SECTION 8 COMPANY -A DETAILED OVERVIEW – Semantic Taxgen Pvt Ltd
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SECTION 8 COMPANY -A DETAILED OVERVIEW

July 02, 2021
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Introduction:

India, the 3 legal ways that exist for a Non-Profit Organizations or NGO and they are Trusts, Societies and Section 8 Companies.

Indian Societies have various institutional and legal frameworks that varies from state to state where as Section 8 companies has one unchanging law all across the country – Companies Act, 2013. It is powerful Act that controls the management, formation and accountability of a Section 8 Company, hence creating it more strictly controlled and observed than societies and trusts, and well-recognized all across the world.

ABOUT SEC 8 COMPANY

According to Sec 8 (1) of the Companies Act, 2013, where it clearly states that the satisfaction of the Central Government that a person or an association of persons projected is to be registered under the Act as per a limited company:

  • promoting of commerce, research, social welfare, religion, art, charity, science, sports, education, , protection of environment or any other object;
  • the plan is to provide its profits, in case if any, or other income to promote its objects; and
  • the plan is to exclude the payment of any dividend to its members,

the Central Government can, with license issue in such a way as prescribed, and based on these conditions as it considers fit, allows the association of persons or person which is to be registered as a limited company as per section deprived of adding to its name the word “Limited”, or as per the case, the word “Private Limited”, and consequently the Registrar of Companies (RoC) should, on basis of application, as per the prescribed form, register these person or association of persons as a company with this section.

  • FEATURES OF SECTION 8 COMPANIES
  • Members of these company don’t avail any dividend.
  • These company is not considered as small company.
  • Any kind of profit or income of these company shall be consumed with the sole purpose of promotion of its objects.
  • A special license type of is needed for its incorporation.
  • Any such company cannot be changed into a single person company
  • No minimum share capital mandatory for such company.
  • The company need not practice a post fix with ‘Private Limited’ or ‘Limited’ along with its name.
  • The Articles of Association (AoA) of these company shall be modified only with the preceding approval of Central Government that is., RoC.
  • Such company shall combine only with other company registered under section 8 of the Act and with similar objects.

Advantages of Section 8 Company

Asper section 8 company produces a collection of benefits, just like a Society or Trust. Below mentioned is the list of benefits for companies as registered under Section 8:

  • Tax benefits:  Subsequently section 8 companies are like non-profit organization, then they leverage the exception from the provision of income tax. The companies also enjoy different tax advantages and deductions. They pay many perks as per section 80G of the Income Tax Act.
  • The Zero Stamp Duty: Section 8 company need not have to bear the stamp duty on the AoA and MoA of either private or public limited company whereas the other companies have to pay for sure.
  • Ease of transferring ownership/title:  The limited liability companies don’t get the advantage in transferring their ownership or title, then the Income Tax Act, 1961 does not confide Section 8 companies to allocate their possession or title thereby, this enables the transfer of not only movable but also immovable interest without any hurdles or restrictions.
  • Nominal share capital:  Different from the other limited companies such as private, or one person, public, Section 8 company does not need so much share capital in order to set up the entity. All the members can directly make use of the funds from either their subscriptions or donations.
  • Exempted from any name: In order to compete with the other companies which are under a commitment for using their company’s name as ‘limited company’, section 8 companies get exempted from the use of any title. Thus, they perform their functions without updating the public about their limited liability status.
  • Separate legal entity: Section 8 company has a different legal entity that states the company’s existence is not the same from its members. The company has a never-ending existence with its better flexibility.

 

How is section 8 company better than a Trust or society?

Section 8 Company is a non-profit organization which has numerous deductions on taxes and other benefits, some of the Benefit over the Trust and Society is as follows:-

  • Stamp duty has been reduced for such companies in comparison to other organizations.
  • The companies registered under Section 8 require minimum share capital. They are easily funded with the help of subscriptions or donations made as the process is very transparent.
  • Maximum Creditability and Reliability in the eyes of government Departments for FCRA and CSR registration.
  • Quick and whole online registration and alteration process in comparison of society and trust.

Process for registration of section 8 company

1. Application for name availability in form RUN

Application for name availability should be usedusing the “RUN” facility. The name as per Section 8 Company should include the words such as association, federation, chambers, confederation, foundation, forum, council, electoral trust, and so on. A person can suggest maximum of 2 names at single time and only 1 resubmission is permitted in the RUN facility. The fees for RUN facility are said to be Rs. 1000/-. It is advised to assign the object clause of the proposed company. The name when approved is applicable for 20 days.

2.Digital Signatures of First Directors

After that, get class 3 digital signatures of first directors and subscribers which are needed for the filing of incorporation form with the ROC.

3. Making of Articles of Association, Memorandum of Association and other various documents

MOA is the contract of the company and describes the scope of activities. An AOA is a document that controls the internal management of the company. MOA of Section 8 Company should be in form INC-13 though there is no suggested format from AOA Section 8 Company. For provisions the Table F can be adopted. MOA & AOA of the company should be duly signed by all subscribers whose details mentioned like name, address, description and occupation in the existence of minimum one witness whose signature should be attested and shall in the same manner sign and add his name, occupation, address and description.

4. Filing of Form SPICe 32

Soon after getting proposed name approved, one may move ahead with filing of form SPICe 32.

Attachments of SPICe 32:

Provided below are the documents which are required to be attached with the SPICe form for incorporation of Section 8 Company.

  1. Memorandum of Association in Form INC-13;
  2. Articles of Association with specific format;
  3. Declaration as per Form INC-14 by CS/CA/CWA in practice, that the draft AOA &MOA has been drawn up with adherence with the provisions of Section 8 and further rules thereunder and all the necessities of the Act and the rules made thereunder relates to the registration of the company as per Section 8 and matters supplemental or incidental to it have been complied with;
  4. Declaration to be made by each of the persons in the making of the application in Form INC-15;
  5. Estimate of the forthcoming annual income and expenditure of the company for upcoming three years;
  6. Name Approval Letter received from CRC;
  7. Declaration and consent made by first Directors in Form DIR-2;
  8. Self-declaration by first subscribers in Form INC-9;
  9. PAN card of first directors and subscribers;
  10. Aadhar card of first directors and subscribers;
  11. Proof of Registered office such as Lease Deed/Sale Deed/Rent Agreement etc;
  12. Utility Bill of Registered office such as Electricity Bill shall be the latest one;
  13. NOC issued by the owner if in case the registered office is on rent or lease.

SPICe 33 and 34 that is e-MOA and e-AOA will not be used for Section 8 Company. Section 8 companies should as an obligation file MOA and AOA as pdf attachments to SPICe-32.

  • Amendment of Section 8:-

The biggest benefit of Section 8 company over the trust and society is in case for the amendments, the section 8 company amendment process is totally online and also physical visit is not required in case of Society and Trust.

  • Compliances of Section-8 Companies

Section 8 company is to adhere to the compliance levied not only by Registrar of Companies (ROC) but Income tax authorities also. Failing to fulfil their compliance related requirements further outcomes in paying heavy penalties, and also chances such that the organizations and their respective directors’ may even be disqualified for a period of time.

  • Appointment of An Auditor: As per section 139 of the Companies Act 2013, it is an obligation for the companies to appoint an auditor. As the book of accounts and annual returns of the company will be audited only by the statutory auditor who are appointed for a period of 5 years.
  • Maintenance of Statutory Registers: The company needs to maintain a statutory register that consists of members, loans attained, charges created, its directors, etc. as computed under section 8 of the companies act 2013.
  • Convening Meeting: Annual general body meeting is to be scheduled once in a year and within 6 months of the financial year end and rest of the board meetings also have to be conducted.
  • Boards’ Report: In a very proper manner consisting of the financial statements and various annexures, the Board of Directors of the company shall file their boards’ report. The boards’ report is to be filed in Form AOC-4.
  • Preparation of Financial Statement of The Company: The balance sheet, profit and loss A/C, cash flow statement and other financial statements of the company should be prepared by the statutory auditor which is further to be filed with ROC.
  • Tax Returns: The Income Tax Return is to be filed at the end of every assessment year, that is before 30th September.
  • Filing of Financial Statements: The financial statement is to be filed with E-FORM AOC-4form, that is within 30 days from the date of annual general meeting,
  • Filing Annual Returns: The annual return contains all the information such as shareholders’ details, management details will be filed in Form MGT-7 to the Registrar of Companies (ROC), that is 60 days of the annual general meeting.

Frequently Asked Question

Ques: –What are the Penalties for Non-compliance?

Ans: – Non-compliance may lead to penalties ranging from Rs.25,000/- to Rs.5,00,000/- and/or imprisonment.

Ques:-Is Filing of Form CSR-1 compulsory?

Ans:-Yes, the same is as follows:-

  • Every entity (NGO) as mentioned above, whose intention is to undertake any CSR activities, shall register with the Central Government by filing Form CSR-1 electronically with the Registrar, with effect from 1stday of April, 2021.

Therefore, filing of Form CSR-1 is obligatory. Though, the above provision shall not affect the CSR projects approved before 1st April, 2021.

 

Ques:-Whether a foreign Company can be registered under Section 8 Company in India?

Ans:-As per section 2(42) of the Companies Act, 2013 the term “Foreign Company” and that means any company or body corporate incorporated outside India which–

(a) has a business place in India whether by itself or with the help of an agent, through electronic mode or physically; and

(b) conducting any sort of business activity within India in any manner.

As of now subsequently a body corporate or a company incorporated outside India for doing not for profit activities, which has opened a branch/liason office in India, cannot fall in meaning of a foreign company as business activity is absent.

Hence, these company cannot be termed as foreign company. However, with the compliance of FEMA regulations, it can open branch/liason offices.

The not-for-profit companies or bodies corporate incorporated outside India can promote and register a Section 8 Company in India as a distinct entity.

Ques:- Can a single person company become a member of Section 8 Company?

Ans:-No, Rule 3(6) of the Companies (Incorporation) Rules, 2014 prohibits one person company to invest in securities of anybody corporate.

Ques:-Is section 8 companies be a holding company of another company?

Ans:-Yes, section 8 company may promote another company and become a holding company of another company.

Ques:- Whether a Section 8 Company needs to maintain its books of accounts on the basis of cash?

Ans:-As per section 128 of the Companies Act, 2013 it provides maintenance of books of accounts on accrual basis and in accordance with the double entry system of accounting. Hence, section 8 company may not maintain its books of accounts on cash basis.

Ques:-Whether provision of CSR are applicable of Section 8 Company, if it Fulfils the Criteria under section 135(1) of the act?

Ans: –Section 135 of the Act reads “Every company…….”, that has no specific exemption provided to section 8 companies with regard to applicability of section 135, thus section 8 companies should follow CSR provisions.

Disclaimer : The information contained in this article is intended solely for the dissemination of information and does not aim at solicitation of work. Though meticulous care has been taken but the author assumes no liability in respect of any loss/ damage incurred while acting on the information provided in this article. The author can be reached at sanjeev@semantictaxgen.in and can be called at +91-8126700005.

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