Section 8 Company – A complete overview of it!

Section 8 companies are non-profit organizations formed with a ‘no profit’ objective. Under Indian law, the Central Government is empowered to issue a license for registration of a Section 8 company. However, this power of the Central Government has been delegated to the Registrar of Companies of respective jurisdictions and, therefore, applications for registering such a company are made to ROC.

In this article, we are going to discuss the meaning of Section 8 companies, conditions for their eligibility, the process of registration, and more.

What is Section 8 Company?

Section 8 company is a non-profit making company licensed under Section 8 of the Companies Act 2013. It can become a member of another company if it is authorized by its Memorandum of Association to invest in shares of the other company. A few examples of Section 8 companies can be Reliance Foundation, the Federation of Indian Chambers of Commerce and Industry (FICCI), and TATA Foundation.

What is the object of the formation of Section 8 Company?

Section 8 of the Companies Act 2013 entails provisions concerning the incorporation of companies that are purposefully formed to promote the charitable objects of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, etc. Such a company (commonly referred to as ‘Section 8 Company’) intends to utilize its profits in the promotion of its objects and prohibits the payment of any dividend to its members.

According to Section 8(1) of the Companies Act 2013, the companies that have procured license under Section 8 (Formation of Companies with Charitable Objects, etc.) are debarred from paying any dividend to its members. Their profits are intended to be applied solely in promoting the objects of the company.

Conditions for eligibility of Section 8 Company

To attain the status of a company under Section 8, the following three conditions must be met:

  1. Formed to promote charitable objects
  2. Utilization of profits for the promotion of objects
  3. Dividend not to be distributed
Eligibility conditions for Section 8 company

Section 8 Company Registration – New Companies with Charitable Objects, etc.

Any person or association of persons, desirous of being incorporated for charitable objects which are in the overall interest of the community, shall make an application to the Registrar in SPICe+ (INC-32). It is the single application for reservation of name, incorporation of a new company, and/or application for allotment of DIN and/or application for PAN and TAN.

Form SPICe+ (INC-32) is required to be filed in pursuance of Section 8(1) of the Companies Act, 2013 and Rule 19 of the Companies (Incorporation) Rules, 2014.

Steps for Registration of Section 8 Company

Step 1: Obtain DSC of Directors

Step 2: Apply for name approval through Form SPICe+ Part A (Simplified Proforma for Incorporating Company Electronically Plus: INC-32).

The name shall include the words Foundation, Forum, Association, Chambers, Federation, Council, Confederation, Electoral Trust, and the like. For example, YSR Foundation, Bihar Chamber of Commerce & Industries, etc.

A Section 8 Company cannot suffix or use the words “Private Limited” or “Limited”.

Step 3: Within 20 days of reserving its name, file all the formalities including SPICe+ Part B (INC-32) with the ROC.

The application for registration should be accompanied by the following documents:

  • MOA and AOA (The memorandum of association of the proposed company shall be in Form INC-13)
  • Declaration in Form INC-14 by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, that MOA and AOA have been drawn up in conformity with Section 8 and that all the requirements of the Act relating to registration of the company under Section 8 have been complied with.
  • 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
  • Declaration by each of the persons making the application in Form INC-15
  • Form DIR-3 of all the directors
  • Maximum 3 directors are allowed for using this SPICe+ (INC-32) integrated form for filing ‘application of allotment of DIN’ while incorporating a company (every other individual intending to be appointed as a director shall file e-Form DIR-3 for allotment of DIN).
  • PAN, Address Proof, ID Proof of Directors
  • Utility bill as proof of office address
  • Consent letter of all the directors

Note: Section 8 companies are mandatorily required to file MOA and AOA as pdf attachments to SPICe+ (INC-32) and not separately in SPICe MOA INC-33 and SPICe AOA INC-34 (as in case of registration of other companies).

Step 4: License Number for a Section 8 company shall henceforth be allotted at the time of incorporation itself. Also, DINs get issued to the proposed directors who do not have a valid DIN along with the issuance of PAN and TAN to the company.

Conversion of an existing company into Section 8 Company

An existing limited company (public or private), if it fulfills the conditions laid down under Section 8, may desire to convert its status to a Section 8 company. For this, an application for a grant of license for a Section 8 company has to be made to the Registrar in e-Form INC-12. E-Form INC-12 is required to be filed in pursuance of Section 8(5) of the Companies Act, 2013 and Rule 20 of the Companies (Incorporation) Rules, 2014.

Consequent upon approval of the application, a license under Section 8 will be issued by the Central Government. Thereafter, such a company needs to change its name by omitting the word “Limited”, or as the case may be, the words “Private Limited” from its name.

Conversion of Section 8 Company into other company

An existing company registered under Section 8 that seeks to convert itself into a company of any other kind shall make an application to the Regional Director for the conversion of its status. Once the approval is accorded by the Regional Director, the company shall cease to enjoy all the privileges/ concessions obtained by it on account of being a Section 8 company.

A company under Section 8 may convert itself into a company of any other kind by the filing of e-Form INC-18. It needs to pass a special resolution at a general meeting for approving such conversion.

E-Form INC-18 is required to be filed in pursuance to Section 8 (4) (ii) of the Companies Act, 2013 and Rule 21(4) of Companies (Incorporation) Rules, 2014.

Peculiarities of Section 8 Company

Privileges of limited company: On registration of Section 8 Company, it enjoys the same privileges and obligations as that of a limited company.

Members: A partnership firm (or LLP) can become a member of a company incorporated under Section 8.

Alteration in AOA and MOA: A company registered under Section 8 is disallowed from altering its Memorandum and Articles except where it has sought the prior approval of the Central Government to do so.

OPC: One Person Company cannot be incorporated or converted into a company under Section 8.

With or without share capital: Section 8 companies may be incorporated as a company limited by shares or by guarantee (with or without share capital).

Stamp duty: Some of the states provide an exemption or privileged rates for the payment of stamp duty on MOA/ AOA of Section 8 companies or an increase in authorized share capital.

Not small company: A Section 8 company cannot be treated as a small company defined under Section 2(85) of the Companies Act 2013. Likewise, a small company on conversion to a Section 8 company ceases to be a small company.

Tax exemptions: Section 8 companies, being non-profit organizations, are entitled to various tax exemptions on profits if they get registered under Section 12AA of the Income Tax Act.

Revocation of license of Section 8 company

A license granted to a company under Section 8 may be revoked by the Central Government if it is found that conditions of Section 8 have been contravened or the company’s activities have been conducted in a manner detrimental to the public interest. On such revocation or where the company itself wants to surrender the license granted, an intimation of such revocation or surrender of the license is to be filed with the Registrar by the company in e-Form INC-20.

E-Form INC-20 is required to be filed in pursuance of Section 8(6) of the Companies Act, 2013 and Rule 23 of the Companies (Incorporation) Rules, 2014.

The Registrar shall enter the word(s) “Limited” or “Private Limited” as the case may be at the end of the name of the company and the company shall cease to enjoy the privileges granted to it under Section 8 of the Act.

Attachments:

  • Copy of Order of Central Government
  • A certified true copy of altered memorandum and articles of association
  • It is mandatory to attach a declaration of directors for compliance with conditions, in case of surrender of license

Punishment on contravention

On contravention of the provisions of Section 8 of the Companies Act 2013, the Central Government may:

  • Revoke the license issued and convert the status and change its name to add the word(s) “Limited” or “Private Limited” as the case may be
  • Order for amalgamation of company with similar objects
  • Order for winding up
  • Section 8 Company and the respective officer in default is liable for penalty prescribed

Quantum of penalty:

If a company makes any default in complying with any of the requirements laid down in Section 8, it will be punishable with a fine not less than Rs. 10 lakhs but which may extend to Rs. 1 crore.

Also, the directors and every officer of the company who is in default will be punishable with imprisonment for a term which may extend to 3 years or with a fine not less than Rs. 25,000 but which may extend to Rs. 25 lakhs, or with both.

Further, if it is proved that the affairs of the company were conducted fraudulently, every officer in default would be liable for action under section 447.

Exceptions applicable to Section 8 Company

When a company is classified as a Section 8 company, it is allowed to operate in a manner that dispenses with a few requirements mentioned as under:

  • It can call its general meeting by giving a clear 14 days’ notice instead of 21 days.
  • The requirement of having a minimum number of directors, independent directors, etc. does not apply to it.
  • It need not constitute a Nomination and Remuneration Committee and a Shareholders’ Relationship Committee.
  • The requirement of having a minimum paid-up share capital is not applicable.
  • It is required to have at least one board meeting within every 6 calendar months’ (instead of holding four meetings a year).
  • It is exempted from complying with the requirements of Section 118 for recording minutes of proceedings of the general meetings, Board, etc. However, minutes may be recorded within 30 days of the conclusion of the meeting in the case of companies whose Articles provide for confirmation of minutes by circulation.
  • The Company Secretary of Section 8 companies need not be a member of the Institute of Company Secretaries of India.

Takeaway

The figures below summarize the provisions pertaining to a company registered under Section 8, along with its advantages and disadvantages:

Company registered under Section 8
Advantages and disadvantages of Section 8 company

Hope the information provided in this article proves helpful to you!

Also read: A detailed guide on the Classification of companies in India

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