Rules and Regulations under Section 8 Company Registration

Ashish M. Shaji

12 Oct, 2020

Section 8 Company is known as a company that is licensed under Section 8 of the Companies Act, 2013^[1]. Under the Companies Act, 1956, this act was known as the “Section 25 Company”. Here we discuss rules under Section 8 Company Registration.

What is a Section 8 company?

A section 8 Company is a non-profit organization that is formed to promote commerce, arts, science, sports, education, research etc. The profit generated out of such company can only be used to meet company objectives.

What is the main objective of a Section 8 Company?

• Promotion of art, commerce, science, financial assistance, education, sports, social welfare, charity, research, medical aid, religion or appropriate protection of the business/legal environment
• The profit that is gained from such activities should be used only to promote the activities of the business organization, or it should be used to achieve the goals of the business organization.
• No portion of the profit should be paid to the members of the company.

Therefore, it can be stated that the Section 8 Company Registration is an NGO which is registered only for social welfare, microfinance, charity or for the achievement of the objectives of the organization towards the society at large.

In addition to this, a Section 8 Company is similar to a Society or a Trust, the exception being that a Section 8 Company is registered under the “Ministry of Corporate Affairs or (MCA)” of the central government. On the other hand, the Societies and Trusts are registered under the rules and regulations of the State Government. The credibility of section 8 company is higher than an NGO Registration.

Advantages of a Section 8 Company

Below are listed some of the benefits that are enjoyed by a Section 8 Company:

• Many exemptions and privileges under the Company Law.
• Exemption from paying of the stamp duty.
• Donors of the company get the privilege of a tax deduction.
• These section 8 companies can be incorporated without any share capital, and the funds are usually obtained on the donations form.
• The shares of a section 8 company can be transferred easily
• These companies are exempt from keeping any suffix or titles.

Section 8 Company Registration: Rules under Section 8 Company

To get a Section 8 Company Registration in India, you will need to follow the simple steps mentioned below:

1. Fill a simple online form, which will be available on the official website
2. Obtain DSCs or the digital signature certificates along with the DINs of the Director Identification Number within three working days.
3. Apply for Section 8 Company name approval from the Ministry of Corporate Affairs.
4. Apply for Section 8 License from the Director of Ministry of Corporate Affairs.
5. Once the license for a Section 8 Company is issued, then we need to file a Spice Plus form for final incorporation from the Registrar of Companies.
6. E-file PAN & TAN application.
7. Finally, the registration under Section 8 Company is complete. Your PAN card will be delivered through a courier.
8. You are ready to open your bank account within 30 working days.
9. 100% Tax-free on the income of the NGO since the need to apply for 80G & 12A registration.

What will be the last name to be added to a Section 8 NGO?

As per rule 8(7), the name shall include the words–

• Foundation – Foundation is good for a microfinance company, social welfare organization, university
• Forum – Social knowledge or social discussion, buyer association, etc.
• Association – For labor association, trade association, social body like RSS, financial association, RWA
• Federation – for the club, school, research, university, consumer forum
• Chambers – for the promotion of trade, science, and arts
• Confederation – social and welfare work

The Central Government can allow to be registered as Limited Company without the usage of word- “Limited or Private Limited” to its name.

Documents Required for Section 8 Company Registration

• Passport size photographs
• Identity proofs for the members of the company
• List of directors and list of promoters
• Address proof for the members
• Copy of the rental agreement, if rented
• Copy of the property papers, if any
• NOC from the landlord
• Copy of electricity or water bills
• A sample copy of the signature
• Small draft of the core objectives of the Section 8 Company

Eligibility Criteria for a Section 8 Company License: Rules under Section 8 Company

• The major objective should be the promotion of sports, social welfare, the promotion of science and art, education and financial assistance to lower-income groups.
• The entire surplus generated must be used for the meeting the principal objective of the company.
• No profit should be distributed among the members and directors of the company directly or indirectly.
• Founders, members, and directors of the company cannot draw any remuneration in any form cash or kind.
• The company should have a clear vision and project plan for the next 3 years.

Statutory Obligations: Rules under Section 8 Company

• The revenue and surplus generated should be exclusively used for the achievement of the main objective of the company.
• Appointment of Company Secretary is no longer mandatory.
• Incentives or commission are not allowed.
• No need for minimum share capital.
• Directors of the Section 8 Company can take positions in more than 20 companies.
• AGM can be conducted as a shorter notice period.
• No portion of the profit should be paid to the directors and members of the company.
• The objective of the company cannot be altered without prior permission from the Central Government of India.
• Profit is 100% tax-free if 12A registration is obtained from the income tax department.

Conclusion

Non profit organizations provide a linkage to society where one can work for society and the community. Therefore these rules and regulations must be adhered to and failure to comply with these regulations would invite legal repercussions.

Read our article: Update on Section 8 Company Incorporation: What You Need To Know