Section 8 Company Registration: 

Introduction

Section 8 companies are a unique form of non-profit organization in India, dedicated to promoting activities for social welfare, education, charity, and other beneficial purposes. Governed by Section 8 of the Companies Act, 2013, these companies are akin to charitable trusts and societies but enjoy the legal and operational benefits of corporate entities. This detailed guide explores the eligibility criteria, the registration process, compliance requirements, and other essential aspects of Section 8 companies.

Understanding Section 8 Companies

Section 8 companies are entities registered for the primary purpose of promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or other similar objectives. The distinguishing factor of a Section 8 company is that it applies its profits, if any, or other income solely towards the promotion of its objectives and prohibits the payment of any dividend to its members.

Eligibility for Registering a Section 8 Company

Who Can Register

1. Individuals or Associations:

– Indian Citizens: Any individual who is competent to contract, meaning they are of sound mind and above 18 years of age, can register a Section 8 company.

– Non-Resident Indians (NRIs) and Foreign Nationals: Both NRIs and foreign nationals are eligible to be members and directors of a Section 8 company, subject to the provision of valid identity and address proofs.

– Associations or Bodies: Existing organizations, non-governmental organizations (NGOs), societies, or charitable trusts that align with the objectives defined under Section 8 can also register as a Section 8 company.

2. Minimum Requirements:

– Directors and Members: For a private limited Section 8 company, a minimum of two directors and two members are required. For a public limited Section 8 company, at least three directors and seven members are necessary.

– No Minimum Capital Requirement: Unlike other types of companies, there is no prescribed minimum capital requirement for Section 8 companies. This facilitates the easier establishment of non-profit entities.

3. Purpose:

– The primary objective of the company must be the promotion of activities related to social welfare, culture, science, education, research, sports, environmental protection, or other similar objectives.

– Profits or income must be applied solely for promoting the company’s objectives. Distribution of profits or payment of dividends to members is strictly prohibited.

Who Cannot Register

1. Ineligible Individuals:

– Minors: Individuals below the age of 18 cannot register a Section 8 company or serve as its directors.

– Undischarged Insolvents: Individuals who have been declared insolvent and have not yet been discharged from their insolvency cannot participate in the registration or management of a Section 8 company.

– Individuals with Criminal Records: Persons convicted of an offense involving moral turpitude or any offense and sentenced to imprisonment for more than six months are barred from registering or serving as directors for five years from the date of expiry of the sentence.

2. Entities with Commercial Objectives:

– Companies or individuals whose primary objective is commercial profit or who intend to distribute profits among members are not eligible to register a Section 8 company.

3. Prohibited by Law:

– Any person or entity legally barred or restricted by an order, judgment, or legal stipulation from forming a company is ineligible to register a Section 8 company.

Registration Process

The process of registering a Section 8 company involves several steps, including obtaining necessary approvals, documentation, and compliance with statutory requirements.

Step 1: Name Approval

The first step in registering a Section 8 company is obtaining name approval from the Ministry of Corporate Affairs (MCA). The proposed name should align with the objectives of the company and must not resemble the name of any existing company or violate the Emblems and Names (Prevention of Improper Use) Act, 1950.

– Application: Apply for name approval using the RUN (Reserve Unique Name) service on the MCA portal.

– Submission: Propose two names in the order of preference.

– Approval: The Registrar of Companies (RoC) will approve the name if it is found to be unique and relevant to the company’s objectives.

Step 2: Digital Signature Certificate (DSC) and Director Identification Number (DIN)

Before proceeding with the incorporation, it is mandatory for the proposed directors to obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN).

– Digital Signature Certificate (DSC): A DSC is required to sign electronic documents and forms submitted to the MCA. It can be obtained from certified agencies authorized by the Controller of Certifying Authorities (CCA).

– Director Identification Number (DIN): DIN is a unique identification number for directors issued by the MCA. Apply for DIN using Form DIR-3 if the directors do not already have one.

Step 3: Incorporation Documents

The next step involves preparing and filing the necessary incorporation documents.

– Memorandum of Association (MOA): The MOA outlines the objectives for which the company is incorporated. For Section 8 companies, it specifically mentions the promotion of commerce, art, science, religion, charity, social welfare, etc.

– Articles of Association (AOA): The AOA contains the rules and regulations for the management of the company.

Step 4: Application for Incorporation

File the incorporation form SPICe+ (Simplified Proforma for Incorporating a Company Electronically Plus) along with MOA, AOA, and other necessary documents.

– SPICe+ Form: This form simplifies the incorporation process by integrating several services, including name reservation, DIN allotment, incorporation, PAN, TAN, and GSTIN.

– Documents Required:

– Identity proof and address proof of all directors and subscribers.

– Proof of the registered office address.

– Consent to act as a director in Form DIR-2.

– Declaration by professionals in Form INC-8.

– Declaration by subscribers in Form INC-9.

Step 5: License under Section 8

After submitting the incorporation documents, the next step is to apply for a license under Section 8.

– Application: File Form INC-12 to apply for the license. The application must include the draft MOA and AOA, a detailed statement of the proposed activities, and a declaration by the applicant.

– Approval: The Regional Director will review the application and, upon satisfaction, issue the license. The license allows the company to function as a non-profit organization.

Step 6: Certificate of Incorporation

Once the license is obtained, the RoC will issue the Certificate of Incorporation, granting the Section 8 company its legal status.

– Company Identification Number (CIN): The RoC will allot a unique CIN to the company.

– Commencement of Business: The company can commence its operations upon receiving the Certificate of Incorporation.

Compliance Requirements

Section 8 companies must adhere to various compliance requirements under the Companies Act, 2013, to maintain their legal status and enjoy the benefits of non-profit organizations.

Annual Compliance

1. Annual General Meeting (AGM):

– Section 8 companies must hold an AGM within six months from the end of the financial year.

– The notice of the AGM must be sent to all members, directors, and auditors.

2. Financial Statements:

– Prepare financial statements, including the balance sheet, profit and loss account, and cash flow statement, in accordance with Schedule III of the Companies Act.

– The financial statements must be audited by a Chartered Accountant.

3. Annual Return:

– File the annual return in Form MGT-7 with the RoC within 60 days from the date of the AGM.

– The return should include details of the company’s directors, members, and financial information.

4. Income Tax Return:

– Section 8 companies must file an income tax return annually, even if they are exempt from paying tax under certain provisions.

Event-Based Compliance

1. Change in Directors:

– File Form DIR-12 with the RoC within 30 days of any change in the board of directors.

2. Change in Registered Office:

– Notify the RoC of any change in the registered office address using Form INC-22 within 30 days of the change.

3. Increase in Share Capital:

– File Form SH-7 within 30 days if there is an increase in the company’s share capital.

4. Allotment of Shares:

– Report the allotment of shares using Form PAS-3 within 30 days of the allotment.

Other Compliance

1. Maintenance of Statutory Registers:

– Section 8 companies must maintain various statutory registers, including the register of members, register of directors and key managerial personnel, and register of contracts.

2. Minutes of Meetings:

– Maintain minutes of all board meetings and general meetings in accordance with the Companies Act.

3. Audit of Accounts:

– The financial statements of a Section 8 company must be audited by a Chartered Accountant.

4. Filing of Financial Statements:

– File the financial statements with the RoC using Form AOC-4 within 30 days from the date of the AGM.

Advantages of Section 8 Company

1. Limited Liability:

– The liability of the members is limited to their shareholding, protecting personal assets from business liabilities.

2. Tax Benefits:

– Section 8 companies may avail tax exemptions under Sections 12A and 80G of the Income Tax Act, 1961, subject to compliance with specified conditions.

3. Credibility:

– Being registered under the Companies Act enhances the credibility and reliability of the organization, attracting donations and funding from various sources.

4. Perpetual Succession:

– Section 8 companies enjoy perpetual succession, meaning they continue to exist regardless of changes in membership or directorship.

5. Separate Legal Entity:

– A Section 8 company is a distinct legal entity, separate from its members, allowing it to own property, incur debts, and enter into contracts in its own name.

6. Ease of Management:

– The management structure of Section 8 companies is governed by the board of directors, providing a clear and efficient governance framework.

7. No Minimum Capital

 Requirement:

– There is no mandatory minimum capital requirement, making it easier to establish and operate a Section 8 company.

Disadvantages of Section 8 Company

1. Regulatory Compliance:

– Section 8 companies are subject to stringent regulatory compliance, which can be time-consuming and require professional expertise.

2. Restriction on Profits:

– Profits or income cannot be distributed to members and must be used solely for promoting the company’s objectives.

3. Limited Financing Options:

– Section 8 companies may face challenges in raising capital as they cannot issue shares to the public.

4. Government Scrutiny:

– Being non-profit organizations, Section 8 companies are subject to higher scrutiny by government authorities to ensure compliance with their objectives.

Conclusion

Registering a Section 8 company offers a structured and credible way to promote social, educational, charitable, and other beneficial activities in India. The process, while comprehensive, ensures that only genuine non-profit organizations operate under this legal framework. Adhering to compliance requirements is crucial for maintaining the company’s legal status and enjoying the associated benefits. While there are challenges, the advantages of operating as a Section 8 company often outweigh the drawbacks, making it an attractive option for individuals and organizations dedicated to social causes.