Section 8 Company Registration - An Overview
A Section 8 company registration under the Companies Act, 2013 or a Section 25 Company as per the Companies Act,1956 is an organisation registered with an objective of promoting the fine arts, science, literature, or knowledge sharing for a purposeful matter or for charity. Section 8 companies are regulated through the Companies Act, 2013. These are the limited companies established under the Companies Act. The Government grants these companies an exclusive license under Section 8 Companies Act. There are three main conditions for granting the license.
- The company should be registered for charitable purposes
- Income and profits should be used towards these objects
- The company should not pay any dividend to its members.
The process and necessities of a Section 8 Company are actually equivalent to a limited company. Including all the rights and commitments that accompany such a limited company. The main viewpoint where they differ is that a Section 8 Company can’t utilize the words “Section 8” or “Limited” in it’s name.
The process of registering a Section 8 Company is same as incorporating an “NGO, Trust, or a Co-operative Society” under the Companies Act 2013.
An extra necessity must be fulfilled for obtaining a license from the central government under Section 8 of the Companies Act, 2013.
The license, basically, allows them to delete Private/Public Limited from their name. With this permit, the company becomes eligible for the specific exclusions from provisions of law and has concessions in the charge.
If the proposed Section 8 Company has been enrolled as a private limited than at least 2 directors are required. But if it is a “public limited Section 8 Company” then a minimum of 3 directors must be there.
The companies registered under section 8, do enjoy certain benefits. The following are the advantages of section 8 company incorporation:
- Access To Tax Benefits
Since Section 8 companies are more of a charitable institution, they have access to the various exemptions available under the IT Act. These companies are qualified to access multiple tax benefits and a tax cut. Section 80G of the Income Tax Act rendered plenty of tax-related benefits to these companies.
- Zero Stamp Duty
The Section 8 companies are not liable to pay stamp duty on the MOA and AOA, unlike other entities falling under the Companies Act, 2013.
- Minimal Share Capital
Unlike private, public, or OPC, a Section 8 company can be set up without minimum paid-up share capital. These companies are allowed to alter their capital structure in accordance with their requirement later on.
- Exempted From Any Name
Section 8 companies are not compelled to affix the term like Limited or Private Limited in their name. These entities are registered with limited liability.
- Separate Legal Entity
Section 8 company possesses a distinct legal status which implies that entity’s existence is independent of its members. The section 8 entity has perpetual existence.
- Improved Credibility
The flexible and transparent constitutional framework of Section 8 companies allows them to garner better credibility than other types of NGOs such as Society and trust.
- Eligible For Foreign Contribution
Section 8 companies are eligible to receive overseas funds in donations provided they are registered under the Foreign Contribution Regulation Act, 2010. This helps them fuel their charitable campaigns that are in need of much-need findings.
Section 8 company registration may accept public donations but is not permitted to obtain capital through deposit Some of the methods it can use to raise money are listed below:
- Foreign Donations
Only after registering under the FCRA (Foreign Contribution Regulation Act of 1976) are foreign donations permitted. FCRA licence applications are only accepted three years following the registration date. However, you may request a prior clearance from the commissioner if certain extremely urgent international donations are required
- Funding for Equity
Sec 8 company may potentially be able to raise money by issuing new equity shares at a premium
- Donations Made Domestically
There are no restrictions on domestic donations. But a proper mechanism must be put in place to prevent situations of money laundering.
- An Individual, HUF is eligible to start a Section 8 company in India.
- Two or more persons who will act as Directors or shareholders should fulfil all the compliances and requirements of the Section 8 company incorporation under the Act.
- There must be at least one director who should be a resident of India in the Section 8 company.
- The objective must be one or more of the following – promotion of sports, social welfare, the advancement of science and art, education and financial assistance to lower-income groups.
- Founders, directors, members directors of the company cannot draw any remuneration in any form of cash or kind.
- No profit should be distributed among the members and directors of the company directly or indirectly.