Section 8 of Companies act, 2013 – Incorporation, Features and Advantages

Section 8 companies are established in India with the sole purpose of promoting commerce. Art, science, sports, education and research or any such company which is registered with a similar object.

What is Section 8 Company?

Companies that are established with a charitable purpose or for not making a profit are known as section 8 company. This means that the company cannot pay any dividends to its members. The company is recognized as section 8 company as it is regulated under section 8 of the companies act, 2013.
The company acts similar to a trust or society but is registered with the central government, whereas a trust or society is registered with state government.

Key Features of Section 8 Company

Income and Dividends

Income or any profit from the company is to be applied in the advancement of the object of the company, i.e. to promote commerce. Arts, science, sports, research and social welfare.

Special License

Section 8 companies are also called licensed companies, as these companies need to get special approval for a license from the central government. When a section 8 company is in an incorporation process, they need to provide special licence approval to ROC.
Status

The companies incorporated under section 8 of companies act enjoy the status of private limited or any other limited company, but the company is restricted to use words ‘PVT’ ‘LLP’ Ltd’ in its suffix. The companies can also not enjoy the status of any small company.

Charitable Objective

The companies under section 8 of the companies act are not formed with the objective of earning a profit. They are established with a basic objective of furthering causes like science, culture, research and religion.

The relevance of Section 8 Company

Corporate social responsibility(CSR) is one of the main reason why section 8 companies are incorporated in India. The companies that come under the ambit of CSR have to spend 2% of their average net profit made during the last 3 years on certain activities prescribed in the act. Example of such companies is TATA Foundation and Reliance Foundation.

Document Required for incorporating Section 8 Company
DSC

Address Proof

Passport Size Photograph

Registered Office
Proof

The following documents are required in the registration of the company with ROC:

Identity Proof of Directors

The identity proof for members of section 8 company is :
• Aadhar Card
• Passport
• Voter ID

Address Proof of Directors

The director of the company is required to submit the following documents:
• Gas Bill
• Electricity Bill
• Telephonic Bill

Note: If you are residing in an address other than your address proof you are required to provide the proof for same.

Registered Office Proof

A registered office is a place where you are currently operating your business in India. The documents that might serve as the proof are:
• Rent agreement if you are on a rented premise
• Sale Deed if you own the property.

Photo of the Applicant

The applicant needs to submit a passport size photograph with MCA.

Registration Process of Section 8 Companies

The procedure to incorporate section 8 company takes about 20 to 30 day. The process of registration is as follows:

Step – 1 Obtaining DSC and DIN

Licensing authority certifies the applicant to verify the documents submitted in the online application. The DSC and DIN are necessary for all existing and proposed directors. DIN is necessary as MCA has made it a requirement to serve as a board member.

Step – 2 Name Availability

Before a company is registered with MCA, a name approval is required. The name approval can be made only through the filing of the RUN application that is an online web service. The application should be filed with a preferred name and the prescribed fee, i.e. Rs. 1000. The applicant gets only 2 resubmissions options after which they have to file a new application.

Pro Tip: Attach the object clause of your section 8 company along with the RUN application

Step – 3 Preparing MOA and AOA

MOA and AOA are the charters of the company that defines the object or scope of the company and define and regulate the internal management of the company. The MOA and AOA of the company must be signed by all the subscribers of the company.

Step – 4 Filing Application with ROC

The application with ROC should be made within 30 days of name approval from the MCA. The application for the company should be made with Form INC-12 and SPICe Form-32.

Approval from Central Government (INC-12)

Once name approval is obtained from ROC, the applicant can submit form INC-12  with the prescribed fee to the authorities for obtaining the license. The section 8 companies need approval from the central government before SPICe Form 32 is filled with ROC. The central government regulates the formation, management and accountability of the companies. These companies are recognised all over the world.

SPICe-32

Once Central government Approval has obtained the applicant, can apply with form SPICe-32 that has detailed information about the subscribers and directors of the company. The applicant has to file the form along with all the required documents.

Note: Section 8 companies are required to file MOA and AOA in a PDF format as an attachment to SPICe-32.

Section 8 company Registration Cost

Factors that affect the cost of registration of a section 8 company are as follows:

1.Services

2.Govt Fee

3.startup solicitors Pricing

4.CA/CS Pricing

5.Company Name Search

(i).Free
(ii).free
(iii).2000

6.Application Cost

(i).4300
(ii).4,300
(iii).4,300

7.Notarization Cost

(i).1000
(ii).1000
(iii).2000

8.Professional Fees

NIL
13580
25000

9.Total Cost

(i).5300
(ii).24999
(iii).33,300 (approx)

 

Stamp Duty for Incorporating Section 8 Company

Stamp duty for a section 8 company is affected based on the following conditions:

Whether the company is a Public or Private limited company

A section 8 company can be registered as a Private limited company or a Public company and depending on the nature of company the Stamp duty will be charged. For instance, in Delhi, the stamp duty on the private limited company is Rs 360.

2. The capital of the company

The stamp duty of the company may vary based on the capital of the company. Mostly the stamp duty for the private limited company remains same for almost throughout the states.

3. State in which the company is registered

The stamp duty for section 8 company is affected by the jurisdiction or area in which the company is registered in. For example, the stamp duty for a company registered in Haryana will differ for a company that is registered in Himachal Pradesh. Hence the calculation of stamp duty is to be made on MCA fee calculator, or you can consult a professional for the same task.

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Relaxation in Stamp Duty

There is no such relaxation for stamp duty mentioned in the companies act for section 8 companies but some of the individual states provide privileged rates for stamp duty on MOA and AOA of section 8 companies or on increase in the authorised share capital of the company.

Tax Deductions

Once the license for section 8 company is obtained the company shall be formed as a normal company registered with MCA. If a company is registered under section 80 G of the company; then the person making any donation gets 50% tax rebate on his taxable income.

NOTE: Section 8 company registered under section 80G will have to file Form-10G with the Income Tax Officer for such registeration.

Advantages and Disadvantages of Section 8 Companies

A Section 8 Company is an organization which is registered as a Non-Profit Organization (NPO). The company functions exactly like any other limited company including all the rights and obligations that come with such a company.

Advantages of Section 8 Company

The companies that are formed as non-profit entities enjoy certain privileges that are available to section 8 companies only.

• There is no minimum paid-up share capital requirement applicable to such companies
• The provision regarding the limitation on minimum and a maximum number of directors on the board do not apply to such companies.
• Section 8 companies have an exemption to appoint an independent director.
• If any person holds directorship in a section 8 company, it is not counted while calculating the total number of directorship being held by that person.
• Any section 8 company is required to hold only 2 board meetings in any calendar year instead of 4 that are important to hold for other companies.
• The company also enjoys various tax exemptions; the tax exemptions are specifically for donors that are contributing to the company.

Disadvantages of Section 8 Company

A compared to the advantages the disadvantages are quite less in numbers that only arise due to the statutory obligations of the company.
• Any profit arising for the company can be utilised in the advancement of the object of the company and not for any other activity.
• Profit of the company cannot be distributed amongst its shareholder or partners, unlike any other limited company.
• The main object of the company should be to promote activities that are listed by central companies.
• The company are restricted to alter the memorandum of Association (MOA) or Article of Association(AOA). They require approval from the central government to make an alteration in them.
• Section 8 companies are not entirely exempted from paying taxes. The income that is generated by the company is subjected to Income tax.
• The rules and regulation that are imposed by the government of India are to be included in the memorandum of Association.

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