The main motive behind the establishment of the company is profit. Section 8 companies are named section 8 of the companies act, 2013, and are formed to promote activities such as art, commerce, science, education, sports, research, social welfare, etc. It functions exactly like a limited company which includes all the rights and obligations that come up with a private limited company, However, it differs from the companies in one aspect i.e. there is no need to use Section 8 and limited in its name.
The income of the company must be used to promote the charitable objects only also there is no need to pay a dividend to the members of the company. A section 8 company has been gaining popularity and has become so popular that even the new groups are getting registered as section 8 company rather than trust or NGOs. The central government incorporation certificate to all such companies and also tells them about the restrictions and conditions. In case they don't fulfill them the central government may also order them to wind up their company. Legal action will be taken against the company if any fraud objective of the company is proved.
A section 8 company is similar to trust and society only the difference is that section 8 company is registered under the central government's ministry of corporate affairs whereas Trust and societies are registered under the state government. As compared to trust and societies section 8 companies have various advantages like better legal standing and improved recognition. It also has higher credibility amongst donors, stakeholders, and government departments.
The definition of section 8 company states that it is the company established for the promotion of commerce, arts, science, sports, education, protection of the environment and other activities. Thus, we can say that it is the company that is registered under companies act 2013 for charitable purposes or for non-profit- purposes.
There are many advantages of section 8 companies like It has to pay very little or no corporate taxation and also the legal compliances of section 8 companies are very less. As every coin has two sides, Section 8 Company also has some disadvantages too like no matter how much does a company earn, it would not be able to distribute the profits in any form. They are strictly prohibited from using even a single penny from the profit for their own purpose. This is one of the major reasons why people still form NGO’s and trust.
Section 8 company may be a private limited company or a public limited company. It is suitable for non- profit objectives. As stated in the law if a section 8 company is a private limited company then minimum of 2 promoters are required and in case of public limited section 8 company minimum, 7 people must be the promoters of the company. Registration process of section 8 company is similar to that of any other company registration in India with an additional requirement of seeking a prior license under section 8 of the companies act, 2013 from the central government.
As compared to trust and societies there are many advantages of section 8 companies as they have higher credibility amongst donors, government department and other stakeholders.
1. Tax benefit
As section 8 companies is a non-profit organization that is why they are exempted from some provision of income tax. They are given various other deductions and other tax benefits. They are required to pay less stamp duty as compared to other organizations.
2. No minimized share capital
As compared to other limited company like private, public or one person company, the companies which are registered under section 8 does not require such share capital. They can be directly funded from a donation made to them or from subscriptions.
As compared to any other Non-profit organization like trust and societies a section 8 company has more credibility as it is licensed by the central government. Furthermore, it has more strict regulations such as no change in MOA and AOA can be done in any situation in section 8 company. A section 8 company has a more reliable image in comparison to other legal structure because of its strict compliances.
4. No requirement of title
Unlike other business structures like a private limited company, public limited company who have to use the title of the "limited company" section 8 has exempts the use of any title, they can still exercise without informing the public of their limited liability status.
5. Ease of transfer
Unlike the other limited liability companies who are not allowed to transfer ownership and title, in section 8 company transfer of ownership and title is much easier. It allows the transfer of both movable and non-movable interest with no sort of restrictions and hurdles.
Unlike other limited companies where profit can be distributed among all the shareholders in the company. In section 8 companies there could be no distribution of profit to the shareholders and partners.
Members or shareholders in section 8 company will not get any benefit or any other advantages out of the company. They could not use the profit of the company for their personal purposes.
The central government has imposed various conditions and restrictions on the company which they have to follow and if they don't they can even ask them to wind up the company.
There could be no distribution of profits to its shareholders and partners, unlike other limited companies in which all the shareholders of the company can enjoy such rights.
Section 8 company cannot alter the MOA (Memorandum of Association) or AOA (Articles of Association) without the approval of the central government.
PAN Of all directors
Voter Id / Driving License / Passport Of All Directors
Bank Statement Of All Directors
Electricity Bill Of Business Promises
Passport Size Photo of all Directors
NOC from land lord (format will be provided by us)
Step 1: Obtain the required documents
Identity proof: Copy of PAN card of all directors
Proof of Address: Copy of Aadhar card/telephone bill/electricity bill not older than two months
Utility bills of registered office
Passport size photograph of Directors/promoters
If office premises is taken on rest then a Rent agreement & License agreement is necessary
Step 2: Prepare DSC and DIN
The next step in the procedure of section 8 registration is to obtain DSC (Digital Signature certificate) and DIN (Director Identification Number).
Step 3: Name approval
For the name approval maximum of 6 names may be provided by the applicant and it must include the words such as foundation, council, association, etc. as per the company's rule 2014. The approved name has the validity of 60 days and the application should be filled in Form INC-1 to the registrar of the company.
Step 4: MOA and AOA
Draft the MOA (Memorandum of association) and AOA (Articles of association) of the proposed company in Form INC – 13
Step 5: Applying for License
File an application in form INC 12 along with the prescribed fees for the license registration and after that submit the attachment of required documents.
Step 6: Filling form with ROC
Forms like Form No. INC – 7, Form No. INC – 22, Form No. DIR – 12 are to be filled with ROC along with the documents
Step 7: Certificate for incorporation from ROC
If ROC is satisfied with the Documents and the incorporation form, Certificate of incorporation is issued by the registrar of companies with unique CIN (Company identification number)