Section 8 company

About Section 8 Company

Registering your NGO as a section 8 company has many perks compared to registering as a trust or a society. A Section 8 Company is a specific form of Company which is incorporated for the promotion of commerce, art, science, education, research, sports, charity, social welfare, religion, protection of environment or any such other object. It intends to apply all its profits, income, or other earnings, in promoting these objects. Pays no dividend or income to its members. These are limited companies, which are registered under the Companies Act, and will be treated as limited companies without the phrase “limited” being added to their name. They may have been registered either as “private limited or public limited companies”. Section 25 Company (under Companies Act, 1956) is a prior version. Section 8 Companies are a legal form of “Non-Profit Organizations (NPOs) or Non-Governmental organizations (NGOs)”. A Section 8 Company has the authority to work anywhere in the country.

What is the process for registering Section 8 Company?

The process and requirements of a Section 8 Company are exactly the same as laid down for a limited company, including all the rights and obligations that come with such a limited company. The only aspect where they differ is that a Section 8 Company cannot use the words “Section 8” or “Limited” in it’s name.

• The process of registering a Section 8 Company is the same as of incorporating an NGO, Trust or Co-operative Society under the Companies Act 2013.

• An additional requirement is there of seeking a license from the central government under Section 8 of the Companies Act, 2013.

• The license, essentially, permits them to delete Private/Public Limited from their name. With this license, the company becomes eligible for certain exemptions from the provisions of law and avail the benefit of concessions in the fee.

• If the proposed Section 8 Company has been registered as a private limited then a minimum of 2 directors are required. But if it is a “public limited Section 8 Company” then a minimum of 3 directors must be there.

Detailed Process for Section 8 Registrtion

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 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

• 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 stage.

• The license so approved shall be valid for 30 days.

• Both the name and the license shall be valid at the time of filing the SPICe form.

• This is the final stage of incorporating the section 8 company 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.

Documents Required

• 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.

• Passport size photograph of Director.

• Photo ID Proofs of Directors.

• Self declaration about your directorship in other companies.

• No objection Certificate from the owner of the property of the property

• Address proof of the directors.

• Specimen Signatures.

• Rent agreement of your registered office.

What Are the Benefits of Registering Section 8 Company

The following are the advantages of incorporating a Section 8 company over other modes of registering an NGO:

• 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 firm can be a member in its individual capacity and obtain Directorship.

• Distinct Legal Identity: Section 8 Company is a separate legal entity and is different from it’s members. The Company has perpetual existence. Along with having organized operations and greater flexibility.

• Zero Stamp Duty: A Section 8 Company is exempt from the requirement of paying stamp duty on the MoA and AoA of the private or public limited company, which is applicable for registration of other kinds of company structures.

• No Minimum Capital Requirement: o minimum capital limit has been mentioned for a Section 8 Company in India. And the capital structure can be altered at any stage as per the growth requirements of the company. This implies that it can be formed without any share capital. The funds necessary for carrying the business operations can be brought, later, in the form of donations and/or subscriptions from members and the general public.

• Name: Section 8 Company is not required to suffix “Public Limited or Private Limited”, next to it’s legal name. It can be registered with names such as “Association, Society, Council, Club, Charities, Foundation, Academy, Institute, Organisation, and Federation”.

• CARO: Requirements of Companies Auditor’s Report Order or CARO do not apply to this type of company.

• Tax Benefits: For Section 8 Companies in India, many tax benefits are granted.

• Credibility: Section 8 Companies are more reliable than all other forms of charitable organizations. They are governed by the Companies Act and are regulated strictly. Such as the requirement of a mandatory annual audit, and both the “MOA and AOA” cannot be altered at any stage or situation. The rules on managing the profits and losses of the company make these companies trustworthy.

• Exemption to the donors: Those donating to a Section 8 Company are eligible for tax exemptions u/s 12A and 80G of the Income Tax Act.

• Membership: A registered partnership firm can become a member in it’s individual capacity and obtain Directorship.

Other than the conditions laid down in it’s definition above, the following criteria must be fulfilled as well for registering a Section 8 Company:

• Registration Under: Companies Act, 2013.

• License: License to be applied to MCA.

• Directors: ] A Minimum of “2 Directors for a Private Limited Company and 3 Directors for a Public Limited Company” must be there.

• Indian Resident: At least 1 director must be a resident of India, i.e., have stayed in India for a total period of not less than 182 days in the previous calendar year [(Section 149(3)].

• Subscribers to MoA: If the Company is proposed to be incorporated as a private company or a public company respectively, it’s MoA must have at least 2 or 3 subscribers.

• MoA&AoA: Decide about the name to be applied for, objects to be carried by the Company, planned registered office address, number of Directors and promoters, authorized capital, and number of shares to be subscribed by each promoter. They must mention the plan laid-out to meet your social objectives. The ROC (Registrar Of Company) is entitled to ask about it.

• Initial Capital: Whatever amount of initial capital has been proposed for the Company, it must get invested in the Company within 2 months.

• Property Management: : The ownership of the property lies in the name of the Company and it can only be sold as per the rules mentioned under the Companies Act. (Ex: With the consent of the Board of Directors in the form of a resolution).

• Dissolution: The Section 8 Company may be wind-up only by following the bye-laws of the society. Upon dissolution and after settling all debts and liabilities, the funds and property of the society are not to be distributed among the members of the company. Instead, the remaining funds and property would be given or transferred to some other Section 8 Company, someone that has a similar object.

• Annual Compliance: There must be Annual filing of accounts, statements and returns of the company with the ROC, in order to adhere to the set compliances.

• Documents: All the Directors must have their valid DIN (Director’s Identification Number) & DSC (Digital Signature Certificate).

Why Legaltax?

• Service provided by the Legaltax is one of the best compared to other organizations.

• Just tell us little bit about your business and you will have the registered trust deed in 20 working days 9subject to the government approval). It’s that simple. In addition to yours, we will be handling around 500 requests per 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.