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Section 8 Companies under Company Law: Relaxing Provisions Provided

Sonal Pruthi

| Updated: Jan 18, 2021 | Category: Section 8 Company

Relaxations given to Section 8 Companies

This article talks about, relaxing provisions provided to Section 8 companies under the Companies Law 2013. It is incorporated under the head of the Section 8 Companies Registration.

According to the Companies Act, 2013, Section 8 can be defined as, those companies which in accordance with the satisfaction of the Central Government that a person or an association of persons, proposed to be registered under this Act as a Limited Company and the license is issued by the Central Government on such conditions as it may deem fit.

The major objectives of Section 8 companies are:

  1. The promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other such objective.
  2. Intends to apply its profits, if any other income in promoting its objective; and
  3. Intends to prohibit the payment to its members.

Section 8 companies are:

  • Section 8 companies are those which can be registered only as Limited Company under section 8 Company Registration.
  • It is essential that they decide their proposed names to be applied, objects to be carried on by the company, presented registered office address, authorized capital, number of promoters, number of directors, and shares to be subscribed by each company.
  • The name of the Company should ideally match with the principle objects of the company, which are set out in the Memorandum of Association (MOA).
  • The proposed names should not appear in Rule 8 of Companies (Incorporation) Rules, 2014.
  • The intention is to apply its profits if any or other income in promoting its objects.
  • It should not intend to prohibit payment of dividend to its members.
  • There is no need for the addition of the word limited or private limited at its end in the name.
  • License from Central Government is mandatory.
  • A partnership firm is allowed to be a member of the Company.
  • The companies shall enjoy the privileges and be subject to obligations of limited companies.
  • There must be at least two or three subscribers to the memorandum when company is incorporated
  • The minimum of directors must be two to three. However, the upper limit of directors is fifteen.
  • The company must have at least one director who stays in India for more than 120 days. This would be as per the new proposed rules under the Finance Act, 2020 for resident Indians.

Relaxations Given to Section 8 Companies under Companies Act, 2013

There are certain exemptions provided to section 8 companies related to compliance. It is a Non-Profit company, where the specific provisions under the Companies Act, 2013 will not apply.

The following exemptions would apply to section 8 companies:

exemptions Granted to section 8 companies
  1. No appointment of Company Secretary

As per the new notification, they do not have to appoint a company secretary. This is the most significant reduction for non-profit companies.

  1. Need for Minimum Paid-Up Capital of Private Limited Company

The requirement of minimum paid-up capital of Rupees 1 Lakh, by Private Limited Companies, will no longer be applicable, in case the company is registered . It will lower the cost of registration for non-profit companies under Section 8 Companies Registration. The relief was granted to the Company under Companies Amendment Act, 2015 for all Private Limited Companies.

  1. Minimum Paid-Up Capital for Public Limited Company

The requirement of minimum paid-up capital of Rs 5 Lakhs by Public Limited Companies will no longer be applicable in the case of section 8 Companies.

  1. Conduct of General Meetings

The Annual General Meetings (AGM) for the Companies can be convened after the short notice period of 14 days under section 108 of Companies Act, 2013. This is in contrast to the previous provision, in which the minimum notice period is 21 days.

  1. Maintenance of the Records of the Meeting

For the Companies Act, 2013, there is no need to maintain the records of meetings for the non-profit companies. Section 118 of the Companies Act requires companies to keep official records of meetings.

Only where the Articles of Association of the companies require that minutes are to be confirmed by the circulation, then minutes must be recorded and provided within 30 days.

  1. Audited Financial Statements

Copies of the audited financial statements and documents can be sent 14 days to the members instead of 21 days.

  1. Maximum and Minimum directors

According to Section 149 of the Companies Act, 2013, private companies and public companies require two to three directors. However, section 8 companies, may have any number of directors, and the requirement of passing a special resolution for appointing more than 15 directors is not required.

  1. Appointment of Independent Director

There is no requirement to appoint an independent director for this company.

  1. Holding of Board Meetings

The companies are required to hold one Board Meeting within six months. As the companies have to keep four board meetings annually will not apply.

  1. No meeting required for Decision

Section 8 companies are not required to conduct Board meetings for passing any resolution.

  1. Related Party Transactions

The details of the related parties have to be entered in the register only when the transaction exceeds Rupees 1 Lakh. Section 184(2) is amended which is in compliance with the requirements of the act.

Conclusion

This amendment aims to reduce the burden from the non-profit companies (Section 8 Companies) under the Companies Act, 2013[1]. Compliances have changed as a result of the above amendment. Board Meetings can be held in 14 days instead of 21 days. The reduction of compliances is to reduce the cost burden for Section 8 Companies.

Read our article:Section 8 Company Registration: A Step by Step Guide

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Sonal Pruthi

She is B.Com (H), LL.B LLM, Cs (Module 2) And Certification In Cyber Law From ILI Qualified. She has Been A Legal Teacher In The Previous Organization. My Strength Is My Expertise Knowledge In Civil Laws, Corporate Law And Tax Laws. I Have Been Legal Teacher And Legal Trainer In The Past Organization. Her Knowledge About The Subjects Have Expanded Due To Teaching Number Students From Various Universities All Over India.

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