What is Section 8 Companies? Know Its Provisions and Incorporation Procedures in Sikar

Generally, we think that formation of companies is meant for earning profit, but that’s not true as there are certain companies, which primary objective is to promote charity, social welfare, scientific activities, art, commerce and non-profit organizations. These companies registered as per Section 8 of the Companies Act, 2013 and also known as Section 8 Company. In this article, we will provide information related to Section 8 Companies, its provisions, and incorporation procedures in Sikar along with its benefits.

Glimpses of Section 8 Companies

Section 8 companies, also known as Section 8 of the Companies Act, 2013 in India, are non-profit organizations that are incorporated with the primary objective of promoting charitable, scientific, or social welfare activities. These companies are formed for the purpose of promoting philanthropic and socially beneficial activities, rather than for making profits. The name “Section 8” is derived from the corresponding section of the Companies Act, 2013 that governs the incorporation and functioning of such companies.

Section 8 companies are required to fulfil certain regulatory compliances, such as obtaining prior approval from the Registrar of Companies (ROC) for any alteration in their Memorandum of Association (MOA) or Articles of Association (AOA), and filing of annual financial statements and annual returns with the ROC. However, these companies enjoy certain exemptions and benefits in comparison to other types of companies, as they are primarily focused on promoting charitable or socially beneficial activities for the public welfare.

Features of Section 8 Companies

Section 8 companies are registered as limited companies under the Companies Act, 2013, but with certain unique features and restrictions. These features include:

• Objectives: The main objective of a Section 8 company must be to promote charity, science, art, religion, education, or any other socially beneficial purpose.
• No Profit Distribution: Section 8 companies are prohibited from distributing profits or dividends to their members. Any income generated must be utilized for promoting the objectives of the company.
• Limited Liability: The liability of the members of a Section 8 company is limited to the extent of their shareholding in the company.
• No Minimum Share Capital: Section 8 companies do not have any minimum share capital requirement, unlike other types of companies.
• Tax Exemptions: Section 8 companies are eligible for various tax exemptions, including income tax, subject to compliance with applicable laws.

Provisions of Section 8 Companies

The provisions of Section 8 companies, as per the Companies Act, 2013 in India, include the following:

• Charitable Objects: The primary objective of a Section 8 company must be to promote charity, science, art, religion, education, or any other socially beneficial purpose. The company’s MOA must clearly specify the objects and activities for which it is formed.
• No Profit Distribution: Section 8 companies are prohibited from distributing profits or dividends to their members. Any income generated by the company must be utilized for promoting its objectives and cannot be distributed among its members.
• Utilization of Profits: Section 8 companies are required to utilize their profits, if any, solely for promoting their charitable or socially beneficial objectives. The utilization of profits must be in accordance with the provisions mentioned in the MOA and AOA of the company.
• Limited Liability: The liability of the members of a Section 8 company is limited to the extent of their shareholding in the company. The personal assets of the members are not exposed to the company’s liabilities.
• No Minimum Share Capital: Section 8 companies do not have any minimum share capital requirement, unlike other types of companies. The company can be incorporated with any amount of share capital, as specified in its MOA.
• Board Composition: Section 8 companies must have a minimum of two directors and can have a maximum of 15 directors. At least one director must be an Indian resident.
• No Need for Name Additions: Section 8 companies are not required to add the words “Limited” or “Private Limited” to their name, as is required for other types of companies.
• Tax Exemptions: Section 8 companies are eligible for various tax exemptions, including income tax, subject to compliance with applicable laws. However, it is important to note that not all activities of a Section 8 company may be exempt from taxes, and specific exemptions would depend on the nature of activities and compliance with relevant laws.
• Alteration of MOA and AOA: Any alteration in the MOA or AOA of a Section 8 company requires prior approval from the Registrar of Companies (ROC) and may require special resolutions and compliance with regulatory requirements.

Incorporation Procedure of Section 8 Companies in Sikar

The incorporation procedure for a Section 8 company in Sikar, or any other place in India, involves the following steps:

• Obtain Digital Signature Certificate (DSC): The first step is to obtain a DSC for the proposed directors of the Section 8 company. DSC is used for online filing of forms with the Ministry of Corporate Affairs (MCA) in India.
• Obtain Director Identification Number (DIN): The proposed directors of the Section 8 company must obtain DIN from the MCA. DIN is a unique identification number required for a person to become a director of a company.
• Name Reservation: After obtaining DSC and DIN, the next step is to apply for name reservation of the Section 8 company with the MCA. The name should comply with the naming guidelines of the Companies Act, 2013 and should be unique and not identical to any existing company or trademark.
• Drafting of MOA and AOA: The MOA and AOA of the Section 8 company must be drafted in accordance with the provisions of the Companies Act, 2013. These documents define the objectives, rules, and regulations of the company.
• Filing of Incorporation Documents: Once the name is reserved and MOA and AOA are drafted, the Section 8 company incorporation documents, including Form INC-12 (for license application), Form INC-7 (for incorporation), and Form INC-22 (for address proof), along with other necessary documents, must be filed with the Registrar of Companies (ROC) electronically through the MCA portal.
• Obtaining License: The ROC will verify the incorporation documents and issue a license under Section 8 of the Companies Act, 2013, allowing the company to be registered as a Section 8 company.
• Certificate of Incorporation: Upon obtaining the license, the ROC will issue a Certificate of Incorporation, which officially confirms the formation of the Section 8 company.
• Post-Incorporation Compliance: After incorporation, the Section 8 company must comply with various post-incorporation requirements, such as obtaining a Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), Goods and Services Tax (GST) registration, and other applicable licenses and permits as per the nature of activities.

Benefits of Section 8 Companies

Section 8 companies, also known as not-for-profit companies, enjoy several benefits under the Companies Act, 2013 in India. Some of the key benefits of Section 8 companies include:

• Legal Recognition: Section 8 companies are recognized as legal entities under the Companies Act, 2013, and have a separate legal existence. They can enter into contracts, own property, and sue or be sued in their own name.
• Limited Liability: The liability of the members of a Section 8 company is limited to the extent of their shareholding, protecting their personal assets from the company’s liabilities.
• Non-Distribution of Profits: Section 8 companies are prohibited from distributing profits or dividends to their members. Any income generated by the company must be utilized for promoting its charitable or socially beneficial objectives, ensuring that the company’s resources are utilized for the intended purpose.
• Brand Credibility: Section 8 companies are subject to regulatory oversight and are required to comply with the provisions of the Companies Act, 2013. This lends credibility and transparency to the organization, enhancing its reputation among stakeholders, including donors, partners, and beneficiaries.
• Ease of Funding: Section 8 companies can receive funds in the form of donations, grants, or contributions from individuals, organizations, and government agencies, both in India and abroad. Such funding can be crucial for the sustainability and growth of the organization.
• Flexibility in Operations: Section 8 companies have flexibility in their operations and can undertake various activities to achieve their charitable or socially beneficial objectives, subject to compliance with applicable laws. They can also alter their activities over time to adapt to changing needs and priorities.
• Easy Transferability of Ownership: Section 8 companies provide for easy transferability of ownership by way of transfer of shares, making it convenient for members to exit or transfer their ownership interests, if required.

Takeaway

Section 8 companies, also known as not-for-profit companies, are entities incorporated under the Companies Act, 2013. The incorporation procedures for Section 8 companies in Sikar involves obtaining a license from the Central Government, complying with the Companies Act, 2013, and fulfilling the eligibility criteria. Section 8 companies are subject to certain regulatory requirements, and it is advisable to consult with a qualified professional, such as Legal Window’s professionals for proper understanding and compliance with the provisions, benefits, and requirements of Section 8 companies in Sikar.