Introduction- The concept of non-profit making company is quite old in India. In erstwhile Companies Act, 1956 it was regulated by Section 25 and that is why it was popular as Section 25 Company. However in Companies Act 2013 provisions related to non-profit making company are given in Section 8 read with Rule 19 and 20 of Companies (Incorporation) Rules, 2014.
Under Indian law, 3 legal forms exist for NGO or Non-Profit Organizations:
Due to better laws, Section 8 Companies have the most reliable strongest organizational structure
It is this robust Act that regulates the formation, management and accountability of a Section 25 company, thus making it more closely regulated and monitored than trusts and societies, and recognized all over the world.
Through this article we shall discuss the basic provisions and procedure for incorporation of a non-profit making company as given in Section 8 read with Rule 19 and 20 of Companies (Incorporation) Rules, 2014.
Section 8 Company or a Non-Profit organization (NPO) is a Company established for promoting commerce, art, science, religion, charity or any other useful 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.
An NPO/NGO can be formed for promotion of any useful object like sports, education, research activities etc. The term No Profit does not mean that the Company cannot generate profit or income, but it essentially means applying the income for further promotion of the object and not for distributing it to the promoters. It means that the Company can earn profits but the promoters cannot be benefited out of those profits.
Corresponding provisions of the Companies Act, 1956: Section 25
Corresponding provisions of the English Companies Act, 2006: Sections 42, 181 and 226
A COMPANY INCORPORATED UNDER SECTION 8 OF THE COMPANIES ACT 2013 IS:
As per Section 8 (1): A Non-profit making Company is a Company which:
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.
IMPORTANT PROVISIONS RELATING TO SECTION- 8 COMPANIES:
The DISADVANTAGES of section 8 companies over other companies registered under companies act are discussed below:
Though a Section 8 Company has many advantages and enjoys many privileges yet there are some statutory obligations which are required to be complied with and taken care of by such companies.
PROCEDURE FOR INCORPORATION OF SECTION 8 COMPANY
WHAT DOES THE ACT SAY REGARDING PRE INCORPORATION AND POST INCORPORATION FORMALITIES?
1. NORMAL CONDITIONS:
2. OBTAIN DIGITAL SIGNATURE– The Subscriber applying for availability of name and the proposed Directors need to have DSC. AS per Ministry of Corporate Affairs Class-II DSC is required for e-Filings under MCA21. Subscriber an apply with any of DSC Vender i.e. E Mudra/ Siffy/ TCS etc
3. OBTAIN DIN- As envisaged under section 153 an individual intending to become Director needs to obtain DIN. For obtaining DIN e-form DIR-3 has to be filed which has to be certified by a practicing professional.
4. APPLY FOR NAME:-
a. All the Promoters should have their DIN No.
b. At least one Promoter should have the DSC. (Class 2 Digital Signature)
c. The proposed names selected should fall in guidelines prescribed.
After Name Approval Process:
Once Name is approved by ROC, following are the Pre-Incorporation Steps:
5. DRAFTING OF MEMORANDUM OF ASSOCIATION (MOA) AND ARTICLE OF ASSOCIATION (AOA):
Drafting of Memorandum of Association (MOA) and Article of Association (AOA) is generally a step subsequent to the availability of name made by the registrar It should be noted that the main objects should match with the objects shown in e-Form INC-1 and must reflect in the name of company (Name should be like that a lay man can estimate the objects of company by Name of Company).
These two documents are basically the charter and internal rules and regulations of the company. Therefore, it must be drafted with utmost care and with the advice of the professional. The Directors/ promoters with the help of professional draft MOA and AOA.
AOA (Draft Attached at the end):
Article of Association contains the internal regulations of the Company so care should be taken while drafting it. The model articles are given under table F of Schedule I. Now under Companies Act, 2013 requirement for making alteration to certain clauses of AOA can be made more stringent by way of inserting entrenchment provision.
Also ensure that the MOA & AOA are not ultra-vires the law (Section 6)
MOA (Draft Attached at the end):
The formats of MOA are given in Form INC-13.
Format of MOA and AOA revised from time to time because of change in Companies Act and recently Companies Act 2013 laid down another form of MOA which has total twelve clause. MOA of Section 8 company registration (previously called section 25 company) has been prescribed in form INC-13 by the companies act 2013 followed by rule 19 sub rule 2 of companies incorporation rule 2014. Procedure for drafting MOA of section 8 company start from 1st clause which contain name of the section 25 or 8 company example XYZ Foundation or XYZ association etc. Second clause state to mention state in which registered office of the proposed section 8 company will be situated example NCT of Delhi for Delhi or State of Haryana for Haryana etc.
Third clause of INC-13 i.e. MOA contains charitable object of section 8 company i.e. to establish industrial training center or college or social service center etc. i.e. only object having charitable purpose and restricted company to support with its fund which will make trade union or other company which are observed by its member.
Clause four of moa clearly mention that object of the company extend whole of India except J & K.
Fifth clause of the MOA restricted diversion of section 8 company income or property to any of its member or its related party in any form. It has also been clarified that profit of such company can only be utilized for its charitable object. Prudent Remuneration allowed to its member only when he actually provides services to the company.
Clause 6 provides that memorandum of association cannot be altered unless alteration has been previously approved by the registrar of company. Clause seven state liability of the member is limited clause eight contain information about share capital of the company. Clause 9 required to maintain certain record and books for expenditure income assets etc. and once in an every year accounts shall be examined by auditor about correctness of balance sheet and income & expenditure. Clause ten mentioned about dissolution of section 8 company and whereas clause eleven states section 8 company can be amalgamated only with section eight company having similar object and clause 12 contains detail of subscriber of MOA. Format of AOA of section eight company is same as for private limited company registration.
Signing of MOA & AOA: – The MOA & AOA should be signed by Subscribers(Section7(1)(a)), who shall add their photo, name, address, occupation in presence of at least 1 witness:
One person who will act as witness and will sign in the witness column and mention:
“I hereby witnessed that subscribers signed in my presence on Date____________, at ___________.further I have verified their identity details (Through ID)for their identification satisfy myself of their identification particular as filled in”
Below this witness must mention:
6. Application for License under Section 8 of the Companies Act 2013.
An Application for License under Section 8 shall be filed in form INC 12 : -But at present e-form INC-12 is not available on MCA website then such form will be file as an attachment of form RD-1 with following attachments:
|S. No.||Attachment||Details of Attachments|
|A.||AOA||Article of Association|
|B.||MOA||Memorandum of Association as per Form INC-13|
|C.||INC-14||Declaration By ProfessionalsPursuant to section 7(1) (b) and rule 19(3)(b) of the Companies (Incorporation and incidental) Rules, 2014:
Require to take a Declaration from Professionals Like:
( Advocate, CS-CA-CWA),
Giving declaration that, all the requirements of Companies Act, 2013 and the rules made there-under relating to registration of the company under the Act and matters precedent or incidental thereto have been complied with. On Stamp Paper, Value of Stamp Paper as per the State stamp Act (State: Where register office of Company will be situated).
In DELHI value of Stamp paper is Rs.10 /-. (ATTACHED LIST BELOW). Professional will sign the declaration and will mention Date, Place and Membership No.
|D.||INC-15||Declaration By Professionals[Pursuant to rule 19 (3)(d) of the Companies (Incorporation and Incidental) Rules, 2014]
Require to take a Declaration from Professionals Like:
( Advocate, CS-CA-CWA),
Giving declaration that,
Ø The draft memorandum and articles of association have been drawn up in conformity with the provisions of section 8
Ø All the requirements of the Act and the rules made there under relating to registration of the company under section 8 and matters incidental or supplemental thereto have been complied with;
On Stamp Paper, Value of Stamp Paper as per the State stamp Act (State: Where register office of Company will be situated).
In DELHI value of Stamp paper is Rs.10 /-. (ATTACHED LIST BELOW). Professional will sign the declaration and will mention Date, Place and Membership No
|E.||EstimatedAnnual Income||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.|
|F.||Brief profileOf all the promoters.||Profile of Promoters Like:Ø List of names, descriptions, addresses & occupation of the promoters as well as Board Members of the proposed company.
Ø ID Proof, Directorship, Shareholder ship etc
7. DUTY OF REGISTRAR TO SCRUTINISE THE DOCUMENTS:
If after filling the Requisite forms for incorporation with the Registrar of Companies along with fees, ROC is satisfied with the contents of the documents filed, ROC will issue the Licence in form No. INC.16 under section 8(1) read with rule 19 of Companies (Incorporation) Rules, 2014. Such company registered under section 8 shall enjoy all the privileges and be subject to all the obligations of limited companies.
8. ONCE LICENSE ISSUED THEN FOLLOWING FORMS ARE REQUIRED TO FILE:
|INC-7||1. Memorandum of Association
2. Articles of Association
3. Affidavit from Subscribers in INC-9
4. Specimen signature in INC-10
5. Declaration by professional INC-8
6. Copy of PAN Card
7. Copy of ID proofs
8. Copy of Address Proofs
9. Affidavit for non-acceptance of deposits
10. Directorship/Promoter ship in other companies(if more than 3)
11. Copy of License received from Competent Authority.
|12. Board Resolution (Body corporate subscriber)
13. Certificate of Incorporation & proof of registered office
(Foreign Body corporate subscriber)
14. Entrenched Articles
15. Proof of Nationality(In case of foreign national)
16. Declaration by foreigner if he does not possess PAN
(as per MCA circular 16/2014)
17. NOC in case there is change in the promoters
18. Principal approval taken from RBI for carrying NBFC activity
|DIR-12||1. Consent in DIR-2 along with ID& Address proof2. Affidavit from Directors in INC-9|
|INC-22|| 1. Utility Bill, not older than 2 months old2. Proof of registered office address
3. No objection certificate in case registered office is not taken on lease
# OBTAIN FOLLOWING DOCUMENTS/INFORMATION FROM SUBSCRIBERS: –
|ID Proof (PAN + Voter ID/Passport/Driving License/Aadhar Card)||For foreign nationals and NRI only passport will suffice|
|Address Proof both permanent & present (Electricity/Telephone/ Mobile Bill/ Bank Statement)||The proofs should not be 2 months old|
|Proof of nationality (Applicable only to foreign nationals)||Although all subscribers can be foreigners but at least 1 director should be resident (section 149(3))|
|Disclosure of Directorship/promotership in other companies||Refer definition of promoter (Sec. 2(69))|
|Specimen signature with photo duly verified by notary/Banker in INC-10|
|Affidavit in form INC-9|
|C.||MCA Circular 11/2013||Affidavit for non-acceptance of deposits|
| In case subscriber is a Body Corporate: -· Board Resolution for subscribing shares, making investment & Authorizing a person to subscribe & Sign MOA
· For person authorized, documents required in point A to C shall also be required.
|· In case Body Corporate is LLP the resolution should be approved by all partners.· In case of a foreign Body Corporate, copy of registration & proof of registered address is also required.
· Authorized person cant become subscriber to MOA & AOA in individual capacity at the same time
(Proviso to rule13(4))
|Following information is also required from subscriber: -· Place of Birth(District & State)
· Educational Qualification
· Duration of stay at present address, if less than 1 year then previous address
· Email ID & phone no.
|Address, e-mail id & phone no. should be of subscriber only and not professional.|
OBTAIN FOLLOWING DOCUMENTS/INFORMATION FROM DIRECTORS:
|Affidavit in form INC-9|
|B.||MCA Circular 11/2013||Affidavit for non-acceptance of deposits|
|· Consent to act as Director in DIR-2 along with ID & Address proof· Interest in other firms & entities (reg. No, name, amt. & percentage of investment, Designation)|
|D.||Form DIR-2||Following information is also required from subscriber: -· Email ID & mobile no.
· PAN no.
· No. companies in which acting as director including name of Companies in which acting as MD/WTD/CEO/CFO/CS/ manager
· Particulars of membership & CP no., in case member of professional institute
OBTAIN FOLLOWING DOCUMENTS/INFORMATION SITUATION OF REGISTERED OFFICE:
Situation of Registered Office: – The address of registered office may be intimated by the Promoters at the time of Incorporation or as per section 12 within maximum 15 days of Incorporation. In case address of registered office is not decided then address for correspondence needs to be given. The documents/information required in case the address of registered office is to be intimated at the time of Incorporation are: –
|A.||Complete address of Police station in whose jurisdiction the registered office is situated|
|B.||Utility Bill, not older than 2 months old(electricity/gas/telephone/mobile bill)|
|C.||Proof of registered office address(Conveyance/lease deed/rent agreement along with rent receipts)|
|D.||No objection certificate in case registered office is not taken on lease|
CERTIFICATION OF INCORPORATION:
After the above forms are approved, a certificate of incorporation is issued by the Registrar of Companies in form INC 11 in electronic form and is mailed to the company at its registered Email ID.
CERTIFICATE FOR COMMENCEMENT OF BUSINESS
After incorporation of the Company, an application is to be made for Certificate of Commencement of Business. A declaration is filed by the Directors in form INC 21 to Registrar of Companies of Companies, verified by Company Secretary in practice, Charted Accountant, or Cost Accountant in practice;
CAUTION TO BE TAKEN BY PROFESSIONALS
OTHER INCORPORATION FORMALITIES: After obtaining license under section 8, the company shall be formed as a normal company and the other formalities of incorporation shall be complied with.
REGISTRATION UNDER SECTION 80G: If a section 8 company gets itself registered under section 80G then the person or the organization making a donation to the NGO will get a deduction of 50% from his/its taxable income. The Company has to apply in Form10G to the Commissioner of Income Tax for such registration. Normally this approval is granted for 2-3 years but can be granted earlier depending upon the situations.
(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at email@example.com)