Not all companies have objectives of making profits by carrying out trade and commerce. Many companies primarily have charitable and non-profit objectives. Such entities are referred to as a Section 8 Company because they get recognition under Section 8 of Companies Act, 2013.
These companies dedicate all their incomes and profits towards the furtherance of their objectives.
A NGO or Non Profit Organisation is an entity that operates for promotion of art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object.
In India, an NGO can be registered as any of the three structures being Company under Section 8 of the Companies Act, 2013(section 25, companies act 1956), Trust or Society.
Section 8 Company format of a NGO is most popular form of NGO in India. It is easy to register, run or manage a Section 8 Company in comparison of a Trust and a Society.
The Companies Act defines a Section 8 company as one whose objectives is to promote fields of arts, commerce, science, research, education, sports, charity, social welfare, religion, environment protection, or other similar objectives.
Filing of E-forms with the Registrar of Companies (ROC)
Digital Signature Certificates (2 nos.)
Name approval (RUN - Reserve Uniqe Name)
Filing of SPICe form
Drafting of Memorandum of Association (MOA) & Articles of Association (AOA)
Issue of Certificate of Incorporation
Issue of Section 8 NGO license
Includes Govt Fees & Stamp duty for Authorized Capital upto Rs. 10 Lakh
Excludes foreign national or Foreign Body Corporate as a director OR business that need approval from RBI, SEBI or IRDA for incorporation
What are the minimum requirements to start a section 8 company?
Minimum two shareholders.
Minimum two Directors (Directors and shareholders can be same person).
At least one Director shall be resident in India.
No Minimum capital required.
Income-tax PAN is a mandatory requirement in case of Indian nationals.
Any one of the Identity Proof (Voter ID/Aadhar Card/Driving License/Passport); Passport is mandatory requirement for proof of identity in case of foreign nationals.
Any one Proof of Residence (Electricity Bill/Telephone Bill/Mobile Bill/Bank Statement).
Registered Office address proof (rent agreement along with latest rent receipt and copy of latest utility bill in the name of 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 a Director and Promoters, any documents establishing the ownership+
such as Sale Deed/House Tax receipt etc along with the no objection certificate.
What are the additional requirements for section 8 company registration?
Multiple forms need to be filed to apply for license. The most important form is eForm INC 12 (for issuance of license under section 8 of the
Companies Act, 2013). This application shall be accompanied by:
Memorandum & Articles of Association of the proposed company
A declaration confirming the application by a Company Secretary in Practice on the Non – Judicial stamp paper of prescribed value.
List of names, descriptions, addresses & occupation of the promoters as well as Board Members of the proposed company.
A statement showing details of assets and liabilities of the company as on date with the application.
An estimate of future annual income and expenditure of the proposed company, specifying the source of income and object of expenditure.
A statement giving brief description of work, if any, already done by the association
People generally prefer to conduct charitable activities by forming Section 8 companies instead of regular NGOs and associations. This is because they have limited liability, so their personal assets will not be used in paying debts of the company. Here are some advantages that these companies enjoy:
Members have limited liability.
No minimum capital requirements.
They get several tax exemptions.
Stamp duties and high fees are not payable for registration.
They have perpetual existence and separate legal status.
Exemptions from carrying out several procedural compliances.
More credibility than compared to NGOs, societies, and trusts because they are recognized by the Central Government’s license.
Features of a Section 8 Company
Charitable objectives: Section 8 companies do not aim to make profits. Their objectives are purely charitable in nature. They aim to further causes like science,
culture, research, sports, religion, etc.
No minimum share capital: Section 8 companies, unlike all other companies, do not require a prescribed minimum paid-up share capital.
Limited liability: Members of these companies can only have limited liability. Their liabilities cannot be unlimited in any case.
Government license: Such companies can function only if they have the Central Government’s license. The Government can revoke this license as well.
Privileges: Since these companies possess charitable objectives, the Companies Act has accorded several benefits and exemptions to them.
Firms as members: Apart from individuals and associations of persons, Section 8 also allows firms to be members of these companies.
Frequently Asked Questions
Section 8 Company may be incorporated as a company limited by shares or by Guarantee (with or without share capital).
No, Rule 3(6) of the Companies (Incorporation) Rules, 2014 prohibits one person company to invest in securities of any body corporate.
No. As per proviso to section 2(85), section 2(85) does not apply to a Section 8 Company and accordingly, a Section 8 Company cannot be treated as a small company.
Likewise, a small company on conversion to a Section 8 Company shall cease to be a small company.
Yes, under the Companies Act, 2013, a Partnership firm or an LLP can become the member of Section 8 Company. The provisions of respective Acts need to be complied with by the partnership firm or LLP as the case may be
There is no restriction in the provisions of the Companies Act, 2013 for a registered Trust to become a member of Section 8 Company. In case of unregistered trusts, provisions of section 89 would be applicable.
A section 8 company, which is proposed to be registered with limited liability, may either be a public limited company or a private limited company or Specified IFSC Company.