Section 8 Company Registration in India

Starting a new business in India can be both exciting and overwhelming. There are a lot of decisions to be made, from choosing the type of business entity that suits your needs to registering it with the government authorities. One type of business entity that’s rapidly gaining popularity in India is the Section 8 Company. A Section 8 Company is a non-profit organization that is formed to promote commerce, art, science, education, research, social welfare, religion, charity, or any other useful object without seeking profits. In this blog post, we will discuss the Section 8 Company Registration process in India, the benefits of forming such a company, and the eligibility criteria you need to fulfill to register it. So, if you’re someone who wants to start a non-profit organization in India, keep reading!

1. Definition of Section 8 Company

A Section 8 Company is a legal entity that operates as a Non-Profit Organization (NPO) or Non-Governmental Organization (NGO). Such companies are registered under Section 8 of the Companies Act 2013, and they have the objective of promoting arts, commerce, education, charity, protection of the environment, sports, science research, social welfare, religion, or other similar objectives. The profits or other income generated by a Section 8 Company cannot be used to pay dividends to members. Instead, all profits must be used to promote the charitable objectives of the company. The incorporation certificate of such companies is granted by the Central Government, and they must adhere to the rules specified by the government. Failure to comply may lead to the winding up of the company on the orders of the government. 

2. Introduction to Section 8 Company and its benefits

Section 8 of the Companies Act 2013 provides for the incorporation and registration of companies in India with charitable or social objectives. These companies, also known as Section 8 companies, enjoy a number of benefits that are not available to other types of companies. One of the most attractive benefits is the limited liability protection that Section 8 companies provide to their members, which means that personal assets are protected in the event of financial loss or liability. Additionally, Section 8 companies do not require a minimum share capital, and they are exempt from income tax, stamp duty, and registration fees, making them a cost-effective option for those seeking to promote social causes.

Given their focus on social and charitable objectives, Section 8 companies are recognised as highly credible in the eyes of donors, investors, and other stakeholders. As such, these companies can attract funding from a variety of sources, including individuals, organizations, and government agencies who are interested in supporting social causes. Furthermore, Section 8 companies are recognised as a legal entity under the Companies Act, which means that they can enter into contracts, own property, and sue or be sued in their own name.

Despite the numerous benefits, there are specific requirements that Section 8 companies must comply with, including filing of annual returns and maintaining proper accounting records. Additionally, all profits earned by the company must be used for charitable or social purposes, and the company must have at least two directors who meet specific qualifications. By meeting the requirements and embracing their social objectives, Section 8 companies can have a significant impact on society while enjoying the benefits of a legal entity. 

3. Eligibility criteria for Section 8 Company registration

To register a Section 8 Company in India, there are specific eligibility criteria that must be met. An individual or association of individuals can apply for registration if they aim to promote charitable activities such as arts, education, science, sports, social welfare, religion, environmental protection, or other similar goals. The objectives must be confirmed to the satisfaction of the Central Government, and the company must not distribute any profits generated among its members. Instead, all profits must be utilized for promoting the company’s mission. Section 8 Companies are similar to NGOs but have stricter compliances post-registration, enhancing their credibility regarding legal standing. Overall, registering a Section 8 Company is an excellent way to promote non-profitable goals, and IndiaFilings provides hassle-free and professional services to help establish such companies quickly and efficiently. 

4. Procedure for Section 8 Company registration in India

In India, a Section 8 Company is a non-profit organization that aims to promote charitable activities in art, science, education, and sports. Its profits are utilized for promoting these objectives and are not distributed among the company’s members. To register a Section 8 Company, a minimum of two directors is required, and there is no requirement for set up capital. Such entities follow stringent compliances post-registration, making them more trustworthy.

The procedure of incorporating a Section 8 Company involves submitting an application in Form No. INC.12 along with the Company’s Draft Memorandum of Association (MOA) and Articles of Association (AOA) in Form No. INC-13. A declaration in Form no. INC-14 and INC-15 has to be affixed and notarized as well. Additionally, an estimation of the company’s future annual income and expenditure for the next three years mentioning the sources of the income and the purpose of the expenditure has to be provided.

The eligibility criteria for a Section 8 Company is straightforward. An individual or an association of individuals are eligible to be registered as a Section 8 Company if its objectives are to promote science, commerce, education, art, sports, research, religion, charity, social welfare, protection of the environment, or other similar objectives. The company should also intend to invest all profits generated after incorporation in the promotion of such objectives and not pay any dividends to its members.

Registering a Section 8 Company in India offers several benefits, including 100% tax exemption under Section 12AA of the Income Tax Act, no minimum capital requirement, and no need to pay stamp duty for registration. Section 8 entities also have a separate legal identity and perpetual existence, enhancing their credibility and legal standing. 

5. Documents required for Section 8 Company registration in India

A Section 8 Company is a non-profit legal entity that promotes welfare activities in the areas of commerce, science, art, education, research, religion, charity, environmental protection, and more. It differs from trusts and societies as it is registered under the Ministry of Corporate Affairs and is regulated by the Registrar of Companies. When registering a Section 8 Company, certain documents are required. For directors who are Indian nationals, the necessary documents include a PAN card, proof of address, and residential proof. On the other hand, foreign nationals must provide a passport, a notarized or apostilled address proof, and additional documents indicating the date of birth if not present in the passport. The company’s registered office should also provide proof of the title of the premises, such as a rental agreement or a utility bill, during the registration process. By providing these necessary documents, individuals can register a Section 8 Company in India and carry out welfare activities without the burden of generating profits for the company’s members. 

6. Post-registration compliances for Section 8 Companies in India

After registering a Section 8 Company, it becomes important to adhere to legal compliance frameworks in order to establish its credibility. To maintain the status of a Section 8 Company in India, each entity must comply with the provisions of the Companies Act 2013, maintain records of accounts, file returns with Registrar of Companies (ROCs), comply with GST and IT Act. Failure to adhere to these legalities could result in penalties or winding up of the company. To ensure a smooth and trouble-free journey as a Section 8 Company, it is essential to understand and comply with the regulatory and legal requirements.

One of the major post-registration compliances for a Section 8 company is to maintain books of accounts accurately. The books of accounts should reflect all financial transactions concerning the company. They must be maintained on a regular basis and kept up-to-date to ensure transparency in the organization’s financial dealings. This is essential to provide a clear picture of the entity’s financial soundness and to prevent any financial malpractices from happening.

Section 8 companies must also file their financial and tax returns on time with the Registrar of Companies (ROCs) and the Income Tax Department. The ROCs filing must be done annually, while GST and income tax returns must be filed monthly and annually. Non-compliance of these compliances could result in penalties.

Any amendment or change to the charter documents such as the articles of association (AoA) or memorandum of association (MoA) of the Section 8 Company require the approval of the Central Government. This means that each amendment has to be filed with ROCs, and the change will come into effect only after approval from Central Government is received.

Sections 149 to 172 of Companies Act 2013 lays the rules, penalties, and responsibilities of the directors of Section 8 companies. The directors of a Section 8 Company must be vigilant about the provisions in this section and make sure they take full responsibility for the company’s compliance and governance.

In a nutshell, post-registration compliances are an essential part of the life of a Section 8 Company. Directors and members must make sure they comply with the provisions laid down in the Companies Act 2013, and must maintain proper recording of all financial transactions, taxes and filing of legal documents. All of these compliances add credibility to the company and ensure its long-term success. 

7. Overview of Section 8 Company Registration

Section 8 Company registration is a popular option for those who wish to promote social welfare, arts, education, commerce, religion, and protection of the environment, amongst other causes, in India. Registered as a Non-Profit Organization (NPO), companies like this cannot pay dividends to its members. Instead, any profits or income generated must be used for charitable purposes. The Central Government issues an incorporation certificate to these companies, which must comply with regulations stipulated by the government, or face severe legal consequences.

Eligibility for incorporation of a Section 8 Company includes holding the intention to exclusively use profits for its charitable purposes rather than paying out dividends, and to promote a specified objective, subject to the satisfaction of the Central Government. The Companies Act 2013 specifies the procedure for incorporation. Once the necessary documents and a declaration of compliance have been submitted, the company can be incorporated. Furthermore, companies will now have the benefit of a new and simplified process for incorporation, per Companies (Incorporation) Sixth dated 7th June 2019. Overall, Section 8 Company Registration is an ideal choice for those looking to start a Non-Profit that contributes to the greater good. 

8. Requirements for Section 8 Company Directors

A Section 8 Company is a non-profit organization that aims to promote charitable activities such as art, science, education, and sports. To register a Section 8 Company, a minimum of two directors are required. These directors should be individuals and not a company or LLP. The maximum number of directors in a Section 8 Company is fifteen. The directors should also have a Director Identification Number (DIN) and Digital Signature Certificate (DSC). A Section 8 Company is required to comply with the provisions of the Companies Act 2013 and maintain books of accounts. It is also mandated to file returns with the Registrar of Companies (ROCs), and comply with GST and IT Act. Any changes to the charter documents like the Articles of Association (AoA) and Memorandum of Association (MoA) require the government’s consent. 

9. Benefits of Section 8 Company Registration

Section 8 Company Registration in India is a popular option for entrepreneurs who aim to promote social welfare and make a difference in the lives of people. As an NPO (Non-Profit Organization), Section 8 Companies promote commerce, art, sports, research, and more. They are licensed by the Central Government and exempt from paying income tax, stamp duty, and other taxes. The donations made towards these companies are eligible for tax deductions under Section 80G of the Income Tax Act 1961, and companies can also contribute towards Corporate Social Responsibility. Moreover, Section 8 Companies have the advantage of being able to transfer ownership of both movable and immovable properties without restrictions and lack minimum share capital requirements. As a unique corporate structure, they possess a separate legal identity, perpetual existence, and are capable of owning or alienating tangible or intangible property. Overall, Section 8 Company Registration comes with various benefits that entrepreneurs can leverage to make a difference in society while running regulatory-compliant business operations. 

10. Exclusions and Advantages for Section 8 Companies

Section 8 of the Companies Act 2013 refers to non-profit organizations that work towards the promotion of arts, science, religion, research, education, and social welfare. These organizations are created with the objective to serve the public and have many advantages over other companies. Section 8 Companies referred to as non-profit organizations (NPOs) are licensed by the Central Government through the Ministry of Corporate Affairs (MCA). The members of these organizations do not derive any dividends or paybacks from the companies. Rather, the funds raised or income earned must be channeled towards carrying out the activities of the company and promoting its principal objectives.

One of the benefits of Section 8 Company Registration is tax privileges. As non-profit organizations, Section 8 companies are exempted from paying income tax and even exercise other tax benefits. They also enjoy merits by virtue of Section 80G of the Income Tax Act 1961 that offers tax exemptions to donors. Moreover, the charity organizations under this section are required to get registered under Sections 12A and 80G of the Income Tax Act 1961 to avail the exemptions and deductions. Various private as well as public limited companies can also contribute to the Section 8 companies as per their CSR under Section 135 of the Companies Act 2013.

Section 8 Companies are also exempted from paying the stamp duty during registration, unlike public and private limited companies. Moreover, these organizations are allowed to transfer the title and ownership of both movable and immovable properties without any restrictions unlike LLP. Another advantage is that Section 8 Companies do not require a minimum share capital to be set up, unlike public limited companies. The capital can be raised as per the requirements of the company.

A Section 8 Company is considered to be a distinct corporate structure and possesses a separate legal identity. Also, being an entity, a Section 8 company can own or alienate tangible or intangible property by itself. The organization can own properties such as a residential building, non-residential properties like training centers, research institutions, schools, galleries, etc. Furthermore, Section 8 Companies have perpetual existence until the company undergoes necessary legal proceedings or gets declared bankrupt.

Lastly, Section 8 Companies are entitled to an array of exclusive benefits under different acts, rules, and regulations. For instance, Section 8 Companies are not required to appoint an independent director and are exempted from the applicability of secretarial standards. They are also not required to have a Nomination and Remuneration Committee or a Stakeholders Relationship Committee. There is a long list of exemptions that Section 8 Companies can utilize to their benefit, making them an attractive option for entrepreneurs who wish to venture into philanthropic work. 

11. Tax Benefits for Section 8 Companies in India

A Section 8 Company enjoys several benefits and exemptions under the Indian legal framework. The income tax benefits for Section 8 Companies are one of the most significant ones that organizations may avail. As per section 2(15) of the Income Tax Act, a Section 8 Company, if engaged in any charitable purpose, is exempted from some provisions of income tax. Moreover, donors to Section 8 Companies can claim a 50% rebate against their donations under the Income Tax Act of 1961. Thus, Section 8 Companies can boost their funding and take advantage of tax benefits to further their objectives.

Apart from income tax benefits, Section 8 Companies can also save money on stamp duty charges when registering with the government. These companies enjoy lower stamp duty charges as compared to other types of organizations. Such an advantage further increases their flexibility and accessibility to government-based subsidies and privileges.

Section 8 Companies have also been exempted from various legal provisions applicable to other companies, such as minimum paid-up share capital, restrictions on private companies, directorship ceiling, and minimum meeting frequency. Such exemptions allow Section 8 Companies more autonomy and less regulatory compliance pressure.

Moreover, Section 8 Companies are not required to appoint an independent director, or establish committees on nomination and remuneration, or stakeholders’ relationships. They also don’t need to follow secretarial standards, and the recording of minutes of meetings is not mandatory, except when their articles mention confirmation through circulation. These exemptions reduce the financial burden on Section 8 Companies and allow them to focus more on their objectives.

In conclusion, a Section 8 Company in India has several benefits and exemptions under various legal provisions. These advantages can help them save taxes, reduce regulatory compliance pressure, and access government-based subsidies and privileges. Therefore, if you are planning to establish a not-for-profit, social or charitable organization in India, registering as a Section 8 Company may be an ideal option for you. 

12. Disadvantages of Section 8 Company Registration in India

Section 8 Company Registration in India has several advantages but also come with a few disadvantages. One of the most significant disadvantages is that Section 8 companies are not permitted to distribute profits amongst their members. The profit earned by such companies can only be used to serve charitable objectives. Section 8 companies must comply with stringent rules and regulations in India.

Moreover, companies registered under Section 8 can face a disadvantage as they are not allowed to make any changes to their Articles of Association without obtaining permission from the government. The income tax rates applicable to Section 8 companies are the same as other companies, unlike some other types of charitable organizations that enjoy tax exemptions and benefits.

Another disadvantage of Section8 Company Registration in India is that it is mandatory for the company’s members to obtain a license from the Central Government to operate. Failure to comply with government norms and regulations can lead to the company’s closure and stringent legal action against its members. Additionally, members of the company are only allotted a limited liability, which can pose a disadvantage in case of any legal discrepancies.

In conclusion, while Section 8 Company Registration in India has various advantages, such as access to tax benefits, easy formation, and better credibility, several disadvantages may make it unsuitable for all types of non-profit organizations. Companies seeking to register under Section 8 must weigh these pros and cons before making their decision. 

13. Frequently Asked Questions about Section 8 Company Registration in India

Who can apply for the registration of a Section 8 company? 

Any person or association of persons can apply provided the company’s objective is to promote arts, science, research, culture, education, or social welfare.

What documents are required for registering a Section 8 company? 

A person must file Form INC-12 along with the Memorandum of Association and Articles of Association, a declaration duly notarised by an appropriate authority through Form INC-14, sources of income and possible expenditure of the company, and other necessary forms.

Who authorises the incorporation of a Section 8 company? 

The Central government authorises the Registrars of Companies of the respective jurisdictions to issue the license of incorporation to a Section 8 company.

Can a foreign company register as a Section 8 company in India? 

A corporate company incorporated outside India cannot be termed as a foreign company if no business activity is carried out. Therefore, a foreign company cannot register as a Section 8 company in India.

What is the complete procedure for a Section 8 company registration? 

It involves obtaining a Digital Signature Certificate, filing Form DIR-3 and Form INC-12 with the Registrar of Companies, and receiving approval from the Central Government.

Can OPC be converted into a Section 8 company? 

No, the Companies Incorporation (Rules) 2014 forbids the conversion of an OPC into a Section 8 company.