Section 8 Companies: Formation, Compliance, Features & Exemptions

Summary: A Section 8 Company, registered under the Companies Act, 2013, operates for non-profit objectives such as social welfare, education, arts, or environmental protection. These companies cannot distribute profits as dividends and must use income solely for their stated purposes. The incorporation process requires filing an application via SPICe+ (INC-32) with necessary documents, including MOA, AOA, identity proofs, and financial estimates. Section 8 Companies do not need a minimum paid-up capital and are exempt from stamp duty. They can function without “Limited” or “Private Limited” in their name. Conversion to another company type requires a special resolution and approval from the central government. Violations of Section 8 rules can lead to fines ranging from ₹10 lakh to ₹1 crore for the company and ₹25,000 to ₹25 lakh for directors. Exemptions for Section 8 Companies include no mandatory appointment of a company secretary, relaxed AGM quorum requirements, and exemption from forming certain board committees. Board meetings are required only once every six months, and related party transactions over ₹1 lakh must be disclosed. Compliance with financial reporting is essential to maintain these benefits.

Before formation of the company, decision has to be made by promoters regarding:

• Proposed name of the company
• Objects to be carried by the Company
• Registered office address
• Authorized capital
• Number of promoters, directors, and shares to be subscribed by promotor
• Proposed name of a section 8 company shall not include the words Like foundation, forum, association, federation, chambers, confederation, council, electoral trust, etc.
• Name should not fall in the list of undesirable names mentioned in rule 8A of the Companies (Incorporation) rules,2014
• There is no requirement to add the word Limited or Private Limited to its name

The Section 8 company shall make an incorporation application in SPICe+ (Simplified Proforma for Incorporating company Electronically Plus- INC32) with the fees to the Registrar for a license, the following documents are required such as:

• Memorandum of Association in Form No- INC 13
• Article of Association
• Declaration in Form No- INC 14 by an Advocate, PCA/PCWA/PCS
• Address Proof of the subscribers
• Identity proof of subscribers
• PAN card of the subscribers of MOA
• estimate of the future annual income and expenditure of the company for next three years and to include the sources of the income and the objects of the expenditure
• declaration by the persons making the application
• Proof of Office address
• Self-Declaration by subscribers

Application for Incorporation in web form SPICe+: for reservation of name, incorporation of a new company and for application for allotment of DIN, PAN, TAN, EPFO registration, ESIC registration, Opening of Bank Account for the Company, shops and Establishment registration and with other supporting documents like MOA, AOA, directors details.

After deciding on the name and the structure of section 8 company:

• Directors to have valid DIN and DSC
• E-Forms to be submitted with the Registrar of Companies
• MOA and AOA the company shall not alter the AOA/MOA anytime, without the approval of central government

Conditions required for conversion of a Company registered as Section 8 into any other structure:

1. Section 8 company shall pass a special resolution at a general meeting for approving such conversion.
2. Explanatory statement annexed to the notice convening the general meeting shall provide the reasons for opting for such conversion, includes the following document requirements such as:

• Date of incorporation of the company
• Principal objects of the company as found in MOA
• Reasons as to why the activities for achieving the section 8 objects of the company cannot be carried
• Principal or main objects of the company are proposed to be altered, what would be the altered objects and the reasons for the alteration
• Details of any privileges or concessions currently enjoyed by the company details of impact of the proposed conversion to any other structure on the members
• Certified true copy of the special resolution along with a copy of the Notice convening the meeting and explanatory statement shall be filed with the Registrar in Form No.MGT.14 with the fee
• An intimation with copy of the application with annexures as filed in Form no. INC.18 with the Regional Director through MCA portal
• Copy of the application with annexures as filed with the Regional Director shall also be filed with the Registrar.
• The central government by it order shall revoke the license granted earlier to section 8 company, if it contrives/violates any conditions/provisions of the act/rules. If being satisfied in the public interest, direct the company to wound up or can be amalgamated.
• No order can be passed unless an Opportunity of being heard is given and a copy of the order shall be provided to the registrar.
• The section 8 company shall be amalgamated only with other section 8 company.

If a company makes any default in complying with Section 8 requirements:

1. The company shall be punishable with fine which shall not be less than 10  lakh rupees but which may extend to 1 crore rupees and
2. Directors and every officer of the company, who is in default shall be punishable with fine which shall not be less than 25000 rupees but which may extend to 25 Lakh rupees .
3. If affairs of the company are conducted fraudulently, every officer in default shall be liable for action.

Features of a Section 8 Company:

• It is formed for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment, etc
• Profits/income to be applied only for promoting its objects
• Prohibits the payment of dividends to its members
• Name of the Company can be incorporated without using the word “Limited” or “Private Limited”
• There is no requirement of any minimum paid up capital
• It is exempted from stamp duty registration
• One Person Company cannot function as a Section 8 Company

By Notification No. F. No. 1/2/2014-CL.V dated June 5, 2015, the Central Government has granted exemptions to section 8 companies:

• Under section 2(24)- company secretary is not required to be appointed to ensure compliance with the provisions of the Companies Act 2013.
• No need for minimum share capital In line with the relaxation announced for private limited companies, section 8 companies too are no longer required to maintain a minimum share capital.
• Under section 96 for AGM compliance, the time, date and place of each annual general meeting are decided upon before-hand by the board of directors having regard to the directions, if any, given in this regard by the company in its general meeting.
• Shorter notice period for AGM, it is proposed that only 14 days’ notice shall be required to convene an annual general meeting of a section 8 company
• Quorum for the AGM shall be either 8 members or 25% of its total strength whichever is less and the quorum shall not be less than 2 members
• No necessity to record minutes of meetings, unless required under section 118
• Section 8 companies may send the audited financial statements/ Dispatch of financial statements and other documents, 14 days before the date of Annual general meeting.
• Number of maximum and minimum number of Directors is not applicable to Section 8 Companies
• Appointment of independent directors shall not apply
• Section 150 deals with manner of selection of independent directors and maintenance of databank of independent directors, which is not applicable to Section 8 companies
• Section 8 companies shall no longer be required to hold the first meeting of the board within 30 days of incorporation of the company
• Board meeting of the directors is required once every six calendar months
• Quorum for Board meetings under section 174, shall be one third of its total strength or two directors, whichever is higher and includes the participation of directors by VC or by OAVM shall also be counted for quorum
• Formation of Audit Committee, Nomination and Remuneration Committee and the Stakeholders Relationship Committee under section 177,178 is not required for section 8 company
• Right of persons other than retiring directors to stand for directorship Section 160 shall not apply to section 8 companies
• Directorship in more than 20 companies shall not apply which deals with restrictions on number of directorships
• Section 188 –Related party transactions and 189- register of contracts or arrangements in which directors are interested, both shall apply to section 8 companies, when the transactions/ terms and conditions of the contract or arrangement exceed one lakh rupees
• The exceptions/modifications/adaptations shall apply to Section 8 company only when there is no default in filing its financial statements 137 or annual return under section 92 with the Registrar.

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Disclaimer: The views expressed in this write-up do not represent any regulatory body or organization. This content is intended solely for informational and educational purposes and is not meant to harm or challenge any individual or entity.