A Section 8 Company in India is a non-profit organization established under Section 8 of the Companies Act, 2013. This type of company is formed with the primary objective of promoting social welfare, education, charity, environmental protection, sports, arts, or any other charitable purpose. CRUISE CORPORATE CONSULTANCY SERVICES Pvt. Ltd. (CCCS) helps entrepreneurs and organizations set up Section 8 Companies smoothly, ensuring compliance with all legal and regulatory requirements. Unlike other types of companies, Section 8 Companies are prohibited from distributing profits or dividends to their members; instead, any profits earned must be reinvested towards achieving the organization’s social objectives.
Key Features of a Section 8 Company
- Non-Profit Nature: A Section 8 Company is a non-profit entity. It cannot distribute profits to its members and must use any income or profit for charitable activities or to achieve its main objectives.
- Separate Legal Entity: Similar to other companies, a Section 8 Company has a distinct legal identity, meaning it can own property, enter into contracts, and sue or be sued in its name.
- Limited Liability: Members and directors of a Section 8 Company enjoy limited liability, which means their personal assets are protected in case of financial liabilities or debt.
- No Minimum Capital Requirement: There is no minimum capital requirement to set up a Section 8 Company. The organization can be started with any amount of capital, which can be scaled as needed.
Objectives of a Section 8 Company
Section 8 Companies are typically formed for the following purposes:
- Promotion of commerce, art, science, research, sports, education, social welfare, religion, charity, environmental protection, or other social causes.
- Any other purpose related to the welfare and development of the public, which aligns with charitable objectives.
- Engaging in activities that promote social and economic development, without focusing on profit-making.
Advantages of a Section 8 Company
- Tax Benefits: Section 8 Companies can receive various tax exemptions and benefits under Indian tax laws if they are registered as charitable organizations.
- Separate Legal Identity: The company has a distinct legal identity, protecting its members and directors’ personal assets from liability.
- Credibility and Recognition: Section 8 Companies are recognized as legitimate non-profits, making them more credible for receiving donations and grants, especially from international donors and government agencies.
- Perpetual Succession: Like other companies, a Section 8 Company has perpetual succession, meaning it continues to exist even if the members or directors change.
Requirements to Set Up a Section 8 Company
- Directors and Members: A minimum of 2 directors and 2 shareholders are required for a Section 8 Company if it is formed as a private limited company, or 3 directors and 7 shareholders if it is a public limited company.
- Resident Director: At least one director must be an Indian resident.
- Company Name: The name of a Section 8 Company does not need to include “Private Limited” or “Limited.” Instead, it must be in alignment with its objectives, and the name must be approved by the Registrar of Companies (RoC).
- MOA and AOA: The Memorandum of Association (MOA) and Articles of Association (AOA) should clearly define the objectives and operational rules of the company.
Procedure to Register a Section 8 Company
- Step 1: Obtain Digital Signature Certificate (DSC)
- The proposed directors must acquire DSCs to digitally sign documents on the MCA portal.
- Step 2: Apply for Director Identification Number (DIN)
- Apply for a DIN for each proposed director using the SPICe+ form.
- Step 3: Name Reservation
- Submit the name reservation application (using the RUN service or SPICe+ form) to ensure that the chosen name aligns with the company’s objectives and does not conflict with existing registered names.
- Step 4: Prepare Incorporation Documents
- Prepare necessary incorporation documents, including:
- Memorandum of Association (MOA) and Articles of Association (AOA): Outlining the purpose, structure, and internal regulations of the company.
- Declaration of Compliance: A statement by the directors confirming that they meet the compliance requirements.
- Income and Expenditure Declaration: A statement affirming that profits will be used only for the charitable purposes specified in the MOA.
- Prepare necessary incorporation documents, including:
- Step 5: Filing for Incorporation with License
- Apply for a license under Form INC-12 to operate as a Section 8 Company. This application is submitted along with the MOA and AOA and other necessary documentation.
- Once approved, the RoC issues the license under Section 8, and the company can proceed with the incorporation.
- Step 6: Certificate of Incorporation
- After verification and approval of documents, the RoC issues a Certificate of Incorporation along with a unique Corporate Identification Number (CIN), giving the Section 8 Company legal recognition.
- Step 7: Apply for PAN and TAN
- The company must obtain a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) for tax purposes.
Compliance Requirements for a Section 8 Company
- Annual Filing: Section 8 Companies must file annual returns and financial statements with the RoC.
- Income Tax Return: The company must file an income tax return each financial year.
- Statutory Audit: An audit must be conducted by a chartered accountant to ensure compliance with financial regulations.
- Annual General Meeting (AGM): An AGM must be held every year to discuss the company’s financial performance and activities.
- Tax Compliance: Section 8 Companies need to comply with tax regulations and may also apply for tax exemption certificates under Section 12A and Section 80G of the Income Tax Act.
Benefits of Tax Exemptions
- Section 12A Registration: This registration exempts the income of the Section 8 Company from taxation, provided that the income is used for charitable purposes.
- Section 80G Certification: Allows donors to claim tax deductions on donations made to the Section 8 Company, which can encourage more donations.
Funding for Section 8 Companies
- Donations and Grants: Section 8 Companies can receive donations from individuals, businesses, and international organizations. Government grants may also be available for specific social or charitable projects.
- Corporate Social Responsibility (CSR) Funds: Corporations in India are mandated to allocate a portion of their profits for CSR activities, and many prefer to contribute to registered Section 8 Companies.
- Foreign Contributions: To receive foreign donations, Section 8 Companies must be registered under the Foreign Contribution Regulation Act (FCRA).
Conversion of Section 8 Company
A Section 8 Company can convert to another type of company (e.g., private limited or public limited) if it no longer wishes to operate as a non-profit. However, this requires prior approval from the RoC and compliance with conversion procedures.
Conclusion
A Section 8 Company is an ideal structure for non-profit organizations seeking a formalized legal entity with limited liability and a professional framework. This company type is particularly suited for entities focused on charitable, educational, or social activities. With tax benefits and easier access to CSR funding, Section 8 Companies are increasingly popular among non-profits in India.
However, strict regulatory compliance and reporting requirements are essential to maintain tax-exempt status and credibility. Consulting with a legal advisor or Chartered Accountant can be beneficial in setting up and managing a Section 8 Company to ensure full compliance with Indian laws. CRUISE CORPORATE CONSULTANCY SERVICES Pvt. Ltd. (CCCS) provides expert guidance to simplify this process and support organizations in achieving their social objectives effectively.
