Introduction: A Section 8 Company is a unique form of nonprofit organization that focuses on promoting charitable activities, art, science, education, sports, and other similar goals. Unlike typical companies, these entities are established with the primary objective of advancing their charitable objectives. This article delves into the formation, benefits, and requirements of Section 8 Companies.
Defining Section 8 Company: A Section 8 Company is essentially a nonprofit organization registered as a Non-Profit Organization. It exhibits the following key characteristics:
- Its objects primarily revolve around promoting various activities such as commerce, art, science, education, social welfare, and more.
- It intends to use its profits or income for the advancement of its objectives.
- It refrains from distributing profits as dividends to its members.
In simple words, a section 8 Company is that Non-profit making organization which is set up only for the promotion of its charitable activities, art, science, education and sports, or other similar activities goals and where its profits are not distributed among the members as Dividend and is utilised only for promoting its charitable objectives.
The biggest example of Section 8 Company includes Infosys Foundation, Reliance Foundation, Tata Foundation.
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Benefits of Section 8 Company:
1. No title required: Unlike other Company, Section 8 Company is to be incorporated with affixing names “Limited” or “Private Limited” in their name(s).
2. Tax exemptions: These companies are qualified to access multiple tax benefits since they are more of a charitable institution and have more access to exemptions under the IT Act like tax benefits under section 80G.
3. Minimum capital requirement: Formation of Section 8 Company does not require huge amount of capital investments, unlike other form of Company, in other words, these entities are not required to maintain a minimum paid-up capital.
4. Financial flexibility: The company can raise funds through donations and subscriptions from members and public at large leading to greater financial flexibility.
Requirements for Incorporation of Section 8 Company:
1. To register a Section 8 Company, a minimum of two directors are required and there is no requirement for a minimum paid-up capital to set up such a company.
2. Section 8 Company can be incorporated without the use of words “Limited” or “Private Limited”, as the case may be.
Steps for Formation and Granting License to Section 8 Company:
STEP 1: RESERVE THE COMPANY NAME: Check name availability of the proposed Company on the portal. Once name is available, a Name reservation application is to be filed in form RUN (Reserve Unique Name).
The proposed name is reserved for 20 days from the date of its approval.
STEP 2: APPLICATION FOR INCORPORATION: After approval of name, an application in form SPICE+ Part B, AGILE PRO-S, E-FORM INC-31, E-FORM INC-13 and INC 9 is to be made for incorporation of the proposed section 8 Company.
Documents Required for SPICE+ Part B:
1. Consent of proposed Director(s) in form DIR 2 along with their proof of residence and identity.
2. Proof of office address, such as a copy of utility bills like electricity, water, or gas bill along with NOC, if any and rent agreement/Lease agreement/etc., if any.
3. Copy of Subscriber sheet of MOA and AOA
4. Declaration from the first Directors/Subscribers of the proposed Company.
5. Applicant’s identity and residential proof.
6. 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.
Documents Required for AGILE PRO-S:
1. Photograph and Specimen signature of Authorized Signatory for EPFO. (Can be anyone out of the proposed directors)
2. Proof of Identity, residence and photograph of any Director other than Authorized Signatory/Primary Owner / Officer Bearer.
Once the application for incorporation is approved, license under Section 8 is granted along with Certificate of Incorporation of the Company.
Annual Compliances of Section 8 Company:
Once Section 8 Company is incorporated, like any other Company, it has an obligation to comply with the following as a part of its Annual compliance(s):
1. Conducting minimum two Board meeting(s) in a year
2. Maintenance of Books of Accounts
3. Preparation of Financial statements
4. Maintenance of audit report
5. Filing of financial statements in form AOC 4 and annual return in form MGT 7
6. Income tax filing.
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Disclaimer: The entire contents of this editorial have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, users of this information are expected to refer to the relevant existing provisions of applicable Laws. In no event I shall be liable for damages resulting from the use of the information.
(The author of this editorial is CS Aakriti Gupta, proprietor of AAKRITI GUPTA & ASSOCIATES; COMPANY SECRETARY in Practice is from Noida and can be reached out at [email protected])
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