Section 8 Company is named Section 8 of the Companies Act, 2013, which pertains to a established ‘for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object’, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members. Therefore, Section 8 Company or Section 25 Company is a company registered under the Companies Act, 2013 for charitable or not-for-profit purposes.
A Section 8 Company is similar to a Trust or Society expect, a section 8 Company is registered under the Central Government’s Ministry of Corporate Affairs. Trusts and Societies are registered under State Government regulations. A section 8 company has various advantages when compared to Trust or Society like improved recognition and better legal standing. Section 8 company also has higher credibility amongst donors, Government departments and other stakeholders.
Formation of Companies with Charitable Objects
(1) Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company
(a) has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
(b) intends to apply its profits, if any, or other income in promoting its objects; and
(c) intends to prohibit the payment of any dividend to its members,
the Central Government may, by licence issued and on such conditions as it deems fit, allow that person or association of persons to be registered as a limited company under this section without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited” , and thereupon the Registrar shall, on application, in the form, register such person or association of persons as a company under this section.
License Under Section 8 for New Companies with Charitable Objects etc.-
(1) A person or an association of persons (hereinafter referred to in this rule as “the proposed company”), desirous of incorporating a company with limited liability under sub-section (1) of section 8 without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited”, shall make an application in Form No.INC-32(SPICe) along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014 to the Registrar for a license under sub-section (1) of section 8.
(2) The memorandum of association of the proposed company shall be in Form No.INC.13.
(3) The application under sub-rule (1) shall be accompanied by the following documents, namely:
(a) the memorandum] and articles of association of the proposed company;
(b) the declaration in Form No. INC.14 by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, that the memorandum and articles of association have been drawn up in conformity with the provisions of section 8 and rules made thereunder and that all the requirements of the Act and the rules made thereunder relating to registration of the company under section 8 and matters incidental or supplemental thereto have been complied with;
(c) 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;
(d) the declaration by each of the persons making the application in Form No. INC 15.
Substituted by the Companies (Incorporation) 6th Amendment Rules, 2019 Amendment Effective from 15th August 2019.
(2) The company registered under this section shall enjoy all the privileges and be subject to all the obligations of limited companies.
(3) A firm may be a member of the company registered under this section.
(4) (i) A company registered under this section shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government.
(ii) A company registered under this section may convert itself into company of any other kind only after complying with such conditions.
Conditions for Conversion of a Company Registered Under Section 8 into a Company of Any Other Kind
(1) A company registered under section 8 which intends to convert itself into a company of any other kind shall pass a special resolution at a general meeting for approving such conversion.
(2) The explanatory statement annexed to the notice convening the general meeting shall set out in detail the reasons for opting for such conversion including the following, namely:-
(a) the date of incorporation of the company;
(b) the principal objects of the company as set out in the memorandum of association;
(c) the reasons as to why the activities for achieving the objects of the company cannot be carried on in the current structure i.e. as a section 8 company;
(d) if the principal or main objects of the company are proposed to be altered, what would be the altered objects and the reasons for the alteration;
(e) what are the privileges or concessions currently enjoyed by the company, such as tax exemptions, approvals for receiving donations or contributions including foreign contributions, land and other immovable properties, if any, that were acquired by the company at concessional rates or prices or gratuitously and, if so, the market prices prevalent at the time of acquisition and the price that was paid by the company, details of any donations or bequests received by the company with conditions attached to their utilization etc.
(f) details of impact of the proposed conversion on the members of the company including details of any benefits that may accrue to the members as a result of the conversion.
(3) A certified true copy of the special resolution along with a copy of the Notice convening the meeting including the explanatory statement shall be filed with the Registrar in Form No.MGT.14 along with the fee
(4) The company shall file an application in Form No.INC.18 with the Regional Director with the fee along with a certified true copy of the special resolution and a copy of the Notice convening the meeting including the explanatory statement for approval for converting itself into a company of any other kind and the company shall also attach the proof of serving of the notice served to all the authorities mentioned in sub-rule (2) of rule 22.
(5) A copy of the application with annexures as filed with the Regional Director shall also be filed with the Registrar.
(5) Where it is proved to the satisfaction of the Central Government that a limited company registered under this Act or under any previous company law has been formed with any of the objects specified in clause (a) of sub-section (1) and with the restrictions and prohibitions as mentioned respectively in clauses (b) and (c) of that sub-section, it may, by licence, allow the company to be registered under this section subject to such conditions as the Central Government deems fit and to change its name by omitting the word “Limited”, or as the case may be, the words “Private Limited” from its name and thereupon the Registrar shall, on application, register such company under this section and all the provisions of this section shall apply to that company.
(6) The Central Government may, by order, revoke the licence granted to a company registered under this section if the company contravenes any of the requirements of this section or any of the conditions subject to which a licence is issued or the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest, and without prejudice to any other action against the company under this Act, direct the company to convert its status and change its name to add the word “Limited” or the words “Private Limited”, as the case may be, to its name and thereupon the Registrar shall, without prejudice to any action that may be taken under sub-section (7), on application, register the company accordingly:
Intimation to Registrar of Revocation of Licence Issued Under Section 8. Where the licence granted to a company registered under section 8 has been revoked, the company shall apply to the Registrar in Form No. INC.20 along with the fee to convert its status and change of name accordingly.
Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard:
Provided further that a copy of every such order shall be given to the Registrar.
(7) Where a licence is revoked under sub-section (6), the Central Government may, by order, if it is satisfied that it is essential in the public interest, direct that the company be wound up under this Act or amalgamated with another company registered under this section:
Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard.
(8) Where a licence is revoked under sub-section (6) and where the Central Government is satisfied that it is essential in the public interest that the company registered under this section should be amalgamated with another company registered under this section and having similar objects, then, notwithstanding anything to the contrary contained in this Act, the Central Government may, by order, provide for such amalgamation to form a single company with such constitution, properties, powers, rights, interest, authorities and privileges and with such liabilities, duties and obligations as may be specified in the order.
(9) If on the winding up or dissolution of a company registered under this section, there remains, after the satisfaction of its debts and liabilities, any asset, they may be transferred to another company registered under this section and having similar objects, subject to such conditions as the Tribunal may impose, or may be sold and proceeds thereof credited to 1[“Insolvency and Bankruptcy Fund formed under section 224 of the Insolvency and Bankruptcy Code, 2016”]
Actions to be Taken in Pursuance of Inspector’s Report. Notified Date of Section: 01/04/2014.
(1). If, from an inspector’s report, made under section 223, it appears to the Central Government that any person has, in relation to the company or in relation to any other body corporate or other person whose affairs have been investigated under this Chapter been guilty of any offence for which he is criminally liable, the Central Government may prosecute such person for the offence and it shall be the duty of all officers and other employees of the company or body corporate to give the Central Government the necessary assistance in connection with the prosecution.
(2) If any company or other body corporate is liable to be wound up under this Act 1[“or under the Insolvency and Bankruptcy Code, 2016”] and it appears to the Central Government from any such report made under section 223 that it is expedient so to do by reason of any such circumstances as are referred to in section 213, the Central Government may, unless the company or body corporate is already being wound up by the Tribunal, cause to be presented to the Tribunal by any person authorised by the Central Government in this behalf
(a) a petition for the winding up of the company or body corporate on the ground that it is just and equitable that it should be wound up;
(b) an application under section 241; or
(3) If from any such report as aforesaid, it appears to the Central Government that proceedings ought, in the public interest, to be brought by the company or any body corporate whose affairs have been investigated under this Chapter—
(a) for the recovery of damages in respect of any fraud, misfeasance or other misconduct in connection with the promotion or formation, or the management of the affairs, of such company or body corporate; or
(b)for the recovery of any property of such company or body corporate which has been misapplied or wrongfully retained, the Central Government may itself bring proceedings for winding up in the name of such company or body corporate.
(4)The Central Government, shall be indemnified by such company or body corporate against any costs or expenses incurred by it in, or in connection with, any proceedings brought by virtue of sub-section (3).
(5)Where the report made by an inspector states that fraud has taken place in a company and due to such fraud any director, key managerial personnel, other officer of the company or any other person or entity, has taken undue advantage or benefit, whether in the form of any asset, property or cash or in any other manner, the Central Government may file an application before the Tribunal for appropriate orders with regard to disgorgement of such asset, property, or cash, as the case may be, and also for holding such director, key managerial personnel, officer or other person liable personally without any limitation of liability.
Sub-section 2 has been notified as on 07/12/2016 and is effective from 15/12/2016.
Sub-section 5 has been notified as on 01/06/2016.
Amendment: (a) Inserted by vide MCA Notification number F.O. 3453(E) Dated 28th May, 2016.
(b) Effective from 15th November, 2016 by The MCA Notification No. S.O. 3453(E) enforcing the related sections of Insolvency and Bankruptcy Code, 2016
(10) A company registered under this section shall amalgamate only with another company registered under this section and having similar objects.
(11) If a company makes any default in complying with any of the requirements laid down in this section, the company shall, without prejudice to any other action under the provisions of this section, be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees and the directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees, or with both:
Provided that when it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under section 447.
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THE AUTHOR – CS DEEPAK SETH CAN BE REACHED AT CSDEEPAKSETH@GMAIL.COM