In India, there are mainly the following types of non-profit organizations:
1. Section 8 Company as per Companies Act, 2013 (Section 25 as per Companies Act, 1956)
2. Societies registered under Section 20 of the Societies Registration Act 1860
3. Trusts formed under Indian Trusts Act 1880
However, Section 8 Companies are considered best due to its systematic constitutional framework. The financial statements, directors’ report and other important documents of a Section 8 Company are easily available online on public inspection and are therefore, considered most reliable. In this write up, we shall study about the various aspects of Section 8 Company.
1. PRELIMINARY RESTRICTIONS:
- It shall has in its objects the promotion of commerce, art, science, sports, education, research, social, welfare, religion, charity, protection of environment and the like.
- Intends to apply its profits, and any other income in promoting its objects only.
- Prohibition for declaration of dividend.
2. INCORPORATION OF SECTION 8 COMPANY:
| S. No. | Particulars |
| 1. | Apply for name using Reserve Unique Service (“RUN”) on following link:
http://www.mca.gov.in/mcafoportal/runService.do Note that it is mandatory that the name of a Section 8 Company includes words like foundation, forum, association, federation, confederation, council, electoral trust and the like etc. as per Rule 8(7) of the Companies (Incorporation) Rules, 2018. |
| 2. | File e-Form INC-12 with the following attachments:
Note that the Form INC-12 has to be approved and then only we can proceed with filing of SPICe Forms. |
| 3. | File SPICe (INC-32) along with the following attachments:
Note that memorandum and articles of association shall be filed as an attachment to Form INC-32 and no separate Form INC-33 (e-MOA) and Form INC-34 (e-AOA) has to be filed. |
| 4. | Certificate of Incorporation along with PAN and TAN shall be received by the applicant. |
3. STATUTORY COSTING
| S. No. | Particulars | Amount (in Rs.) |
| 1. | RUN | 1000 |
| 2. | e-Form INC-12 | 2000 |
| 3. | SPICE Form | Depends upon paid up capital and the state in which the Company is being incorporated |
4. IMPORTANT EXEMPTIONS:
1. A general meeting may be called by giving notice not less than 14 clear days instead of 21 clear days.
2. It shall be enough for a Section 8 Company to hold at least one meeting within every six calendar months instead of holding four meetings a year.
3. Recording of minutes of General Meetings, Board Meeting and other resolutions has been withdrawn. However, the minutes of meetings may be recorded within 30 days of conclusion of the meeting in cases where the company’s articles provide for confirmation by way of circulation of minutes.
4. Conditions requiring and governing appointment of independent directors have also been waived off.
5. Any person can be appointed as Company Secretary even if he/she is not a member of Institute of Company Secretaries of India.
6. The maximum limit of 15 directors and appointment of more than 15 directors by passing special resolution has been withdrawn.
7. The bar on taking up directorship in more than 20 companies has been relaxed.
8. A firm can even be a member of a Section 8 Company.
FREQUENTLY ASKED QUESTIONS (FAQs):
Q.1 Is it necessary to incorporate a new Section 8 Company only?
Reply: No, existing Companies can also get converted provided it meets up the compliance norms.
Q.2 Can Section 8 Company be incorporated both as Private and Public Limited Company?
Reply: Yes, it is the applicant’s choice to incorporate a Section 8 Company as a private or public limited Company after meeting the compliance requirement i.e. 2 Directors and 2 members in case of private Company and 3 Directors and 7 members in case of public Company. However, One Person Company (OPC) cannot be incorporated as a Section 8 Company as per Rule 3 of the Companies (Incorporation) Rules, 2014.
Q.3 Is Section 8 Company entitled to any exemptions/reliefs from payment/applicability of excise duty, goods and service tax, tax deduction at source, collection of tax at source, etc.?
Reply: No, specific exemption to Section 8 Company is not available.
Q.4 Is there any relaxation of stamp duty payment?
Reply: Payment of stamp duty is governed by Indian Stamp Act, 1899 as adopted by the respective state. Some states provide relaxation for payment of stamp duty at the time of incorporation. However, no relaxation is provided by any state on issue of share certificates.
Q.5 Are Secretarial standards applicable on a Section 8 Company?
Reply: No, there is a specific exemption to Section 8 and One Person Company from complying with the Secretarial Standards. However, Companies must adhere to Secretarial standards in order to raise the corporate governance standards.
TAX BENEFITS: Section 8 Company is a non-profit organization that is why they are exempted from some provisions of the income tax. They are also given numerous other deductions and other tax benefits. One of such exemption is under Section 80G of the Income Tax Act, 1961, whereby donors to non-profit organizations may claim a 50% rebate against donations made. The registration accorded under Section 80G shall be valid for normally a period of one-three years.
{The author is a Company Secretary in Practice and can be reached at (M) 9999952595 and (E) cskajalgoyal@gmail.com}
Author Bio
In the Sec 8 company, can the return of investment paid to the business investors If yes , how the process flows. Please clarify.
Donation made by Section 8 company to another Section 8 company can get deduction as Expense in calculation of PGBP ?
thanks for the articles.
I have an query regarding one of the company its a private company involving innovation foundation in its name , its a section 8 company .
so what compliances we have to follow as it is already registered on may2017.
please tell