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