Section 8 Company (A Non-Profit Organization- NPO)

 

“Everything you can imagine is real.”― Pablo Picasso

Section 8 Company (Form your Company with Charitable Objects etc.)

A Company register with following objects will get a license from the Central Government in such manner as may be prescribed. The Company which were register under the Companies Act, 1956 were register under section 25 of Companies Act, 1956.   

Objects:

a) A Company register with the objects of promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object; and

(b) Intends to apply its profits, if any, or other income in promoting its objects; and

(c) intends to prohibit the payment of any dividend to its members,

Section 8 Companies are generally known as Non-profit Organization (NPO) and income of Section 8 Company can not be used for paying out dividends to the company’s members. The profitable amount should be used for the promotion of main object of the Company. 

A Non-profit Organization can also be register as “Society” under section 20 of the Societies

Registration Act, 1860 and in the form of “Trust” under Indian Trusts Act 1882

The main purpose of section 8 Company is to work for the welfare of Society. Ananya Birla Foundation, Infosys Foundation, Reliance Foundation, TATA Foundation, Reliance Research Institute are famous registered Section 8 Companies in India. 

Advantages of Section 8 Company

A section 8 company yields an array of benefits, unlike a Society or Trust. Following is the list of advantages for companies registered under Section 8:

Tax benefits:  Since Section 8 companies are a non-profit organization, so they leverage the exemption from the provision of income tax. The companies also get various other tax benefits and deductions. They employ many perks under section 80G of the Income Tax Act.

Zero Stamp Duty: A Section 8 company do not have to pay stamp duty on the AOA and MOA of the private or public limited company which other companies surely pays.  

The ease at transferring ownership/title:  The limited liability companies don’t have the advantage to transfer their title or ownership, but the Income Tax Act, 1961 does not confide Section 8 companies to transfer their ownership or title thereby, enabling the transfer of both movable and immovable interest without any hurdles or restrictions.

Minimal share capital:  Unlike the other limited companies like public, private, or one person, a Section 8 company do not need much share capital to set up the entity. The members can directly use the funds from their subscriptions or donations.  

Exempted from any name: In opposes to other companies who are under obligation to use their company’s name as ‘limited company’, section 8  companies get exempted from the use of any title. Thus, they can perform their functions without updating the public about their limited liability status.

Separate legal entity: Section 8 company has a distinct legal entity which means the company’s existence is different from its members. The company has a perpetual existence along with greater flexibility.

Top 5 FAQs related to Section 8 Company

Q1. Is it mandatory that the name of section 8 Company shall include the words like-Foundation, forum, association, federation, chamber, confederation, Council, electoral trust etc.?

Ans1. Yes. As per rule 8(7) of the Companies (Incorporation) Rules, 2014, for the Companies under Section 8 of the Act, the name shall include the words foundation, Forum, Association, Federation, Chambers, Confederation, council, Electoral trust and the like etc.

Q2. Is there is any relaxation in Stamp duty payment on issuance of share certificate by a Section 8 Company?

Ans2. No relaxation of special rate of stamp duty has been provided by any of the state in respect of stamp duty payable on issue of share certificates by Section 8 Company.

Q3. Can a One Person Company (OPC) be incorporated as or convert into a Section 8 Company?

Ans3. No. Rule 3 of the Companies (Incorporation) Rules, 2014 prohibits a one person company to be incorporated as section 8 company or to convert into a Section 8 Company.

Q4. Section 8 Companies are exempted to suffix Limited/Private Limited with the name of the company. What is the significance of this exemption? Does it affect their limited liability?

Ans4. No, the Section 8 Companies enjoy limited liability even without adding the words “Limited” or “Private Limited”. No, it does not affect their limited liability.

Q5. Can Section 8 Companies receive contributions from overseas or non-residents?

Ans5. There are special requirements to be complied with under the Foreign Contribution and Regulation Act, 2010 before a Section 8 Company can receive any contributions or donations from overseas/outside India from non-residents. The provisions of the said Act are in addition to the provisions under the Companies Act.

List of Documents Required for the Formation of Section 8 Company:

There are Minimum two members are required to form a Section 8 Company who will become Subscriber(s) of Section 8 Company or Subscriber cum Director(s) of Section 8 Company. Thus following Documents are required to form a Section 8 Company.

1.      KYC Document of all proposed Subscribers/Directors (PAN, Aadhar, Mobile No, Email id, Passport Size Photograph and Bank Statement/Electricity Bill/Water Supply Bill/Gas Bill/Telephone Bill)

2.      Proof of Register office Place [Electricity Bill/Water Supply Bill and Non objection Certificate from Landlord (NOC)]. If Proposed Register office is rented then Rent Agreement/ Lease and License Agreement is mandatory in nature.

Author:- Author of this Article is CS Vinay Pandey

About CS Vinay Pandey:-  CS Vinay Pandey is Associate Member of Institute of Company Secretaries of India and Law Graduate from VBSPU, Jaunpur.  He is Co-Founder of Professional Study Point and faculty of Financial Management Paper of CS Professional Programme.

CS Vinay Pandey

(Company Secretary & Writer)

(CS, LLB, B.Com)

cs.vinaypandey@gmail.com  

Mob/Whatsapp: 9911473074

 

Disclaimer: The content of this article is intended to provide a general guide to the subject matter and that the same shall not be treated as legal advice. For any queries, the author can be reached at cs.vinaypandey@gmail.com