Section 8: Formation of Companies with Charitable Objects, etc.

Section 8: Formation of Companies with Charitable Objects, etc.

Section 8 Company is a Company to be incorporated with the following conditions:

(a). has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;

(b). intends to apply its profits, if any, or other income in promoting its objects; and

(c). intends to prohibit the payment of any dividend to its members.



Procedure/ Checklist for registration of Section 8 Company

  1. Application for Name Approval-
    Apply for name availability though RUN “Reserve Unique Name” facility. The proposed name of a section 8 company under the Act shall include the either of words Foundation, Forum, Association, Federation, Chambers, Confederation, Council, Electoral Trust and the like, etc. Fees for RUN is Rs. 1000/-. Applicant must furnish the main objects of the proposed company.
  2. Application in Form INC-12-
    After approval of the name by ROC, the Applicant can make an application in Form INC-12 to the Registrar for a license under sub-section (1) of section 8. Fees for filing INC-12 is Rs. 2,000/- Documents to be attached with Form INC-12-
    1. Memorandum of Association in Form INC-13;
    2. Articles of Association; (No Specified format – But one can adopt for Table F)
    3. the declaration in Form 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;
    4. Declaration by each of the persons making the application in Form INC-15;
    5. an estimate of the future annual income and expenditure of the company for the next three years, specifying the sources of the income and the objects of the expenditure;
    Once the form INC-12 will be approved, License under section 8 will be issued in Form INC-16.
  3. Application in Form SPICe (INC-32) After receiving Central Government approval i.e. approval of form INC-12, Form SPICe (INC- 32) is required to be filed. Fees for filing Form SPICe (INC-32) depend upon the Authorised Capital and the state where the registered office of the Company is situated.
    Documents to be attached with Form SPICe (INC-32)-
    1. Memorandum of Association in Form INC-13;
    2. Articles of Association; (No Specified format – But one can adopt for Table F)
    3. Consent and Declaration by first Directors in form DIR-2;
    4. Affidavit by the first subscriber in form INC-9;
    5. PAN card & Address Proof of first directors and subscribers;
    6. Proof of Registered office address;
    7. Latest Utility Bill of Registered office like Electricity Bill;
    8. NOC of owner/director if the registered office is taken on rent/lease;
    9. A license issued in form INC-16 after approval of INC-12;
  4. Advantages of Section 8 Company
    1. Tax Exemption to the Donors: The donors who are contributing to Section 8 Companies, they can claim the Tax exemption against the donation they made to a Section 8 company.
    2. No minimum capital requirement: There is no prescribed limit over section 8 companies for the minimum capital requirement unlike other entities such as public limited, but the capital structure can be altered at any stage as the required for the growth of the company.
    3. No stamp duty payable: A section 8 Company is exempted for the payment of stamp duty applicable for registration as applicable in case of other structures such as private limited or a public limited company.
    4. Credible: A Section 8 Company has more credibility as compared to any other Non-profit organization structure be it a Trust or Society. As it is licensed by the central government. It has more stringent regulations such as no change in MOA and AOA can be done at any stage or situation in a Section 8 Company. A section 8 company due to its strict compliances as regard to functioning has a more reliable image in comparison to other legal structures.
    5. Exemption from requirement of mentioning Private Limited or Public Limited: A section 8 company does not require to use a suffix next to its name as Private Limited or Public Limited.
  5. Disadvantages of Registering Section 8 Companies
    1. The profits of the companies could only be used for its object fields only.
    2. There could be no distribution of its profits to its shareholders.
    3. No member related to Section 8 companies could be appointed as a remunerating officer.
    4. The members could enjoy zero benefits or allowance or any other advantages as such. They could only be reimbursed for their pocket expenses that might have occurred in the course.
    5. The main objective of such companies under section 8 is to use its profits in promoting the particular fields only and not for any other purpose.
    6. To alter or amend the Memorandum of Association or the articles of association, Section 8 Companies require to take the prior approval of the central Government.
    7. Income derived from Section 8 company would be applicable to pay tax though there are exemptions that don’t mean that they would completely be exempted from being subject to pay tax.


Exemptions to Section 8 Company

  1. Definition of Company Secretary Section 2(24) shall not apply to Section 8 Company. Section 8 Company can appoint a Company Secretary who may not be a member of ICSI.
  2. No requirement of Minimum Paid-up Capital. Section 8 Company need not maintain any minimum paid-up capital whether incorporated as Private or Public Company.
  3. Exemption from Section 96(2). The company can fix the next AGM date in the meeting of shareholders and based on the instructions the board can call for the AGM. in ordinary companies the board of directors alone have the power to call for AGM, However in case of section 8 company this power may be exercised by the shareholders.
  4. Section 8 company can call a general meeting by giving clear 14 days notice instead of clear 21 days notice.
  5. Exemption from the provision of Section 118 (Minutes and proceeding of Meetings). The section 118 shall not apply as a whole except that minutes may be recorded within thirty days of the conclusion of every meeting in case of companies where the articles of association provide for confirmation of minutes by circulation.
  6. Section 8 company can send a copy of the financial statements which are to be laid before a company in its general meeting to its members not less than 14 days before the date of the meeting instead of 21 days.
  7. Exemption under Section 149 (1) and Ist Proviso thereof. Section 8 company need not comply with the requirement of minimum and a maximum number of directors.
  8. Exemption from the appointment of Independent Directors: Section 8 company need not appoint independent directors.
  9. Exemption from obtaining consent from individuals to be appointed as Directors under Section 160.
  10. The restrictions on Directorship in 20 Companies under section 165(1) will not apply for section 8 companies.
  11. Exemption under Section 173 from holding 4 Board Meeting with a gap of not more than 120 days. Section 8 Company can hold meetings of the Board of Directors once in every six calendar months.
  12. The Quorum requirement of Board Meeting of a section 8 company shall be either 8 members or 25% of total strength whichever is less. However, the quorum shall not be less than 2 members.
  13. Section 8 company can have the Audit Committee without independent directors.
  14. Exemption from Section 178 - Section 8 company need not comply with requirements of section 178 with respect to constituting Nomination and Remuneration Committee and Stakeholders relationship committee.
  15. Section 8 company may decide following matters specified under section 179(3) bypassing resolution by circulation; 1. To borrow monies; 2. To invest the funds of the company; 3. To grant loans or give guarantee or provide security in respect of loans.
  16. Section 8 company need to comply with section 184(2) and section 189 (Disclosure of Interest) requirement only in case of transactions pertaining to section 188 where the terms and conditions of the contract or arrangement exceed Rs. 1,00,000.


Annual Filing of Section 8 Company:

The process of Annual Filing of Section 8 Companies is similar to other Private Limited or Public Limited Companies. The following forms are required to be filed with MCA.

      1. ADT-1 for the appointment of Auditor within 15 days of AGM
      2. AOC- 4/ AOC-4 XBRL for Financial Statements within 30 days of AGM
      3. MGT-7 for Annual Return within 60 days of AGM


Important Points about Section 8 Company

      1. A company registered under this section shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government.
      2. A company registered under this section may convert itself into the company of any other kind only after complying with such conditions as specified in Rule 21 of Companies (Incorporation Rules), 2014.
      3. If a company makes any default in complying with any of the requirements laid down in this section, the company shall, without prejudice to any other action under the provisions of this section, be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees and the directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees, or with both.


Difference between Trust & Society

S No.

Trust

Section 8 Company

1

Trust is governed by the Indian Trust Act, 1882.

Section 8 Companies are governed by the Indian Companies Act, 2013.

2

Trusts are registered under the jurisdiction of Deputy Registrar/Charity commissioner of the relevant area.

The power to register a section 8 Company lies with the Regional Director & Registrar of Companies of the concerned state.

3

The primary instrument for Registration of Trust is the Trust deed.

The primary instrument for Registration of Section 8 Company is the Memorandum and Articles of Association.

4

At least two trustees are required to register as a public charitable trust.

Minimum 2 directors and shareholders. Directors and Shareholders can be the same person.

5

Trusts are governed by their trustees or by the board of trustees.

It is managed by the board of directors.

6

Indian public charitable trusts are generally irrevocable.

A section 8 Company may be wound up or strike Off.

7

There is no requirement of annual return filing.

There is a requirement of annual compliance by the filing of financial statements and the annual return of the company with the Registrar of Companies.

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