businesses that are very similar. This will assist you in avoiding selecting a name that is too similar to an already-existing business.
The SPICe+ Form must be submitted with the following documents:
i) The company's memorandum and articles, duly signed by all subscribers, as well as a declaration from each subscriber and first director attesting to their innocence.
ii) A chartered accountant's declaration on Form INC 14 and each applicant's declaration on Form INC 15.
iii) All subscribers to the MOA and the company's original directors must provide identification, and the official address for correspondence up to the registered office.
iv) Each director and shareholder's passport-sized photo
v) If the company's registered office is located on a rented property, a copy of the rental agreement.
3.To apply for a Section 8 company license, submit Form INC-12 to the ROC with the necessary paperwork attached. To obtain a license to operate as a Section 8 company, Form INC-12 is submitted. A draft copy of the Memorandum of Association (MOA) and Articles of Association (AOA) must be attached by the applicant with this form. Form INC 13 is the required format for a Section 8 company's memorandum of association. Each subscriber must sign the subscription pages of the MOA and AOA in front of at least one witness, including their name, residence, occupation, and description.
The following attachments must be sent with Form INC 12:
i) INC-13: Draft Articles of Association and Memorandum of Association.
ii) INC-15 for each subscriber's declaration that the articles of association and draft memorandum have been drafted in accordance with Section 8.
iii) Estimated Statement of Income & Expenditure for the following three years.
iv) List of potential company directors and promoters.
Section 8 Company Annual Compliances
Section 8 companies have the same annual compliance requirements as other businesses.
i) Hold at least two board meetings annually.
ii) Upkeep of the Accounting Records
iii) Financial statement preparation
iv) Required audit report
v) Filing an income tax return
vi) Financial statements submitted in Form AOC 4
vii)Along with other online filing forms, such as MGT 7, an annual return must be submitted each year.
viii) Extra requirements to complete the registration, such as 12AA, 80G, etc.
- FAQ
1. What is a Section 8 Company?
A company registered in accordance with Section 8 of the Companies Act of 2013 is known as a Section 8 Company. It was founded as a non-profit organization with the goals of advancing the arts, sciences, business, charity, religion, sports, education, research, social welfare, and environmental protection. Its members do not receive a portion of its profits. Rather, the proceeds are utilized to advance the organization's goals.
2. What are the objectives of a Section 8 Company?
Section 8 Companies are founded for a variety of reasons, including social welfare, charitable work, religion, the arts, science, sports, education, research, environmental preservation, and so forth. The company's primary characteristic is that it was founded to advance society rather than generate revenue for its directors or members.
3. Can a Section 8 Company distribute profits to its members?
No, a Section 8 company is not allowed to give its members a cut of the earnings. Any revenue or profit made by the company must be put toward achieving the social or charitable goals for which it was established.
4. What are the benefits of registering as a Section 8 Company?
i) Legal Status: Because it is a distinct legal entity, it is able to file and receive lawsuits under its own name.
ii)Tax Benefits: If they fulfil the requirements, Section 8 companies are eligible for a number of tax exemptions under the Income Tax Act.
iii) Limited Liability: In the event that the business experiences financial difficulties, directors' and members' personal assets are not at risk due to limited liability.
iv) Credibility: An organization's registration under the Companies Act lends it legitimacy, particularly when looking for grants, donations, or finance.
v)Capacity to Raise Funds: They are able to take grants and gifts, including from overseas sources, as long as they abide by FCRA.
5. How is a Section 8 Company different from a Trust or Society?
i) The Companies Act of 2013 governs the incorporation of a Section 8 Company, whereas the Indian Trusts Act of 1882 governs a Trust, and the Societies Registration Act of 1860 governs the registration of a Society.
ii) Management Structure: A society has a governing body, a trust is run by trustees, and a Section 8 company has a board of directors and shareholders.
iii) Requirements for Compliance: Section 8 companies are subject to the Companies Act's requirements, which may be more complex than those for trusts or societies. These requirements include filing annual returns, hosting annual general meetings (AGMs), and keeping financial records in line with company law.
6. What is the process for registering a Section 8 Company?
Here’s a step-by-step process for registering a Section 8 Company:
1. Obtain a Digital Signature Certificate (DSC): In order to submit electronically, all directors and subscribers must obtain a DSC.
2. Obtain a Director Identification Number (DIN): A DIN is required for each director of the company and can be obtained for online.
3. Select a Name: The company's suggested name ought to be original and not similar to any already-existing business or trademark.
4. Draft the Articles of Association and Memorandum of Association (MOA and AOA): These documents need to specify the non-profit goals and guidelines for the business's activities.
5. Submit an application to the RoC (Registrar of Companies): Send the application to the RoC with the necessary paperwork (such as the directors' details, proof of address, MOA, and AOA).
6. Obtain the License: In accordance with Section 8 of the Companies Act, 2013, the Ministry of Corporate Affairs (MCA) will grant a license that will permit the business to function as a Section 8 firm.
7. Certificate of Incorporation: The business receives a Certificate of Incorporation with Section 8 status after the application is accepted.
7. What are the documents required for registration?
i) The purpose for which the company is being founded is outlined in the Memorandum of Association (MOA).
ii) The company's internal rules and regulations are detailed in the Articles of Association (AOA).
iii) Proof of Address: For the company's registered office (such as a rent agreement or utility bill).
iv) Proof of identity and address for each director and subscriber.
v) Certificate of Digital Signature (DSC): Required for online application submission.
vi) Each director's Director Identification Number (DIN).
8. What are the key compliance requirements for a Section 8 Company?
i) Annual Filing: Section 8 Companies are required to submit their annual reports and financial statements (profit and loss account, balance sheet) to the RoC.
ii) The holding of an annual general meeting (AGM) and the recording of meeting minutes are mandatory.
iii) Audit: Every year, a certified chartered accountant (CA) is required to audit the Section 8 Company's financial statements.
iv) Financial Statement Submission: The business must submit its financial statements in the required format to the Ministry of Corporate Affairs (MCA).
9. Is there any limit on the number of directors in a Section 8 Company?
A Section 8 company can have up to fifteen directors, but it must have at least two. Nonetheless, if necessary, the company may request to add more directors than the current fifteen.
10. What happens if a Section 8 Company wants to distribute profits or convert to a for-profit entity?
A Section 8 company needs permission from the central government before it may divide its revenues among its members or transform into a profit-oriented business. In order to do this, the business would have to give up its Section 8 license and go through the standard processes for becoming a regular company under the Companies Act.
11. Can a Section 8 Company receive foreign donations?
In accordance with the Foreign Contribution (Regulation) Act, 2010 (FCRA), a Section 8 Company is permitted to accept gifts from overseas. If the business plans to obtain foreign funding, it must register with the Ministry of Home Affairs (MHA).
12. Can a Section 8 Company take a loan or borrow money?
A Section 8 Company may borrow money, but only if it does it in accordance with its goals and without giving the money to its members. For purposes associated with the social cause it promotes, loans may be raised.
13. Is there a specific fee for Section 8 Company registration?
Indeed, the Ministry of Corporate Affairs' (MCA) fee system governs the registration fee, which is based on the company's authorized capital. The kind of application and the registered capital of the business can affect the fee.