INTRODUCTION
To provide an option to the person or association of person with a legal entity to carry charitable objects the government of India came-up with the section 25 in the Companies Act, 1956 and subsequently replaced by the Section 8 of the Companies Act, 2013.
Section 8 discusses the incorporation of the company with charitable objects, conversion of other limited company incorporated under this act to the company with the charitable objects and Section 8 Company’s conversion into private or public limited company. In this write-up, however, I am focusing only on the incorporation of the company with charitable objects.
Along with section 8 rules are also applicable and we will discuss it as they may be required in our discussion.
LEGAL ASPECT
As we already discussed section 8 and applicable rules of Companies (Incorporation) Rules, 2014 is applicable for the incorporation of the company with charitable objects. We will be reproducing them part wise as and when we discuss them for the reference.
Coming back to Section 8; I am for reference reproducing sub-section (1) without its sub clause.
(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:-
In sub-section (1) one word especially draw my attention and that word is “Limited Company”, so it is clear that only the limited company can be incorporated section 8 Company. The unlimited company can’t be incorporated under section 8.
Another important aspect is the Centre Government (Power delegated to the Registrar of Companies) needs to satisfied about something for granting a license under this section. Let us now discuss what we need to satisfy to Registrar for a license under this section. For reference I am now reproducing the clauses to sub-section (1);
(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,
These clauses provide the conditions to be satisfied for granting the license under section 8. First and foremost is clause (a) which provides that such company can be incorporated only to promote the following objects;
1. promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object.
In short, these objects cater to the greater welfare of society.
Coming to clause (b), if such a company generates any profit or any other income it must be used to promote the objects of the company only.
Last and final clause is clause © that the company should prohibit the payment of dividend.
To conclude clause (b) and clause (c) we can say that surplus, if any, is generated it can be used to promote the object or can remain in the surplus account, however, it cannot be distributed as dividend.
It is further provided that if Registrar is satisfied that the company fulfills the above condition it will grant and register the company as a limited company. However, what makes it different from the other company is that companies licensed under this section don’t need to use suffix Limited or Private Limited, as the case may be, with their name.
However, notwithstanding the company not using the suffix “Limited” or “Private Limited” but the company will enjoy all the benefits and will be under the obligation of a limited company.
There is the flexibility provided for a company licensed under this section that is Partnership Firm can be a member for the company licensed under this section, the same is provided under sub-section (3).
PROCEDURAL ASPECT OF THE INCORPORATION
Incorporation of Section 8 Company is governed by Rule 19 of the Companies (Incorporation) Rule, 2014 along with section 8. The incorporation will be done through Spice+, Spice+ is an integrated embedded system for the company’s incorporation. Spice+ is divided into two parts that are Part A and Part B, Part A is for name reservation and Part B is for the incorporation of the company.
Person incorporating the company have a choice either to first reserve the name with Part A and then proceed with the incorporation of the company through Part B or fill both Part A and Part B together.
However, it is advisable to first reserve the name and incorporate company since it will lead to procedural simplicity.
It is to be noted that while reserving the name for Section 8 Company there is no need to add suffix “Private Limited or Public Limited”, as the case may be, in the name field while mentioning name for the reservation of name as we do in the other cases.
Once we reserve the name or otherwise proceed to fill the Part-B after filling Part-A, we need to provide the information required under Part-B and attach the following documents with INC-12;
- Memorandum of Association for Section 8 Company which shall be INC-13,
- Draft Article of Association,
It is to be noted that, in case of a public and private limited company other than Section 8 Company, if such company don’t have foreign subscribers we don’t need to attach the scanned version of a physical copy of MoA and AoA, rather they are self-populated and we can only edit the required clauses. However, in the case of Section 8 Company, we need to attach the scanned version of physical MoA and AoA.
- Declaration by any of these professionals, CS, CA, CMA, or Lawyer, that the Memorandum and Article comply with all the provision as required for Section 8 Company in form INC 14.
- Estimation of Annual Income and Expenditure for the next 3 years.
- Declaration by all the persons making the application that all the provisions are being followed.
- Along with this proof of Registered Office, and proof of subscribers and directors will also be attached.
Once we submit all the documents required above the Section 8 Company will be incorporated.
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