Fundamentals of Section 8 Company Registration: A Guide to Non-Profit Incorporation in India

In the realm of business, a company is not always about making profits. Some companies are registered with the primary intent of promoting arts, commerce, education, sports, charity, and more. These are known as Section 8 companies or Non-Profit Organizations (NPOs), under the Companies Act, 2013.

Section 8 companies use their income or profits for promoting their objectives, rather than distributing it to the company’s members as dividends. These are licensed by the central government and must adhere to the rules specified by the legislation. This article takes you through a comprehensive guide on the Company Registration Procedure in India, specifically focusing on Section 8 (Non-Profit) Company Registration.

Why Section 8 Companies Exist

Section 8 companies aim at promoting non-profit objectives such as commerce, arts, science, sports, education, research, social welfare, religion, charity, protection of environment, etc. These areas vastly contribute to societal development without banking on the profit motive.

By setting up a Section 8 company, organizations create a platform that is dedicated to social causes but still operates within structured, corporate guidelines that come with being a registered company. As a result, such companies can efficiently channelize their resources to achieve their objectives while maintaining transparency and accountability.

So, what does the process look like for putting together a Section 8 company in India? That’s something we’ll cover in greater detail in this guide, while also touching on aspects like the Director Identification Number (DIN), the set of compliances a company must adhere to (Compliance List), and the nuances of business setup services in India in general (Company Formation).

Prerequisites & Eligibility for Section 8 Company Registration

To qualify as a Section 8 company, there are certain conditions that individuals or groups must meet.

• Entities Eligible to Start a Section 8 Company:
• Any individual or group of individuals
• Hindu Undivided Family (HUF)
• Association of Persons (AOP)
• Companies or corporations
• Legal entities
• Anyone part of or willing to promote the non-profit objectives outlined above
• Directorship and Membership Requirements:
• A minimum of two directors if registered as a private company, or three directors if registered as a public company.
• At least one director should be resident in India.
• There are no restrictions on the maximum number of members.
• Objectives of a Section 8 Company: The intended objectives of the company must clearly fall under the categories specified earlier—a promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other objective beneficial to the public.
• Reinvestment of Profits: The company’s profits, if any, are reinvested towards fulfilling the objectives, and are not distributed as dividends to its members.
• Restrictions on Founders and Directors: Those involved in the management are prohibited from being remunerated in any form, be it cash, kind, or otherwise. This ensures that the focus remains on the service of the public interest and not on personal financial gain.

Understanding these prerequisites is the first step towards registering your Section 8 company. Subsequently, individuals and groups can proceed with the registration process, which involves preparing and submitting the necessary forms and documents to the Registrar of Companies (RoC).

In the upcoming section, we’ll delve into the key features of Section 8 Companies, providing insights into their operations and the nature of their existence within the Indian legal framework.

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Key Features of Section 8 Companies

Section 8 Companies are set up for the pure intent of promoting non-profit objectives. Here are some key aspects that define their operations:

• Non-profit Nature: Unlike other companies, the primary focus is not profit generation but promotion of social, educational, charitable, or any other similar objectives beneficial to society.
• Income and Profits: All earnings and donations received by a Section 8 Company must be applied solely to advance the company’s objectives. Dissemination of profits to the members or directors in the form of dividends is strictly prohibited.
• Government License: Section 8 Companies require a specific license from the government, acknowledging their objectives and allowing them the benefits associated with being a non-profit entity.
• No Minimum Share Capital: These companies do not require a prescribed minimum paid-up share capital. They can be formed with the capital necessary for achieving their objectives.
• Name of the Company: The name of a Section 8 Company does not need to end with “Limited” or “Private Limited”, which is mandatory for other types of companies.
• Special Privileges: Many exemptions and benefits under Company Law, Taxation, and other laws are provided to Section 8 Companies.
• Compliance and Reporting: Despite its non-profit nature, a Section 8 Company is still required to adhere to statutory compliances similar to other companies, including periodic filing of its annual returns and financial statements. They must ensure they’re on top of their Company Compliance and Annual Return Filing obligations.

Now that we’re familiar with these aspects, it is also important to understand how a Section 8 company is incorporated. This requires understanding the documentation and the steps involved in detail which will be covered in the next section of our guide.

These companies operate under particular circumstances and need expert guidance. For instance, if you are looking to register a company in Gurgaon, you may want to understand the specifics of Company Registration in Gurgaon which can vary depending on local regulations and requirements.

Procedure of Incorporation: Old vs. New

Incorporating a Section 8 Company involves a process that includes submission of various forms and adhering to certain legal stipulations. Let’s compare the older procedure with the newer, simplified process.

Incorporation Process Pre-2019 Amendment

Prior to 2019, the incorporation process required the submission of Form No. INC-12 to the Registrar of Companies. Along with this form, the following documents were essential:

1. Form No. INC-13: This is the draft memorandum of association (MOA) and articles of association (AOA), which constitute the charter and internal rules of the company.
2. Form No. INC-14: A declaration by a professional (Chartered Accountant, Company Secretary, Cost Accountant, or Advocate), asserting that the MOA & AOA comply with the norms of Section 8.
3. Form No. INC-15: A notarized declaration on stamp paper by each founding member.
4. Form No. INC-9: A declaration by each subscriber and first directors on the applicable stamp paper for the state.
5. Projected Financial Statements: An estimate of future annual income and expenditure for the next three years, outlining the sources of income and objectives for the expenditure.

Companies (Incorporation) Sixth Amendment Rules, 2019

On 7th June 2019, an amendment was introduced to simplify the incorporation process:

1. Elimination of Form No. INC-12: The need to file the initial form for obtaining a license was done away with.
2. SPICe+ Form (Simplified Proforma for Incorporating Company Electronically Plus): This integrated form now allows for the reservation of the company’s name and includes various other services, streamlining the application process.
3. License Number Issuance: During the incorporation process of filing the SPICe+ Form, the Section 8 Company is allotted a license number.

When Already in Possession of a License Number

In certain cases, stakeholders may already have a license number from previous filings. With the new system, they can file the SPICe+ form at their convenience. However, it’s important to be aware that there may be processing times associated with the system changes.

Note on Processing Times

It is advisable for applicants to factor in processing times, particularly as new workflow changes take effect, which can affect how quickly applications are processed.

In our forthcoming section, we will elaborate on the documents required for the registration process and the various benefits and limitations that are part and parcel of operating a Section 8 Company.

Please keep in mind that, despite the simplicity of the new process, professional advice and assistance are vital to ensure efficiency and compliance. For professional assistance, you can approach services concerned with Business Setup Services and particularly those specializing in non-profit entities.

Documents Required for the Registration of a Section 8 Company

Once you have determined that you meet the prerequisites for a Section 8 Company and are ready to proceed with registration, it’s important to gather the necessary documentation. Here’s the checklist of documents you’ll need to register a Section 8 Company in India:

1. Digital Signature Certificate (DSC): For all proposed directors of the company, to ensure secure and authentic submission of documents.
2. Director Identification Number (DIN): This unique identification number is necessary for all directors. Learn more about obtaining a DIN on our detailed page about Director Identification Number (DIN).
3. Memorandum of Association (MOA): This document outlines the main objects and scope of the NGO.
4. Articles of Association (AOA): This document lays down the by-laws on which the company will operate.
5. Photographs: Recent passport-size photographs of all members forming the company.
6. Identity Proof of Members: Self-attested copies of Aadhar Card, Passport, Voter ID, or any other government-issued identity document.
7. Address Proof of Members: Latest utility bills or bank statements.
8. Address Evidence: Proof of the registered address of the company, such as a lease agreement or property deed.
9. Evidence of Payment of Stamp Duty: Depending on the state legislation, the payment proof of the required stamp duty may be required.
10. Declaration and Affidavits: Necessary legal declarations and affidavits stating the intent and compliance with the regulations set for Section 8 Companies must be prepared and notarized.

Next, we will focus on the benefits and limitations that come with registering as a Section 8 Company, helping aspiring social entrepreneurs weigh their options before taking this noble leap.

For those in need of guidance in the Gurgaon region, a specialized page offers direction and support for Company Registration in Gurgaon.

Benefits and Limitations of Registering as a Section 8 Company

Following the comprehensive discussion on eligibility, key features, the incorporation process, and document requirements, let’s explore the upside and downside of registering as a Section 8 Company. Understanding the benefits and limitations can provide a complete picture for those considering this noble endeavor.

Benefits of a Section 8 Company

1. Exemption from Minimum Paid-up Capital: Unlike other companies, Section 8 Companies are not required to have a minimum paid-up capital.
2. Tax Benefits: They are eligible for various tax exemptions and benefits. This includes exemptions under section 12A and 80G of the Income Tax Act, which can be achieved through the 80G and 12A registration process.
3. Distinct Legal Entity: Section 8 Companies hold their own identity, separate from their members, which allows them to own property and incur debts.
4. No Title Requirement: They are not obligated to use ‘Private Limited’ or ‘Limited’ in their name.
5. Ease of Transfer of Ownership and Management: Members of a Section 8 Company can easily transfer their ownership without complicated procedures.
6. Better Credibility: Companies established under Section 8 of the Companies Act, 2013, hold more credibility among donors, government bodies, and other stakeholders.

Limitations of a Section 8 Company

1. Rigorous Incorporation Process: Companies must adhere to strict regulations, both at the time of incorporation and during their operation.
2. Profit Distribution: Any profits or income generated by these companies must be reinvested for the promotion of their objectives and cannot be distributed as dividends to the members.
3. Surrender of License upon Violation: In cases where the company contravenes Section 8’s requirements, its license can be revoked, and it can be wound up.
4. Regular Compliances: Like other companies, Section 8 Companies must adhere to regular compliance requirements, such as annual returns and audits, listed in the Compliance List for Companies.
5. Withdrawal of Exemptions: If a company contravenes any of the conditions of Section 8 or fails to satisfy the regulatory requirements, exemptions granted can be withdrawn.

In summary, while there are significant benefits that come with registering a Section 8 Company, the responsibilities and limitations are notable as well. Individuals and organizations must carefully consider if this structure aligns with their goals and capabilities.

In the final section, we’ll provide a brief conclusion to our comprehensive guide, tying together all the information we’ve discussed and pointing out additional resources that can assist with the process of establishing a Section 8 Company in India.

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Conclusion

The journey of registering and running a Section 8 Company is indeed a noble pursuit, aimed at giving back to society through various beneficial objectives. These companies stand out in the corporate world with their unique approach to business that strictly revolves around promoting non-profit objectives. While the registration and operation come with a set of stringent compliances and responsibilities, the benefits it affords in terms of tax exemptions, credibility, and fulfillment of social missions make it a worthy consideration.

Whether you are an individual driven by a social cause or an association looking to institutionalize your charity work, registering a Section 8 Company provides a legitimate and efficient framework to pursue altruistic objectives.

For expert assistance to ensure that your journey towards establishing a Section 8 Company is smooth and compliant, consider exploring our range of Company Registration Services, especially tailored for entities that wish to operate for the greater good.