Section 8 company

A Section 8 company is essentially a company that obtains its license under Section 8 of Companies Act, 2013. These are non-profit organizations (NPOs) established with the primary purpose of advancing various fields such as commerce, arts, science, sports, education, and research, among others. Unlike for-profit companies, the earnings generated by Section 8 companies are reinvested to further their mission, and no dividends are distributed to their members. These organizations are formally registered to engage in social welfare and charitable activities, working towards the betterment of society.

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    To form such companies, the Central Government issues incorporation certificates, and they must uphold to the regulations set forth by the Central Government. Failure to comply with these obligations as specified by the Central Government can result in the company being dissolved upon the government’s order. Additionally, severe legal actions can be taken against all the members of the company who do not fulfil their responsibilities as per the rules and regulations.

    Advantages of Section 8 company Registration in India

    Section 8 company registration in India provides several advantages, as outlined below:

    Tax Exemption: Section 8 companies registered under section 12AA of the Income Tax Act enjoy a full 100% tax exemption since they direct their profits towards charitable purposes. This is a significant benefit, as it means that the earnings generated by these organizations are not subject to taxation.
    No Minimum Capital Requirement: Unlike public limited companies, Section 8 companies are not bound by a minimum capital requirement. They have the flexibility to adjust their capital structure as needed, offering them greater adaptability.
    No Stamp Duty Payment: Section 8 companies are exempt from paying stamp duty during the registration process. This reduces the initial cost of setting up a Section 8 company in comparison to other registered company types.
    Separate Legal Entity: Section 8 companies possess a distinct legal identity and enjoy perpetual existence, like other registered companies. This enhances their credibility, autonomy, and legal recognition.
    Enhanced Credibility: Section 8 companies have to stringent legal compliance frameworks after registration, which bolsters their credibility in terms of legal standing. Unlike NGOs and trusts, Section 8 companies follow rigorous post-registration compliance requirements, making them more reliable.
    No Title Restrictions: Section 8 companies have the freedom to choose a name that suits their preferences during the registration process. Unlike certain other registered structures, they are not obligated to include the term “Section 8” in their name.

    Eligibility Criteria for Section 8 Company Registration

    For Section 8 company registration in India, certain conditions must be met:

    The person forming the company should be an Indian citizen or a Hindu Undivided Family (HUF).
    At least one director is required for the company.
    The main purpose of the Section 8 Company should be related to advancing fields like art, science, sports, charity, education, or offering financial support to those with lower incomes.

    Steps for Section Company Registration in India

    The process of Section 8 company registration in Delhi (India) involves the following steps:

    Step 1: Get a Digital Signature Certificate (DSC)

    First, you need to obtain a Digital Signature Certificate (DSC) for the proposed directors of the Section 8 Company. This certificate is necessary for submitting documents online to the Ministry of Corporate Affairs (MCA). You use Form DIR-3 along with the DSC of the proposed directors.

    Forms needed: DIR-3, DSC

    Step 2: Get Director Identification Number (DIN)

    After acquiring the DSC, the next step is to apply for a Director Identification Number (DIN) for the proposed directors. DIN is a unique ID issued by the MCA to individuals who want to become directors of an Indian company.

    Forms needed: DIR-3

    Step 3: Reserve the Company Name

    Next, reserve a unique name for your Section 8 Company through the MCA. The chosen name should not resemble any existing company name. Use Form INC-1 to request the name reservation.

    Forms needed: INC-1

    Step 4: Submit the Incorporation Application

    Once your company name is approved, apply for the incorporation of the Section 8 Company. This application is made using Form INC-32, along with the Company’s Memorandum of Association (MOA) and Articles of Association (AOA).

    Forms needed: INC-32, MOA, AOA

    Step 5: Obtain a License for the Section 8 Company

    After your incorporation application is approved, you need to obtain a license for your Section 8 Company. This requires submitting Form INC-12, along with the necessary documents.

    Forms needed: INC-12

    Step 6: Receive the Certificate of Incorporation

    Upon obtaining the license, the MCA will issue a Certificate of Incorporation in Form INC-16. This certificate officially confirms the incorporation of your Section 8 Company.

    Forms needed: INC-16

    To summarize, the forms involved in the Section 8 Company registration process include DIR-3, DSC, INC-1, INC-32, MOA, AOA, INC-12, and INC-16.

    Documents required for Section 8 Incorporation.

    To successfully complete the Section 8 company registration online you will need the following documents:

    Articles of Association (AOA) and Memorandum of Association (MOA)
    Declaration made by the initial director(s) and subscriber(s) (an affidavit is not necessary)
    Evidence of the office address, such as a copy of utility bills like electricity, water, or gas bills
    Copy of the certificate of incorporation (COI) of an overseas corporate body (if applicable)
    A resolution passed by the promoting company
    Consent of Nominee (Form INC-3)
    Residential and identity proof of both the nominees and subscribers
    Identity and residential proof of the applicant
    Digital Signature Certificate (DSC)
    Declaration of unregistered companies.

    Providing these documents will facilitate a smooth and efficient process for your Section 8 company registration in India.

    Penalty for Non-Compliance under Companies Act

    In cases where a Section 8 company fails to uphold the legal requirements of the Act, the Central Government has the authority to cancel its license. If the company conducts its activities fraudulently or in violation of its stated objectives, the license can also be revoked.
    Furthermore, if a company neglects to comply with the provisions outlined in the Act, it may face penalties. Specifically, the company could be subject to a fine of no less than Rs.10 lakh, which may extend up to Rs.1 crore. Additionally, the directors and officers of the company who are found in violation of the Act may be penalized with a fine ranging from Rs.25,000 to Rs.25 lakh, or potentially both.

    Section 8 company registration offers numerous benefits for those looking to make a positive impact in society while enjoying tax exemptions. Sadiue and Ameen Associates, your trusted taxation experts, can guide you through this process effortlessly. By establishing a Section 8 company, you can promote various noble causes while enjoying the flexibility of no minimum capital requirement, tax benefits, and a separate legal identity. It’s a pathway to contribute to the greater good while staying compliant with the law, and our team is here to assist you every step of the way.