Section 8 Company Comprehensive Analysis

The ministry of Corporate affairs vide Companies (Incorporation) 6th Amendment Rules, 2019 has amended the section 8-company Incorporation procedure and power of respective Registrars of Companies has given to Central Reservation Centre to approve license. Vide this amendment-licensing requirement INC-12 for new companies has been done away with. Filling requirement of INC-12 for existing companies who wants to convert itself in section 8 company is still there.

History of Company with Charitable purpose

The concept of Section 8 companies was introduced in Companies Act, 2013 that permitted companies with charitable objects etc. to be registered without the words ‘Limited’ or ‘Private Limited’. The restriction was that the Companies were permitted to use the profits only for the purpose for which the company was promoted and there was a prohibition on distribution of dividend.

The Companies Act, 2013 continues with the provision for such companies and provides for a framework for the same under Section 8 of the Companies Act, 2013. Section 8 continues to provide for restriction on application of profits and permits the same only for the purpose for which the company is promoted, prohibits declaration of dividend, continues to permit partnership firms to be a member of section 8 companies etc. 2013

Objects for such companies and specifies objects like sports, education, research, social welfare and protection of environment for which the Companies can be formed under this section.

As per proviso to section 2(85), section 2(85) does not apply to a Section 8 Company and accordingly, a Section 8 Company cannot be treated as a small company

TYPE OF NON PROFIT ORGNISATIONS IN INDIA

• Societies registered under section 20 of the Societies Registration Act 1860.
• Trusts formed under Indian Trusts Act 1882
• Section 8 Company as per Companies Act,2013

IMPORTANT KEY POINTS TO CONSIDER

Name Last Word Inclusion

As per rule 8(7) of the Companies (Incorporation) Rules, 2014, for the Companies under Section 8 of the Act, the name shall include the words foundation, Forum, Association, Federation, Chambers, Confederation, council, Electoral trust and the like etc.

OBJECT incidental and ancillary to the Main object

Memorandum of association of the Section 8 Company shall be in Form No.INC.13. And may inter-alia provide for the doing of all such other lawful things as considered necessary for the furtherance of the objects for which the company has been incorporated.

Payment of Stamp Duty on MOA/AOA, Share Certificate, Share Transfer.

The Indian Stamp Act, 1899, governs stamp duty on memorandum & articles of association of a Company or on any increase in share capital on issue of share certificates n transfer of shares

as adapted by respective state or stamp act of respective state. Some states provide relaxation and some charge as per their respective rate.

Who can become member of Section 8 Company?

• Partnernership Firm
• Limited Liability Partnership
• Trust
• Co-operative Society
• Individual person

Alteration of MOA/AOA

A Section 8 Company can alter the provisions of its Memorandum or articles by passing a special resolution however; such alteration requires the approval of the Registrar of Companies.

If alteration in Memorandum or Articles results in conversion of Section 8 Company to any other kind of company, prior approval of Central Government is required. Such power is delegated to Regional Director

Can section 8 companies be a holding company of another Company?

Yes, section 8 company can promote another company and be a holding company of another company.

Eligible entities who can be converted into Section 8 Company.

• Any existing Limited Company registered under Companies Act,1956,2013 or any other Act,
• Society
• Co-operative Society/Multi State Co-operative Societies
• Trust registered under the trust Act
• Limited Liability partnership
• Partnership Firm

*One-person company cannot be member in section in section 8 company and same cannot be converted into section 8 company

Microfinance activity.

Yes, subject to compliance of applicable RBI Act, Guidelines and directions, Section 8 Companies can carry out micro finance activities. The micro finance activities should be for the promotion of activities as stated in section 8(1) (a) of the Companies Act, 2013.

Advisory Services, Consulting Services.

 As per section 8(1) (a) of the Companies Act, 2013 section 8 company can carry such type of activities.

Quick Bites

• There is no prescription with respect to minimum and maximum directors
• Need to Appoint women director if applicable
• Directorship in section 8 company will not be counted for calculating maximum no of directorship as per section 165
• Need not to appoint Independent director
• Section 152(6) and Section 152(6)(c) relating to rotation of directors is applicable
• Bonus Shares Cannot be issued
• Bonus can be paid to employ but not to members even they are employees.
• There is no restriction on payment remuneration to employees/director.
• In case the employee is also a member, no remuneration or other benefit in money or money’s worth can be given to him except payment of out-of pocket expenses, reasonable and proper interest on money lent, or reasonable and proper rent on premises let to the company.
• Company may in good faith pay prudent remuneration to any of its members in return for any services (not being services of a kind which are required to be rendered by a member), actually rendered to the company
• company can take loan from its members and pay interest thereupon, subject to the provisions of Chapter V of the Act read with rules made thereunder
• Cannot issue redeemable preference shares.
• Section 8 companies are required to have atleast one meeting within every six calendar months
• Section 135 of Corporate Social Responsibility is applicable
• Section 8 Company need to file Financial Statement and other documents if applicable as per rule 3 of the Companies (Filing of documents and forms in XBRL) Rules, 2015.
• Only amalgamation with section 8 company is allowed.
• FDI in Section 8 Companies can be brought in subject to compliance of FEMA Regulations
• External Commercial Borrowings in Section 8 Companies be brought in subject to FEMA Regulations
• The objects of Section 8 Company may be extended beyond India.
• Quorum for board meetings of section 8 companies is 8 directors or 25% of its total strength, whichever is lower. However, the quorum shall not be less than two members.
• Registration under FCRA is mandatory to receive foreign contribution
• No, specific exemption to Section 8 Company from excise duty, GST, customs duty, deduction of tax at source, collection of tax at source etc.
• Section 8 company cannot maintain its books of accounts on cash basis.
• Schedule III of the Companies Act, 2013 is applicable.
• Accounting standard are applicable
• Secretarial Audit is applicable
• Cost Audit is applicable and internal audit applicable
• Companies (Auditors Report) Order, 2016 is not applicable

Registration process

Eligible persons who can apply for Registration of Section-8 Company

Any person or an association of persons intending to register a limited liability company for   objects specified below can opt to apply for registration of Section 8 Company.

The definition of “person” is not defined as per companies Act, 2013 however it is describe in the Section 2(41) of the General Clauses Act, 1897.

“Person” shall include any Company, or association or body of individuals, whether incorporated or not. Therefore, such a person can be natural or a legal person. It is also relevant to note that by virtue of provisions of section 8(3), even a partnership firm can be a member of Section 8 Company.

1. Application for name availability in form RUN*

For name reservation need to file “Reserve Unique Name” (RUN)facility. The name of Section 8 Company shall include the words Foundation, Forum, Association, Federation, Chambers, Confederation, Council, Electoral Trust, and the like etc. Maximum 2 names at a time with 1 resubmission is allowed in RUN facility.

*Name can be reserved through Spice also

2. Filing of SPICe

Filling requirement of INC-12 of License for incorporation of new Section 8 Company has been done away with one can directly file Spice with below attachments.

• Proof of Registered office like Sale Deed/Lease Deed/Rent Agreement etc.
• PAN card of first directors and subscribers;
• Aaadhar card of first directors and subscribers
• Memorandum of Association in Form INC-13;
• Articles of Association;
• Consent and Declaration by first Directors in form DIR-2;
• declaration by first subscriber in form INC-9;
• Latest Utility Bill of Registered office i.e Electricity, Telephone.
• NOC of owner/director if registered office is taken on rent/lease;
• Declaration on stamp paper in Form INC-14 by CS/CA/CWA in practice
• Declaration on stamp paper by each of the persons making the application in Form INC-15;
• An estimate of the future annual income and expenditure of the company for next three years, specifying the sources of the income and the objects of the expenditure;
• Declaration for no deposits
• Description of work proposed to done or already done
• Declaration for Assets and Liabilities for 3 years
• Grounds for which application is made

3. Filing of AGILE

Application for Goods and services tax Identification number, employees state Insurance corporation registration plus Employees provident fund organisation registration.

AGILE is linked form to be submitted with Spice as linked form

Also, Checkout section 195 of income tax act.