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Section 8 of the Companies Act

Section 8 of the Companies Act, 2013 allows the registration of non-profit companies in India with charitable or social welfare objectives. These companies are also known as Section 25 Companies

Listing a public limited company (PLC) on a stock exchange is a crucial step for companies aiming to raise capital from public investors. This process involves submitting an application to a recognized stock exchange, such as the London Stock Exchange or the New York Stock Exchange, which requires compliance with specific rules and regulations established by the exchange and regulatory authorities.

Before applying, the company must ensure it meets the exchange’s eligibility criteria, which may include minimum market capitalization, financial reporting standards, and corporate governance practices. Additionally, the company typically prepares a detailed prospectus that outlines its business operations, financial performance, and potential risks, which must be approved by the regulatory authority. Once listed, the PLC is subject to ongoing obligations, such as timely disclosure of financial results, material events, and adherence to corporate governance standards, which foster transparency and investor confidence.

Limited Liability

Similar to other companies, the liability of members in a Section 8 company is limited to the extent of their share capital, protecting personal assets from business liabilities.

Non-Profit Nature

Being a non-profit entity, any profits generated are reinvested in the company’s objectives rather than distributed as dividends, which can attract socially conscious investors and donations.

Tax Benefits

Section 8 companies can avail of various tax exemptions under the Income Tax Act, making them eligible for deductions on donations received, thus incentivizing contributions from individuals and corporations.

Credibility and Trust

Registering as a Section 8 company enhances credibility and trust among stakeholders, including donors, beneficiaries, and regulatory authorities, as it operates under the scrutiny of the Companies Act.

Access to Funding

Section 8 companies can receive funds from government grants, private donations, and international funding agencies, as they are recognized as legitimate non-profit entities.

Perpetual Existence

Like other companies, Section 8 companies enjoy perpetual succession, meaning they continue to exist even if members change, ensuring stability and continuity of operations.

To register as a Section 8 company (non-profit organization) under the Companies Act, 2013 in India, certain eligibility criteria must be met. Here’s a summary of the key eligibility criteria:

  • Purpose: The company must promote charitable objectives, such as education, social welfare, arts, or science.

  • No Profit Motive: Profits should be used solely for promoting the company’s objectives, with no dividends distributed to members.

  • Number of Members: A minimum of two members is required, and at least seven members if registered with a charitable objective.

  • Directors: The company must have at least two directors, with one being a resident of India if there are multiple members.

  • Registered Office: A registered office in India is mandatory for official communications.

  • Drafting of Documents: The Memorandum of Association (MoA) and Articles of Association (AoA) must clearly state the non-profit objectives.

  • Regulatory Compliance: Compliance with the Companies Act, 2013, and relevant laws is required.

  • Name Approval: The proposed name should not be similar to existing companies or trademarks and must not be prohibited by law.

 

Here’s a checklist for registering a Section 8 company (non-profit organization) under the Companies Act, 2013 in India:

  • Determine Purpose:

    • Define the charitable objectives (education, social welfare, environment, etc.).
  • Select Company Name:

    • Choose a unique name that reflects the organization’s purpose.
    • Ensure the name is not similar to any existing company or trademark.
  • Prepare the Required Documents:

    • Memorandum of Association (MoA): Clearly state the non-profit objectives.
    • Articles of Association (AoA): Outline the internal governance structure.
    • Directors’ Consent: Obtain written consent from each proposed director.

Here’s a list of the documents required for registering a Section 8 company (non-profit organization) under the Companies Act, 2013 in India:

  • Memorandum of Association (MoA):

    • A document stating the company’s objectives, aims, and scope of activities.
  • Articles of Association (AoA):

    • A document outlining the rules and regulations governing the internal management of the company.
  • Identity Proof:

    • A government-issued ID for each director and member (e.g., Aadhar card, passport, voter ID, or driver’s license).
  • Address Proof:

    • Proof of the residential address of each director and member (e.g., utility bills, bank statements, or lease agreements).
  • Directors’ Consent:

    • A written consent from each proposed director to act as a director of the company (DIR-2 form).
  • Declaration by Directors:

    • A declaration stating that the company will not be formed for the purpose of profit, along with the company’s financial viability (Form INC-14).
  • Bank Account Statement:

    • A statement indicating the deposit of the minimum share capital in the company’s bank account (if applicable).
  • Registered Office Proof:

    • Document verifying the registered office address (e.g., lease agreement, title deed, or utility bill).

Documents necessary for filing SPICe+ form (INC-32) for the registration of a private limited company are outlined as follows:

A. For Indian Nationals serving as directors and subscribers:
  • Affidavit on stamp paper: a declaration by all subscribers affirming their intention to become shareholders of the company
  • Office address proof like the Rental Agreement or Ownership Deed
  • Electricity bill, water bill and other utility bills of the last two months
  • Copy of approval if required
  • Trademark registration details
  • NOC from property owner
  • Proof of identity and address
B. Required Documents For Foreign Nationals serving as directors/Shareholders
  • Passport: Proof of identity
  • Address proof: Accepted documents include a driving license, residence card, bank statement, or government-issued identification with a valid address.

Types of Section 8 Company

Section 8 companies, also known as non-profit organizations under the Companies Act, 2013 in India, can be categorized based on their objectives and the nature of their operations. Here are the main types of Section 8 companies:

Charitable Section 8 Companies

These companies are formed primarily to promote charitable activities. Their objectives may include relief of poverty, education, medical relief, environmental protection, and other community services.

Educational Section 8 Companies

Focused on promoting education, these companies may run schools, colleges, training institutes, or other educational programs. They aim to provide quality education and facilitate skill development.

Social Welfare Section 8 Companies

These organizations work towards the welfare of specific communities or disadvantaged groups. Their activities may include empowering women, supporting children’s rights, or promoting health and wellness in communities.

Cultural and Artistic Section 8 Companies

Established to promote arts, culture, and heritage, these companies may organize cultural events, exhibitions, and artistic performances, fostering creativity and cultural awareness.

Environmental Section 8 Companies

These companies focus on environmental conservation and sustainability. Their activities may include afforestation, wildlife protection, pollution control, and awareness campaigns related to environmental issues.

Religious Section 8 Companies

Formed for the purpose of promoting religious activities and welfare, these organizations may run temples, ashrams, or conduct community prayers and religious events.

The characteristics of a Section 8 Company  include restricted share transfers, a separate legal entity status, and limited responsibility for shareholders. Here is a clear outline of the same:

  • Non-Profit Objective: Established to promote social welfare, education, charity, arts, or environmental objectives rather than profit.

  • No Dividend Distribution: Profits, if any, are reinvested in the organization’s objectives rather than distributed to members.

  • Limited Liability: Members’ liability is limited to their shareholding, protecting personal assets.

  • Tax Benefits: Eligible for various tax exemptions and benefits to encourage donations and support.

  • Separate Legal Entity: Operates as an independent legal entity, distinct from its members.

  • Perpetual Existence: Continues to exist regardless of changes in membership or leadership.

  • Government Regulation: Subject to oversight under the Companies Act, ensuring transparency and accountability.

  • Flexible Management Structure: Allows for a management structure suitable for non-profit operations.

 

Here’s a step-by-step guide to registering a Section 8 company (non-profit organization) in India under the Companies Act, 2013:

step
  • Choose a Unique Name:

    • Select a name that reflects the company’s objectives and is not similar to any existing company or trademark.
    • Reserve the name using the RUN (Reserve Unique Name) service on the Ministry of Corporate Affairs (MCA) portal.
  • Obtain Digital Signatures (DSC):

    • Acquire Digital Signature Certificates for all proposed directors to complete electronic filings.
  • Director Identification Number (DIN):

    • Apply for DIN for all proposed directors through Form SPICe+ (Simplified Proforma for Incorporating a Company Electronically Plus).
  • Prepare Required Documents:

    • Draft the Memorandum of Association (MoA) and Articles of Association (AoA), clearly stating the non-profit objectives and management rules.
    • Obtain a No Objection Certificate (NOC) if the registered office is rented, or provide proof of ownership if owned.
    • Get a written declaration by the directors and promoters on the company’s objectives and non-profit nature.
  • File SPICe+ Form:

    • Complete the SPICe+ form (Simplified Proforma for Incorporating a Company Electronically) on the MCA portal, which consolidates multiple applications, including name reservation, DIN application, PAN, and TAN.
    • Attach required documents, such as the MoA, AoA, identity and address proofs of directors and members, and the NOC for the registered office.
  • Submit Form INC-12 (Application for License):

    • File Form INC-12 along with a detailed project report outlining the company’s objectives, estimated income and expenses, and the impact on society.
    • Include Form INC-14 (Declaration by a Practicing Professional) and Form INC-15 (Declaration by each promoter).
  • Payment of Registration Fees:

    • Pay the required registration fees for a Section 8 company, which are often nominal or waived for non-profit entities.
  • Review and Approval by RoC:

    • The Registrar of Companies (RoC) reviews the application and supporting documents. Once satisfied, the RoC issues the Certificate of Incorporation and a License under Section 8.
  • PAN and TAN Application:

    • PAN and TAN are applied for through the SPICe+ form, and they are issued along with the Certificate of Incorporation.
  • Obtain Other Licenses or Approvals (if applicable):

    • Depending on the nature of activities, apply for additional licenses (e.g., FCRA for foreign donations).

FAQ's

No, profits must only be used for the company’s charitable objectives.

There is no minimum capital requirement for registration.

Yes, but at least one director must be an Indian resident.

MCA license under Section 8 of the Companies Act, 2013 is required.

It offers higher credibility, structured governance, and better compliance recognition.

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