Procedure to incorporate Section 8 Companies

CS Shikha Mehra

Section 8 of Companies Act, 2013– Formation of companies with charitable objects, etc. 

OBJECTIVES: 

Objectives of Company proposed to be formed under this Section should be to promote commerce, art, science, sports education, research, social welfare, religion, charity, protection of environment or any such other object. [Section – 8(1) of Companies Act 2013]

APPLICATION OF PROFITS EARNED:

It shall only apply its Profits, if any, or other income in promoting its objects. [Section – 8(1) of Companies Act 2013]

PROHIBITION ON PAYMENT OF DIVIDEND TO MEMBERS:

It shall not distribute any dividend to its members.

NO ALTERATION IN THE MEMORANDUM & ARTICLES OF ASSOCIATION OF COMPANY EXCEPT WITH THE PREVIOUS APPROVAL BY CENTRAL GOVERNMENT:

A Company registered under this Section shall not alter the provisions of its Memorandum of Association or articles except with the previous approval by central government.

EFFECT OF ASSETS IN CASE OF WINDING UP/ DISSOLUTION OF COMPANY:

If on winding up or dissolution of section 8 company and after satisfaction of its debts and liabilities, if there remains any asset then the same shall be transferred, as per direction of the National Company Law Tribunal either to another section 8 company with similar object or to the credit of the Rehabilitation and Insolvency Fund formed under section 269

AMALGAMATION

section 8 companies can amalgamate only with other section 8 company and having similar objects.

PENAL PROVISIONS:

Section 8 company who makes default in complying with the provisions of section 8 shall be punishable with fine which shall not be less than Rs. 10,00,000/- but which may extend to Rs. 1,00,00,000/-.

Further, the directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 3 years or fine which shall not be less than Rs. 25,000/- but may extend to Rs. 25,00,000/- or with both, imprisonment and fine.

PROCEDURE FOR THE INCORPORATION OF SECTION 8 COMPANY:

1. APPLICATION FOR DIN (DIRECTOR IDENTIFICATION NUMBER) OF PROPOSED DIRECTORS:

First of all, we have to apply for the DIN (Director Identification Number) of proposed directors.

2. APPLICATION FOR THE RESERVATION OF NAME:

After obtaining DIN, application for the Reservation of Proposed name in Form INC -1 is filed, in which we can apply for 6 names out of which the name which is available with the department is reserved.

3. MAKE APPLICATION FOR LICENSE OF SECTION -8 COMPANY

To incorporate a new company under section 8, an application shall be made in Form No. INC.12.

And application shall be accompanied with following documents:

(i) draft Memorandum and Articles of association of the Company, in Form no. 13;

(ii) Declaration (in Form no. INC.14) by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, that the draft memorandum and articles of association have been drawn up in conformity with the provisions of section 8 and rules made there under and all the requirements under section 8 have been complied with;

(iii) 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; and

(iv) A declaration (in Form no. INC.15) by each of the persons (Proposed Directors/ Promoters) making the application.

4. INCORPORATION OF COMPANY

A. After obtaining License, Form INC-7 is filed along with following attachments:

(i) Affidavit by each Proposed Director of the Company regarding non acceptance of Deposits by the Company proposed to be formed.

(ii) Form INC -8 by by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice.

(iii) Form INC 9 by each subscriber to the Memorandum of Association of the Company.

(iv) Form INC -10 by each subscriber to the Memorandum of Association of the Company.

B. For the purpose of Appointment of First Directors of the Company, Form DIR 12 is filed along with the following attachments:

(i) Form DIR-2

(ii) Form INC-9

C. For the purpose of Registered office of the Company, Form INC 22 is filed along with the following attachments:

(i) No Objection Certificate in case property where Registered office is proposed to be situated is the name of Director/ Relative of Director; or

(ii) Rent Agreement along with Rent Receipts in case property where Registered office is proposed to be situated is taken on Rent/ lease.

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