Follow Us :

Introduction of Section-8 Company

A Section-8 Company, also known as a Not-for-Profit Organization, is incorporated with the objective of promoting commerce, art, science, sports, research, education, religion, protection of the environment, charity, or any other purpose. Such organizations intend to utilize their income and profits for advancing their objectives and prohibit the payment of dividends to their members. This type of company can be incorporated as either a Private or a Public Company.

Section 8 Companies, akin to Trusts or Societies, differ in their registration process. While Trusts and Societies register under State Government regulations, Section 8 Companies are registered under the jurisdiction of the Central Government’s Ministry of Corporate Affairs. This central recognition grants Section 8 Companies/NPOs greater credibility among stakeholders and donors.

Advantages of Section-8 Company

The main advantage of a Section 8 company is that the liability of its members is limited to the extent of capital invested by them in the company. Therefore, they cannot be held personally liable for it, and it is a legal entity separate from its members and directors. Secondly, individuals contributing to a Section 8 company are offered amazing tax benefits under Section 12A and deductions under Section 80G of the Income Tax Act, 1961, also along with the tax Benefits, various rebates are also offered to the Section-8 Companies under the Income Tax Act, 1961.

There is no requirement for a minimum capital when incorporating a Section 8 Company, and the capital structure can be adjusted according to the company’s growth needs at a later stage.

Now you may come across a doubt, that can a firm become member in section 8 company?

The answer to it is yes, the firms can also become members which is another benefit of incorporating a Section -8 Company, the firms can also become a part of it by subscribing the shares of the Company through a representative

There are less Procedural Compliances which means Section- 8 Companies are not required to involve in much complicated compliances under the Companies Act, 2013 but are closely monitored under the Companies Act, 2013

There are some minimum requirements for Section 8 Company Registration that is Minimum Two Directors should be there with valid digital signature and director identification numbers and maximum Fifteen directors are allowed subject to rules as per companies act 2013, the objective shall be non-profit i.e. charitable object and there is no minimum capital requirement in section 8 company.

What are the documents that are required for Section 8 Company Registration?

In case you are getting it registered through a professional, there might be some internal documents as per policy of the professional, but MCA documents include Identity Proof of the Member and Directors that means PAN card, Aadhar card, Voter ID card, Passport etc of the proposed Company, second main document is business Address Proof Owned Property that is copy of registry and latest Government electricity or water bill

Business Address Proof Rented or leased, Rent Agreement, NOC from the Owner, Latest Govt. Electricity Bill or Water Bill

A point to be noted here, most of the time an objection is raised by MCA due to address proof issue, it should be clear and in case of residential address of director, it should accompany with NOC keeping in mind that entity or section 8 company and director are different persons as per companies act, 2013

Next document which is required is address Proof of the members and directors which is the Utility Bill or Telephone Bill or Mobile Bill or Bank Statement which shall not be older than three months

Next thing which is required is the Latest passport size photograph of Member and Directors this will be required for both digital signature certificate as well as MCA form

In case of Foreign Nationals passport copy is required and the documents of Directors and Subscribers must be notarized or Apostilled, notarize is the method which is for documents used within a specific jurisdiction, while apostilles are for international document authentication

Eligibility and process of Registration of section 8 company

The Process of Incorporation of Section – 8 Company

Step 1: Application for DSC

First of all Digital Signature Certificate consisting of the E-signatures is required to be prepared, it take around 1-2 hours

Step 2: Name Availability

The next step is to check the name availability. The name should be unique in nature and should not be similar to name of any other entity or trademark registered. It may take at up to one week

Step 3: E-filing for incorporation of a Company

Once the proposed name has been approved, it is necessary to file an online application through SPICE+ along with the required documents. These documents, obtained as mentioned earlier, must then be submitted to the Registrar of Companies (ROC). The Memorandum of Association (MOA) and Articles of Association (AOA) should be carefully drafted, taking into consideration the primary objective of establishing a Section-8 Company, to avoid any objections

Step 4: Get Certificate of Incorporation

Upon approval, a Certificate of Incorporation and Section-8 License will be sent via email as well as on MCA portal, confirming the company’s official incorporation.

How to Select the Name of Company?

Most of the time one loose Rs. 1000 which is fees for name registration, how to apply it properly? For that you can check Company name availability thereby logging into MCA where you need to keep in mind two or three available options along with the activity type.

The name of a Section-8 Company should include words or suffix like Association, Society, Council, Club, Charities, Foundation, Academy, Institute, Organization, or Federation Example. Xyz social Federation

Along with checking the name availability as I stated above, we also need to check the trademark if already registered under the proposed name which makes the online application for registration more powerful.

If the proposed director is already having the DIN then you can also check whether DIR-3 KYC is completed or else it may attract huge penalties. Section-8 Companies can register themselves under Section 12AA in order to claim any tax exemption along with under section 80G of the Income tax act, the benefit of this is the donor will also be eligible to take exemption while filing his IT Return.

The registration under 80G/12AA can be applied provisionally for 3 years of incorporation, we must note that Section 8 companies are prohibited for payment of any dividend to its Members and are not allowed to raise capital through deposits except donations from general public. Foreign Donations are allowed after following the norms and regulations laid under FCRA. In order to take registration under FCRA the company must be 3 years old.

In conclusion, the registration process for a Section 8 Company, or Not-for-Profit Organization, is governed by the legal regulations, proper documentation, and a commitment to serving societal needs selflessly. By above steps as required by the regulations of Ministry of Corporate Affairs, Section 8 Companies can establish themselves as entities with limited liability for members, while also enjoying tax benefits and privileges under relevant sections of the Income Tax Act. Through their non-profit objectives and dedication to social welfare, Section 8 Companies play a pivotal role in making up a positive change and addressing various societal challenges, thereby embodying the principles of social responsibility and philanthropy in their operations.

Author Bio

CA Aman Rajput, Practicing Chartered Accountant Contact me at 8209604735 Email ID aman.rajput @ mail.ca.in Area of practice:- Income tax, Audit, Company/LLP Incorporation or closure, Business consultancy, cost management, Financing, Startups, MSME, Finance, Virtual CFO and GST Introduct View Full Profile

My Published Posts

All about Income Tax Returns for individuals FY 2023-24 AY 2024-25 Why Charitable NGO shall register under section 80G of Income tax Act and it’s process? TDS Deduction under Old vs New Tax Regime & Budget 2023 Impact Draft Digital Competition Bill, 2024: Analysis Tax Department detects HRA Fraud with illegal usage of PANs! View More Published Posts

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Leave a Comment

Your email address will not be published. Required fields are marked *