Section 8 Company is(2) established ‘for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment or any such other object‘. Further profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members. Therefore, Section 8 can be defined as a company registered for charitable or not-for-profit purposes, under the Companies Act, 2013.
Section 8 Company is registered under the Central Government’s Ministry of Corporate Affairs whereas Trusts and Societies are registered under State Government regulations, but the characteristics are similar in both. Some advantages of a Section 8 company compared to Trust or Society are:
- Improved recognition,
- Better legal standing,
- Higher credibility amongst donors, Government departments, and other stakeholders.
Advantages of Section 8 Company
Advantages of Section 8 company can be pointed out as follows:
- Tax exemption
- No minimum capital requirement
- No stamp duty payable
- Separate Legal entity
- No Title Requirement
Process of Incorporation
- Digital Signature Certificate (DSC) and Director Identification Number (DIN): While filing e-forms on MCA portal, Digital signature is a requisite for signing documents. It is a secure and authentic way of submission of a document electronically.
- Name Approval: An application is to be submitted in Form No. – INC 1 to obtain name approval by Registrar of Companies.
- Memorandum of Association (MOA) and Articles of Association (AOA): MOA and AOA of the company are drafted and filed with following necessary documents:
- Subscription pages of MOA and AOA- Each subscriber to the memorandum signs the MOA and AOA by mentioning his name, address, description, and occupation, in the presence of a witness (if any). A foreign subscriber should have all of the required documents attested by the Consulate of the Indian embassy in the respective country or foreign public notary. Other documents include Affidavits, Consent Letters, and Certificate of Compliance from a practicing professional in Form No. INC-8, etc.
- Forms for Issuance of License for Section 8 Company: Required documents for Section 8 company are to be filed with ROC;
- E-Form INC 12 is accompanied by MOA and AOA. It’s a declaration confirming the application by a Company Secretary on the Non- Judicial stamp paper of prescribed Value.
- Names, descriptions, addresses, and occupation of promoters and board members of the company.
- Statement of details of assets and liabilities of the company on the date of application.
- Estimate of future annual income and expenditure of statement of a brief description of work.
- A brief statement on the grounds on which the application is made.
- A letter of authority
- Payment of prescribed fee
- Incorporation forms on MCA portals: These are to be filed with ROC after issuance of company’s license:
- Form No. INC-7
- Form No. INC-22
- Form No. DIR-12
- A power of attorney to be executed by directors and subscribers of the proposed company.
There are certain clarifications and additional information which the company has to provide to ROC after the Incorporation papers are filed and reviewed is issued by ROC with a unique Company Identification Number (CIN). Incorporation Certificate enables a company to apply for PAN, Bank Account, Tan, etc.
Minimum Requirements for Section-8 Company:
- At least two shareholders
- Minimum two directors
Shareholders and Directors could be the same:
- At least one Director should be the Indian resident
- There is no minimum capital required.
- Income tax PAN (mandatory)
- Identity Proof (Voter ID/ Aadhar Card, etc)
- Passport (mandatory)
- Proof of residence ( Electricity/ Telephone/ Mobile Bill or Bank Statement)
- Registered Office Address Proof (Rent agreement if the premises is not owned by the company)
- Documents claiming the ownership such as Sale Deed or House Tax receipt along with a NOC.
Compliance of Section 8 Company
As compared to other forms of Companies, registration of Section 8 companies are provided with a lot of exemptions when it comes to compliances, which can be explained as follows:
- As per Section 96(2), every company other than a one person company shall call an Annual General Meeting during business hours any day other than a National Holiday, within the Registered office of the company or in the city or village where the Registered office is situated.
- A notice of minimum 14 days is to be given before a General Meeting of the company is called [Section 101(1)].
- Section 8 companies are given an extension of seven days for the purpose of sending copies of their financial statement, auditors report e.t.c. to their member’s debenture trustees etc.
- No provision of section 118 relating to minutes of proceedings from general board meetings etc. shall apply to section 8 companies, except where its AOA contains a provision that minutes have to be confirmed by circulation.
- For appointment of Directors, any number of Directors can be appointed in a Section 8 company without any need of Special Resolution. The quorum requirement for Section 8 companies should be either 8 directors or 25% of the total strength, whichever is lower.
- The audit committee of a section 8 company need not have independent directors forming a majority.