Section-8-Company

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Section 8 Company

A Section 8 Company is a specific form of Company which:
Is incorporated for the promotion of commerce, art, science, education, research, sports, charity, social welfare, religion, protection of environment or any such other object.
It intends to apply all it's profits, income, or other earnings, in promoting these objects. Pays no dividend or income to its members.

These are limited companies, which are registered under the Companies Act, and will be treated as limited companies without the phrase "limited" being added to their name. They may have been registered either as "private limited or public limited companies".

Section 25 Company (under Companies Act, 1956) is a prior version. Section 8 Companies are a legal form of "Non-Profit Organizations (NPOs) or Non-Governmental organizations (NGOs)". A Section 8 Company has the authority to work anywhere in the country.

Benefits

Distinct Legal Identity: Section 8 Company is a separate legal entity and is different from it's members. The Company has perpetual existence. Along with having organized operations and greater flexibility.

Zero Stamp Duty: A Section 8 Company is exempt from the requirement of paying stamp duty on the MoA and AoA of the private or public limited company, which is applicable for registration of other kinds of company structures.

No Minimum Capital Requirement: o minimum capital limit has been mentioned for a Section 8 Company in India. And the capital structure can be altered at any stage as per the growth requirements of the company. This implies that it can be formed without any share capital. The funds necessary for carrying the business operations can be brought, later, in the form of donations and/or subscriptions from members and the general public.

Name: Section 8 Company is not required to suffix "Public Limited or Private Limited", next to it's legal name. It can be registered with names such as "Association, Society, Council, Club, Charities, Foundation, Academy, Institute, Organisation, and Federation".

CARO: Requirements of Companies Auditor's Report Order or CARO do not apply to this type of company.

Tax Benefits: For Section 8 Companies in India, many tax benefits are granted.

Credibility: Section 8 Companies are more reliable than all other forms of charitable organizations. They are governed by the Companies Act and are regulated strictly. Such as the requirement of a mandatory annual audit, and both the "MOA and AOA" cannot be altered at any stage or situation. The rules on managing the profits and losses of the company make these companies trustworthy.

Exemption to the donors: Those donating to a Section 8 Company are eligible for tax exemptions u/s 12A and 80G of the Income Tax Act.

Membership: A registered partnership firm can become a member in it's individual capacity and obtain Directorship.

Mandatory requirements

Minimum Requirement
A Section 8 Company gets incorporated by the MCA.
All requirements of the Companies Act 2013, such as the minimum number of Directors and Shareholders, etc. must be met with.

Charitable Object
Section 8 Companies can be established for non-profit objectives only. Any profit earned or income received by this Company is not to be distributed among it's members.
This implies that the income will either be reinvested in the business or utilized for the progress of it's main objects, i.e. charitable purpose.

Management Team
Unlike other Trusts which are governed by the Trustees as per a Trust Deed, the operations of Section 8 Companies are managed by the Board of the Directors as per their MoA and AoA.

Companies Act, 2013
A Section 8 Company must follow the provisions which have been prescribed under the Companies Act, 2013. It must perform all the tasks such as "Maintaining the Book of Accounts, Audits, Return Filing, Board Meetings, etc".

MoA & AoA
A Section 8 Company shall not make any changes to the provisions of it's MoA & AoA without seeking approval from the Central Government first.

Voting Rights
The voting rights of the shareholders of a Section 8 Company are based on the number of shares held by them. Similar to that of any other company.

Income tax
The Company has to follow the provisions of the Income Tax Act.

GST Registration
If Section 8 Company comes under the purview of the GST Act, it must get registered with GST.

Conversion
It may not convert itself to any other kind of company structure without complying with conditions, as applicable.

Funding of Section 8 Company

Section 8 Company is not allowed to raise capitals by way of deposits but they can accept donations from the general public. Below are some of the ways by which it can raise funding:
Foreign Donations: Foreign donations are allowed only when FCRA (Foreign Contribution Regulation Act 1976) registration has been done. FCRA license can only be applied after 3-years from the date of registration. However, if some really urgent foreign donations are necessary, then you may apply for a prior permission from the commissioner.

Equity Funding:
Section 8 Company can also raise funds by issuing new equity shares at a higher value.

Domestic donations:
There is no limitation to the domestic donations. But to avoid money laundering cases, a proper system must be laid down to keep them in check.