A Section 8 Company is a non-profit organization that aims to promote charitable activities, art, science, education, and sports. The profits of such companies are utilized for promoting these objectives and are not distributed among the Company’s members.
Section 8 company is incorporated with an object to promote commerce, art, science, sports, research, education, religion, protection of environment, charity or any other object, who intends to apply their income and profits in promoting their objects and prohibits the payment of dividend to its members. Section-8 Company can be incorporated as a Private or Public Company.
Section 8 Companies are similar to a Trust or Society as the Societies and Trusts are registered under the State Government regulations whereas Section 8 Company is registered under the Central Government’s “Ministry of Corporate Affairs (MCA)”. Being recognized centrally Section-8 Companies/NPOs have higher credibility amongst the stakeholders and donors.
Key Points about Section 8 Company
Advantages of Section-8 Company
Tax Exemption- Section 8 companies registered under section 12AA of the Income Tax Act are eligible for a 100% tax exemption, as they utilize their profits for charitable purposes. This is a significant benefit as the profits generated by such entities are non-taxable.
No Minimum Capital Requirement- Unlike public limited companies, Section 8 entities do not have a minimum capital requirement. They can adjust their capital structure according to their growth, giving them more flexibility.
Separate Legal Entity-Section 8 companies have a separate legal identity and perpetual existence, just like other registered companies. This increases their credibility and provides them with more autonomy and legal standing.
Increased Credibility- Section 8 companies are subject to strict legal compliance frameworks, enhancing their credibility regarding legal standing. Unlike NGOs and trusts, Section 8 entities follow stringent compliances post-registration, making them more trustworthy.
No Title Required- Section 8 companies are free to choose a name that suits their liking during the registration process. Unlike other registered structures, they are not required to affix the term “Section 8” after their name.
A Section 8 company in India offers numerous benefits, including tax exemption, no minimum capital requirement, no need to pay stamp duty, separate legal identity, increased credibility, and no title required. These advantages make Section 8 companies attractive for entrepreneurs looking to start a business with a charitable or social cause.
Eligibility Criteria for Incorporation of the Section 8 Company
Specific eligibility criteria must be met to establish a Section 8 company in India.
These eligibility criteria ensure that the Section 8 Company operates to promote social welfare and contribute to the greater good of society.
Documents Required for Section 8 Company Registration
- Identity Proof of the Member and Directors of the proposed Company;
(Aadhar /Voter ID/Driving License/Passport) - Address Proof of the Members and Directors (Utility Bill/Telephone Bill/Mobile Bill/Bank Statement not older than two months)
- Latest passport size photograph of Member and Directors
- Business Address Proof
Owned Property : (Copy of Registry and Latest Govt. Electricity Bill or Water Bill) - Business Address Proof
Rented/leased: Rent Agreement, NOC from the Owner, Latest Govt. Electricity Bill or Water Bill) - PAN Card of the Member and Directors of the proposed Company
Passport in case of Foreign Nationals
Section 8 Company Incorporation Process
Step 1: Obtain Digital Signature Certificate (DSC)
The first step is to obtain a Digital Signature Certificate (DSC) for the proposed directors of the Section 8 Company. This certificate is required for the online filing of documents with the Ministry of Corporate Affairs (MCA). Form DIR-3 is used for obtaining the DIN and should be filed along with the DSC of the proposed directors.
Forms to be used: DIR-3, DSC
Step 2: Obtain Director Identification Number (DIN)
After obtaining the DSC, the next step is to apply for a Director Identification Number (DIN) for the proposed directors. The DIN number is a unique identification number issued by the MCA to individuals who wish to be directors of a company in India.
Forms to be used: DIR-3
Step 3: Reserve the Company Name
The next step is to reserve the name of the proposed Company with the MCA. The Section 8 company name should be unique and not be similar to any existing company name. Form INC-1 is used for reserving the company name.
Forms to be used: INC-1
Step 4: File the Application for Incorporation
After the company name is approved, the next step is to apply for Section 8 Company incorporation. The application for incorporation is filed in Form INC-32 along with the Company’s Memorandum of Association (MOA) and Articles of Association (AOA).
Forms to be used: INC-32, MOA, and AOA
Step 5: Obtain a License for Section 8 Company
Once the application for incorporation is approved, the next step is to obtain a license for the Section 8 Company. Form INC-12 is used for obtaining the license. It should be filed along with the necessary documents.
Forms to be used: INC-12
Step 6: Obtain a Certificate of Incorporation
After obtaining the license, the MCA issues a Certificate of Incorporation in Form INC-16. This certificate confirms the incorporation of the Section 8 Company.
Forms to be used: INC-16
In summary, the forms used for Section 8 Company registration are DIR-3, DSC, INC-1, INC-32, MOA, AOA, INC-12, and INC-16.
Donations/Funding of Section 8 Company
A Section 8 Company cannot collect capital through deposits but can accept donations from the public. Several methods are available to raise funds, such as foreign donations, equity funding, and domestic donations.
Comparison between Trust, Societies and Section 8 Company
| S. No. | Basis | Section-8 | Trust | Society |
| 1. | Governed by | Companies Act, 2013 | Indian Trust Act, 1882 | Societies Registration Act, 1860 |
| 2. | Registration Document | The charter documents are MOA and Articles of Association | The main document is the Trust Deed | The Primary instrument for Registration of society its Memorandum of Society. |
| 3. | Minimum Requirement | Section-8 Company requires at least two people. | At least two trustees are required. | At least seven members are required to form an society. |
| 4. | Revocable/Irrevocable | It can be dissolved in accordance with the provisions of the Companies Act, 2013 and rules made there under | Public Trust are generally irrevocable | Society can be dissolved which shall be approved by at least 3/4 of the Members of the society. |
| 5. | Control | It is managed by the Board of Directors and resolutions are passed in accordance with the Companies Act, 2013 | Single man may control and prevail in a trust. | Decisions are democratically taken in societies |
| 6. | Area of operation | It can operate all over India | It can operate all over India | It can operate in the specific state only. |
| 7. | Bank Account Operations | Here, a person can be authorized to operate a Bank Account. | In trust it is controlled by one person mostly trustee | In case of society Bank operations are operated generally by the President and the treasurer. |
| 8. | Annual Compliance | Annual Accounts and return of Company are filed with ROC. | There is no requirement of annual filing, but the data has to be provided to the concerned department as per prescribed formats. | Societies are required to file annually with the Registrar of societies, a list of containing name. address and occupation of the managing committee members. |
FAQs
What is a Section 8 Company?
A Section 8 Company, governed by the Companies Act, 2013 (previously by the Companies Act, 1956), is a type of non-profit organization (NPO) or NGO that promotes charitable causes such as education, art, science, commerce, social welfare, religion, environment protection, etc. The company is registered under Section 8 of the Companies Act, 2013.
What are the key features of a Section 8 Company?
Non-profit motive: The primary objective is to promote art, science, commerce, charity, religion, etc., with no intention to earn profits.
Utilization of Profits: Any profits or other income earned by the company must be utilized for promoting its objectives, and cannot be distributed as dividends to members.
Limited Liability: Members of the company have limited liability, meaning their personal assets are not at risk to cover the company’s liabilities.
How is a Section 8 Company different from other non-profit organizations?
A Section 8 Company is incorporated under the Companies Act, 2013, while other non-profit organizations like trusts and societies are usually registered under specific state-level acts. Section 8 companies have more stringent compliance requirements compared to trusts or societies.
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