What is a Section 8 Company?
The Companies Act defines a Section 8 company as one whose objectives is to promote fields of arts, commerce, science, research, education, sports, charity, social welfare, religion, environment protection, or other similar objectives. These companies also apply their profits towards the furtherance of their cause and do not pay any dividend to their members.
Not all companies have objectives of making profits by carrying out trade and commerce. Many companies primarily have charitable and non-profit objectives. Such entities are referred to as a Section 8 Company because they get recognition under Section 8 of Companies Act, 2013. These companies dedicate all their incomes and profits towards the furtherance of their objectives.
Famous examples of Section 8 companies include Federation of Indian Chambers of Commerce and Industry (FICCI) and Confederation of Indian Industries (CII). The objective of these companies is facilitating the growth of trade and commerce in India.
Features of a Section 8 Company
A Section 8 company comprises of the following distinct features that most other kinds of companies do not have:
- Charitable objectives: Section 8 companies do not aim to make profits. Their objectives are purely charitable in nature. They aim to further causes like science, culture, research, sports, religion, etc.
- No minimum share capital: Section 8 companies, unlike all other companies, do not require a prescribed minimum paid-up share capital.
- Limited liability: Members of these companies can only have limited liability. Their liabilities cannot be unlimited in any case.
- Government license: Such companies can function only if they have the Central Government’s license. The Government can revoke this license as well.
- Privileges: Since these companies possess charitable objectives, the Companies Act has accorded several benefits and exemptions to them.
- Firms as members: Apart from individuals and associations of persons, Section 8 also allows firms to be members of these companies.
Advantages/Privileges
People generally prefer to conduct charitable activities by forming Section 8 companies instead of regular NGOs and associations. This is because they have limited liability, so their personal assets will not be used in paying debts of the company. Here are some advantages that these companies enjoy:
- Members have limited liability.
- No minimum capital requirements.
- They get several tax exemptions.
- Stamp duties and high fees are not payable for registration.
- They have perpetual existence and separate legal status.
- Exemptions from carrying out several procedural compliances.
- More credibility than compared to NGOs, societies, and trusts because they are recognized by the Central Government’s license.
Disadvantages
Despite numerous merits, these companies also have the following drawbacks:
- Members of the company cannot get any dividend.
- Officers and directors do not get benefits and allowances.
- Can only use the profits for furthering charitable aims and objectives.
- Amendment in memorandum and articles of association requires Central Government’s permission.
- The license is revocable on several grounds.
Who can Incorporate a Section 8 Company?
An individual or group of individuals can apply for Section 8 Company Registration if it holds the below-mentioned intentions. The objectives have to be confirmed to the satisfaction of the Central Government.
- If the company intends to promote science, commerce, education, art, sports, research, charity, social welfare, protection of the environment, or other objectives
- If the company has the intention to invest all the profits or the income generated after incorporation in the promotion of such objects only;
- When the company is not intending to pay any dividends to its members.
Procedures involved in Incorporation of Section 8 Companies-
- Obtain DSC and Director Identification Number(DIN) of proposed Directors.
- File Form INC-1 for approval of Name of proposed Company.
- File Form INC-12 for approval of Section 8 Company's License.
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After the approval, a license under section 8 will be issued in Form INC 16.
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File SPICe Form 32 with the ROC for incorporation along with the affidavits, declarations, KYC, consent letter, draft MOA, and AOA after approval of the license.
If the ROC is satisfied with the submitted forms, the ROC is issued a Certificate of incorporation.
