In India, the Section 8 Company is regulated by the Indian Companies Act, 2013 (and the amendments thereof) and the rules & regulations that are made thereunder and it is administered by the Ministry of Corporate Affairs, Government of India through the Offices of Registrar of Companies (‘RoC’) in each of the state of India. The Company Incorporation rules, the requirements, process, and the procedures vary more or less depending particularly on the type of the company that is to be incorporated.
Section 8 Company is a Company that is licensed under Section 8 of the Companies Act, 2013 (the Act), erstwhile known as the Section 25 Company under the Companies Act, 1956, which had the main object; For promoting research, social welfare, religion, charity, commerce, art, science, sports, education, and the protection of the environment or any such other object, provided that the profits, if any, or the other income is applied for promoting only the objects of the company and Also, No dividend is paid to its members.
Therefore, Section 8 Company is a company which is registered for charitable or not-for-profit purposes. This Company is, however, similar to a Trust or Society; an exception is that a Section 8 Company is registered under the Central Government’s “Ministry of Corporate Affairs (MCA)”whereas the Societies and Trusts are registered under the State Government regulations. This, however, has various advantages when it is compared to Trust or Society and it also has higher credibility amongst the donors, Government departments, and other stakeholders. Further, the key feature of this Company is that the name of the Company can be incorporated without using the word “Limited” or “Private Limited” as the case may be.
The minimum requirements that are necessary for such company are:
- There must be Minimum of two shareholders;
- There must be Minimum of two Directors (Directors and shareholders can be the same person);
- At least one of the Director shall be the resident in India;
- There is No requirement of Minimum capital
- The Income-tax PAN is a mandatory requirement in case of the Indian nationals;
- Any one of the Identity Proof be it Voter ID/Aadhar Card/Driving License/Passport is required; Passport is, however, a mandatory requirement for the proof of identity in case of the foreign nationals;
- Any one of the Proofs of Residence (Electricity Bill/Telephone Bill/Mobile Bill/Bank Statement);
- The Registered Office address proof (that is the rent agreement along with latest rent receipt and a copy of the latest utility bill in the name of the landlord and a no objection certificate from the owner of the premises, in case the premises are rented);
- In case the premises are owned by either the Director and the Promoters, any of the documents establishing the ownership such as Sale Deed/House Tax receipt etc along with the no objection certificate.
The Procedure for Section 8 Company Registration
- The businessman is firstly required to obtain the documents that are required and to arrange them. The documents that are required are:
Identity Proof: the Copy of the Permanent Account Number (PAN) of all the Directors/Promoters which is mandatory
- Address Proof: A Copy of a valid Passport/Driving Licence/Aadhar/Telephone Bill/Electricity Bill which is not older than 2 months
- A Latest passport size photographs of all the Directors/Promoters
- A Rent Agreement or a Leave & Licence Agreement, if the registered office premise is taken on rent
- The Utility Bills of the proposed registered office
- The Consent to act as a Director in Form DIR-2
- The Directors Directorship details in other Companies/LLPs, if any.
- The second step is to apply for the DSC which is required for filling the forms electronically to the Ministry of Corporate affairs which can be obtained from certified agencies.
- The businessman is then required to Obtain the Digital Signature Certificate (DSC) for the proposed Directors not having the Directors Identification Number (DIN). Obtaining the DIN from the Ministry of Corporate Affairs by filing Form DIR-3, if the businessman does not have DIN.
- the most important step is to apply for the name of the company which is a crucial step in company registration.
- The next step is to draft the Memorandum of Association and Articles of Association of the proposed company in Form INC – 13.
- The next step is to obtain the license under section 8 of new companies with a charitable objective. The person who is desirous to incorporate a company under section 8 is required to file an application in form INC 12 along with the prescribed fees to register for a license.
- Certificate of incorporation – If after the filing of the requisite forms that is INC 7, INC 22 and DIR 12 for the incorporation with the registrar of the companies along with the prescribed fees, ROC gets satisfied with the contents of the documents that are filed. Thus after that, the company will issue Certificate of Incorporation in Form INC 16.
There are thus many privileges and the advantages under the Company Law to Section 8 companies:
- Forming of Section 8 company is an easy process
- The Minimum paid-up capital is not required
- It is exempted from Stamp duty registration
- Any of the registered partnership firms can be a member in its individual capacity
- The Tax deductions benefits u/s 12AA and u/s 80G of Income Tax Act to the donors of the company
- It has Greater flexibility
- It generally takes around 30-45 working days to register a Section 8 company. This duration can, however, be lesser in case the Regional Director approves the application earlier.
Non-profit organizations are always been seen as a special purpose vehicle (SPV) which act as instruments and are considered to be the driving force in helping out the government in doing the things which they always want to do, for the betterment of society, but could not do so due to of various factors. NPOs are the direct link between the society and their well-being and it provides a platform where one can join hands to work for the society and the community, and ultimately in order to make this world a better place. India being a diversified country lacks behind in many of the areas like employment generation, food, and safety, education, health care, etc. The fact that most of these issues are not addressed by the government policy due to many factors has created a demand and space for the organizations ‘that aim to address those’ and thus the idea of the non-profit organization came into a picture.