Not-for-profit organizations are types of organizations that do not earn profits for its owners. All of the money earned by or donated to a not-for-profit organization is used in pursuing the organization’s objectives and keeping it running. Typically, organizations in the non-profit sector are tax-exempt charities or other types of public service organizations, and as such, they are not required to pay most taxes. In a non-profit organization, income is not distributed to the group’s members, directors, or officers.
With the new web based form SPICE+ there has been number of queries in mind of stakeholders. Lets us explore its related important topics.
How many types of non-profit organizations are operated in India?
1. Section 8 Company as per Companies Act, 2013(Section 25 as per Companies Act, 1956)
2. Societies registered under Section 20 of the Societies Registration Act 1860
3. Trusts formed under Indian Trusts Act 1880
We are going to discuss the company incorporation in this article.
What is section 8 Company?
In India, not for profit company are regulated by the Companies Act, 2013 and related rules. They are as par at normal private or public company. Its features are:-
- It shall has in its objects the promotion of commerce, art, science, sports, education, research, social, welfare, religion, charity, protection of environment and the like.
- Intends to apply its profits, and any other income in promoting its objects only.
- Prohibition for declaration of dividend.
Can section 8 Company be Private or public?
Yes, it is the applicant’s choice to incorporate a Section 8 Company as a private or public limited Company after meeting the compliance requirement i.e. 2 Directors and 2 members in case of private Company and 3 Directors and 7 members in case of public Company. However, One Person Company (OPC) cannot be incorporated as a Section 8 Company as per Rule 3 of the Companies (Incorporation) Rules, 2014.
What are the benefits of section 8 company in India?
If there are so many section 8 company are running in India there must be some benefits and below given are advantages: –
- Tax benefits: Since Section 8 companies are a non-profit organization, so they leverage the exemption from the provision of income tax. The companies also get various other tax benefits and deductions. They employ many perks under section 80G of the Income Tax Act.
- Zero Stamp Duty: A Section 8 company do not have to pay stamp duty on the AoA and MoA of the private or public limited company which other companies surely pays.
- Ease at transferring ownership/title: The limited liability companies don’t have the advantage to transfer their title or ownership, but the Income Tax Act, 1961 does not confide Section 8 companies to transfer their ownership or title thereby, enabling the transfer of both movable and immovable interest without any hurdles or restrictions.
- No minimum Share capital requirement:- a Section 8 company do not need much share capital to set up the entity. The members can directly use the funds from their subscriptions or donations. The limit for minimum capital has been removed.
- Exempted from any name: In opposes to other companies who are under obligation to use their company’s name as ‘limited company’, section 8 companies get exempted from the use of any title. Thus, they can perform their functions without updating the public about their limited liability status.
- Separate legal entity: Section 8 company has a distinct legal entity which means the company’s existence is different from its members. The company has a perpetual existence along with greater flexibility.
What are documents required to incorporate section 8 company?
The following documents are required for formation of section 8 company:-
- Passport size photographs of all subscriber and Directors
- Aadhar card self-certified copy of all subscriber and Directors.
- Pan card self-certified copy of all subscriber and Directors.
- Any of Identity proof Driving License/ Passport/ Voter ID of all subscriber and Directors (self-certified)
- Any of Residence Proof Electricity bill/ Mobile Bill/ Telephone Bill/ Bank statement of all subscriber and Directors (self-certified and not more than two (2) months old)
- Registered office utility bill proof attach any of bill Gas Bill, Electricity bill, water bill (not more than two (2) months old).
What the process to incorporate a section 8 company?
The following is the process to incorporate is as follows:-
- Reserve name of proposed section 8 company. (one can skip if sure the proposed name will be cleared by MCA)
- Proceed for incorporation of Web form SPICE PART- B, once filled submit and prescrutiny the form.
- Proceed for incorporation of Web form SPICE AGILE, once filled submit and prescrutiny the form.
- Download all the forms and proceed for filling on MCA Portal.
How much time it takes to incorporate a section 8 company?
Once the required forms are submitted after payment of all the fess as applicable, the Registrar will check the form for incorporation. It takes maximum seven (7) days for incorporation once it is filled and everything is ok in form.
What are post incorporation compliances for Section 8 Companies?
Once the company is incorporated it mandatory to file following documents: –
- INC-22 for registered office if proposed registered office different from the address filled in incorporation forms within fifteen (15) days.
- Appointment of auditor within thirty (30) from incorporation of company.
- Declaration of commencement of business (COB) within one hundred eighty (180) days from incorporation before starting business activities.
How are section 8 companies are closed?
Section 8 companies can wind-up or dissolve themselves either voluntarily or under orders given by the Central Government. If any assets remain after satisfaction of debts and liabilities upon such winding-up, the National Company Law Tribunal can order the transfer of these assets to a similar company. It can also order that they must be sold and the proceeds of this sale should be credited to the Insolvency and Bankruptcy Fund.
Disclaimer: The above article is prepared keeping in mind all the important and basic question relating to incorporation of section 8 i.e. not for profit company of the Companies Act, 2013. The author has tried to cover all the important and basic question. Under no circumstance, the author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.
(My name is Tripti Shakya, Practicing Company Secretary at M/s Tripti Shakya and Company, and is Corporate Consultant and provides varied array of services including Start-ups mentor, Secretarial, Legal, Trademark, taxation, Audit, GST, Book keeping and other ancillary advisory service in Delhi, Chandigarh as well as The National Capital Region (NCR) and can contact me through email id:- firstname.lastname@example.org and Contact Number: 91-8178515005)