How to Start a SECTION 8 COMPANY REGISTRATION

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Overview of Section 8 Company Registration

In India, a Section 8 Company is a special type of company registered to promote activities such as science, education, charity, social welfare, art, environmental protection, and more. The primary goal of a Section 8 Company is to apply its income, profits, or other earnings toward achieving its objectives, and it does not distribute dividends or profits to its members. Section 8 Companies are limited companies incorporated under the Companies Act, and they can be registered as either Public Limited or Private Limited Companies. Compared to Societies and Trusts, Section 8 Companies offer more advantages and hold greater credibility among government departments, donors, and other stakeholders.

Key Points about Section 8 Companies in India:

  • Section 8 Companies must adhere to the provisions of the Companies Act, 2013, which includes maintaining books of account and filing returns with the Registrar of Companies (ROCs).
  • These companies are similar to the Section 25 Company under the previous Companies Act, 1956, with Section 15 now being replaced by Section 8 under the current Act.
  • NGOs can be incorporated under the Registrar of Societies or as a Non-Profit entity under Section 8 of the Companies Act, 2013.
  • Section 8 Companies cannot amend their charter documents, such as the Memorandum of Association (MOA) and Articles of Association (AOA), without government approval. Additionally, they must comply with the Income Tax Act and GST regulations.
 
 

Benefits of Section 8 Company Registration in India

Following are some primary benefits of Section 8 Company Registration in India:

1. Distinct Legal Identity: Section 8 Company in India has a separate legal entity that is different from its members. Its legal standing is also different from its members. The Company has its existence till perpetuity along with having all organised operations and greater flexibility.

2. Zero Stamp Duty: A Section 8 Company is exempted from the requirement of paying stamp duty on the Memorandum of Association and Articles of Association of the private or public limited companies. Such a requirement is applicable for the registration of all other kinds of company structures.

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

4. Exemption to the donors: The people donating to a Section 8 Company are always eligible for certain tax exemptions under Section 12A and 80G of the Income Tax Act of India.

5. Membership: Any registered partnership firm can also become a member in its individual capacity and obtain Directorship of a Section 8 Company in India.

6. Name: Section 8 Company is not required to suffix the words Limited or Private Limited next to its registered legal name. It can be registered with certain names that have words like Club, Association, Society, Council, Charities, Foundation, Institute, Academy, Organisation, and Federation.

7. Tax Benefit: For a Section 8 Company in India, there are many tax benefits that are granted to them.

8. Credibility: Section 8 Companies generally are more reliable than all other forms of charitable organisations working in India. They are governed by the Companies Act, 2013, and are regulated very strictly. Such as the essential requirement of a mandatory annual audit, or the Memorandum of Association and Articles of Association cannot be altered at any stage or in any kind of situation. The rules on managing the day to day profits and losses of the Company make such companies more trustworthy.

Eligibility Criteria for Section 8 Company Registration in India

  1. A person, HUF (Hindu Undivided Family) is eligible to commence a Section 8 Company in India;
  2. For the incorporation of Section 8 Company in India, there must be at least 1 director who should be an Indian Resident in this Company;
  3. Directors, Founders, Members Directors of the Company cannot draw any remuneration in any form of cash or kind;
  4. 2 or more individuals who will act as Directors or Shareholders should fulfil all the compliances & requirements of the Section 8 Company Registration under the Act;
  5. The Company's objective must be one or more of the these, such as the promotion of social welfare, science, art, sports, education & financial help to lower-income groups;
  6. No profit should be distributed to the directors & members of the Company directly or indirectly.

Basic Pre-Requirements for the Incorporation of Section 8 Company

Following are some basic requirements needed before Section 8 Company Registration:

  1. Directors and Members: If the Section 8 Company is to be registered as a Private Limited Company, at least 2 directors are required and if the Section 8 Company is to be registered as a Public Limited Company, a minimum of 3 directors are required. The maximum number of members is 200 are required in a Private Limited Company, whereas for a Public Limited, there is no such limit.
  2. Capital Requirement: There is no capital requirement for the Section 8 Company Registration.
  3. Name of the Company: NGOs are established as a Section 8 Company in India no need to use the words "Limited" or "Private Limited" in their name.
  4. Management: This Company is managed by the BoDs (Board of Directors) as per the AoA (Articles of Association) & MoA (Memorandum of Association) of the Company, unlike other trusts that the Trustees manage as per the Trust Deed.
  5. Company’s Objectives: Entities with non-profit objectives are eligible to apply for Section 8 Company Registration. Any profit generated by this Company is used to serve its underlying objectives such as charitable purposes or reinvested in the Company, and the profit of such entities is not for its members in any form.

Different Forms Required for Section Company Registration

Form

Purpose

SPICe+

Application for Incorporation

INC 12

Application for License

INC 13

MoA (Memorandum of Association)

INC 14

Declaration from a Practising CA

INC 15

Declaration from each person making the application

INC 16

License to register or incorporate as a Section 8 Company

INC 22

The situation of registered office

DIR 2

Consent to Directors

DIR 3

Application to Registrar of Company to get DIN (Director Identification Number)

DIR 12

Appointment of Directors

Documents Required for Section 8 Company Registration

Here is a list of essential documents needed for the incorporation of a Section 8 Company:

  1. Office Address Proof: Proof of the company's registered office address.
  2. Digital Signature Certificate (DSC): A valid DSC for online filing.
  3. Identity & Residence Proof of Nominees and Subscribers: Proof of identity and address of all nominees and subscribers.
  4. Articles of Association (AoA) & Memorandum of Association (MoA): The company's governing documents.
  5. Latest Utility Bills: A copy of recent utility bills such as mobile, gas, electricity, or water bills.
  6. Consent of Nominee (INC-3): A consent form from nominees.
  7. Identity & Residence Proof of the Applicant: Proof of identity and address of the applicant.
  8. Certificate of Incorporation of Overseas Body Corporate: If applicable, a copy of the Certificate of Incorporation for any foreign body corporate involved.
  9. Promoter Company Resolution: A resolution passed by the promoter company (if any).
  10. Declaration by First Director and Subscriber: A declaration stating no affidavit is required.
  11. Declaration of Unregistered Companies: A declaration for unregistered companies (if applicable).
  12. Proof of Business Place: Evidence of the business location.
  13. GSTIN Appointment Evidence: Proof of appointment of the authorized signatory for GST registration.
  14. Managing Committee Acceptance Letter: A letter of acceptance from the managing committee (if applicable).
  15. Specimen Signature for EPFO: Signature sample of the authorized signatory for EPFO registration.
  16. Authorization Letter or Board Resolution: A letter or resolution authorizing actions taken by the board of directors.
  17. Identity Proof for Authorized Signatory for Bank Account: Proof of identity for the authorized signatory for opening a bank account in the company's name.

Procedure for the Incorporation of Section 8 Company

Step 1: Obtain DSC: First, the applicant needs to obtain a DSC; it serves as a digital tool for signing various online forms and scanned copies of documents. It is used by the authorised signatory of the Company, such as the Partners Directors, Managing Directors etc. Swarit Advisors will help you in obtaining DSC.

Step 2: File SPICe+ Form: The next vital step is to go to the MCA website and create an account. Then, the applicant is required to select SPICe+ Form and this would lead the applicant to a brief e-form which entails two parts, A & B.

Part A is for the applicant to register the Company's name and Part B of this form provides some important services such as – Company Incorporation, GSTIN Allotment, DIN Allotment, TAN & PAN Allotment, EPFO Allotment, ESIC Allotment, the opening of bank account for the Company, Professional Tax Registration (only for Maharashtra).

Step 3: Upload Vital Documents: After that, you need to upload all the vital documents mentioned above and pay the prescribed fees.

Step 4: Issuance of Certificate: If the Registrar of Company is satisfied with the forms submitted, they will issue a Certificate of Incorporation along with a Unique CIN (Company Identification Number).

Annual Compliances of Section 8 Company

  1. Mandatory audit report;
  2. ITR filing;
  3. Conduct at least 2 board meetings in a year;
  4. An annual return has to be filed every year with other e-filing forms like MGT-7;
  5. Filing of financial statement in Form AOC-4;
  6. Additional compliances to fulfil the registration like 80G, 12AA, etc.;
  7. Preparation of financial statements;
  8. Maintenance of Books of Accounts.

Penalty for Non-Compliance

The Government will cancel the Section 8 Company Registration if it fails to obey the legal provisions of the Act. If the Company's objectives are conducted falsely or in violation of the objectives for which it is established, the license can be cancelled. If a company or entity defaults in complying with the provisions, the Company shall be punishable with a fine of Rs. 10 lakh and may extend to Rs. 1 crore. The Officers & Directors of the Company in default of the provisions shall be punishable with a fine not less than Rs. 25000/- which may extend to Rs. 25 lakh or both.