Learn about Section 8 companies under the Companies Act, 2013, their registration process, benefits, restrictions, and their role in promoting social welfare and development.
Section 8 companies, also known as Non-Profit Organizations (NPOs), are a type of company registered under Section 8 of the Companies Act, 2013. These companies are formed for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other similar objectives. The primary objective of these companies is not to make profits, but rather to contribute to social welfare.
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Registration Process of NGO – Section 8 Company under Companies Act, 2013:
The registration process for a Section 8 company is similar to that of a regular company. The application for incorporation is filed with the Registrar of Companies (ROC), along with the memorandum and articles of association. The application must also include a declaration from all the proposed directors that they have not been convicted of any offence, and are not disqualified from being appointed as directors under the Companies Act.
The ROC will scrutinize the application and documents to ensure that all the requirements have been met. Suppose everything is found to be in order. In that case, the ROC will issue a Certificate of Incorporation, and the company will be deemed to be incorporated from the date mentioned in the certificate.
The memorandum and articles of association of a Section 8 company must include the objectives of the company, and it must be mentioned that the company is formed for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other similar objectives. The memorandum and articles of association must also state that the profits or income of the company shall be used solely for promoting its goals, and no dividend shall be paid to the members of the company.
Benefits of Section 8 Companies:
1. Tax Exemptions: Section 8 companies are eligible for tax exemptions under Section 80G and Section 12AA of the Income Tax Act, 1961. Donations made to these companies are also eligible for tax deductions under Section 80G of the Income Tax Act.
2. No Minimum Capital Requirement: Unlike other companies, there is no minimum capital requirement for a Section 8 company.
3. Limited Liability: The liability of the members of a Section 8 company is limited to the amount of their contribution to the company.
4. Perpetual Succession: A Section 8 company has perpetual succession, which means that the company will continue to exist even if the members die or leave the company.
5. Credibility: A Section 8 company is seen as a credible entity as it is registered under the Companies Act.
Restrictions on Section 8 Companies:
1. Distribution of Profits: The profits or income of a Section 8 company can only be used for promoting its objectives, and no dividend shall be paid to the members of the company.
2. No Conversion to a Profit-Making Company: A Section 8 company cannot be converted into a profit-making company.
3. Prohibition on Alteration of Objectives: The objectives of a Section 8 company cannot be altered without the prior approval of the Central Government.
4. Stringent Compliance Requirements: Section 8 companies are required to comply with stringent regulations, including the filing of annual returns, conducting regular board meetings, and maintaining proper accounts and records.
1. Objectives: The primary objective of a Section 8 company is to promote social welfare. This includes promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other similar objectives. These companies are not formed to make profits, but rather to contribute to society in some way.
2. Name: The name of a Section 8 company must end with the words “Foundation,” “Association,” “Society,” “Council,” “Club,” “Charity,” “Institute,” “Organization,” or any other similar words. The name must not resemble that of an existing company or trademark.
3. Board of Directors: A Section 8 company must have a minimum of two directors, and there is no maximum limit. The directors must be individuals and not entities. At least one director must be a resident of India.
4. Members: A Section 8 company can have a minimum of two members, and there is no maximum limit. The members can be individuals or entities. The members do not receive any dividends, as the profits or income of the company are used for promoting its objectives.
5. Annual Compliance: Section 8 companies are required to comply with the annual compliance requirements of the Companies Act, 2013. This includes conducting at least two board meetings and one annual general meeting, filing annual returns with the ROC, and maintaining proper accounts and records.
6. Alteration of Objectives: The objectives of a Section 8 company cannot be altered without the prior approval of the Central Government. This is to ensure that the company continues to operate in line with its original objectives.
7. Conversion to a Profit-Making Company: A Section 8 company cannot be converted into a profit-making company. If the company wishes to operate as a profit-making company, it must be incorporated as a new entity and follow the regulations for such companies.
8. Dissolution: If a Section 8 company wishes to dissolve or wind up its operations, it must follow the regulations specified under the Companies Act, 2013. The assets and liabilities of the company must be distributed in accordance with the provisions of the Act.
Conclusion:
Section 8 companies play a significant role in promoting social welfare and contributing to the development of the country. These companies have several benefits, such as tax exemptions, limited liability, and perpetual succession. However, they must comply with stringent regulations and ensure that their activities are in line with their objectives. By doing so, these companies can continue to make a meaningful contribution to society.
{The author i.e. Shahbaz Khan is a Company Secretary and can be reached at (M) 8982766623 and (E) sbkkhan192@gmail.com}
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