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Starting a company dedicated to charitable or non-profit work is a noble initiative. In India, Section 8 company are formed under the Companies Act, 2013, for promoting social welfare, education, research, or environmental causes. Unlike other companies, these entities do not focus on profit distribution but reinvest earnings to advance their objectives.
What is a Section 8 Company?
A Section 8 company is a type of non-profit organization registered under the Companies Act, 2013. It is named after Section 8 of the Act, which provides legal recognition to entities formed to promote:
-Charitable activities
-Arts, science, or literature
-Education and skill development
-Environmental protection
-Sports promotion
-Social welfare and development
The profits earned by these companies cannot be distributed among members or shareholders but must be used to fulfill the company’s objectives.
Benefits of Section 8 Company Registration
1. Legal Recognition: Registering as a Section 8 company grants the entity legal recognition, ensuring credibility and trustworthiness in the eyes of stakeholders and donors.
2. Tax Exemptions: Section 8 companies can avail themselves of tax exemptions under the Income Tax Act, making them financially sustainable.
3. Limited Liability: The liability of members is limited, providing protection against personal financial risk.
4. Ease of Fundraising: Registered Section 8 companies are more attractive to donors, NGOs, and government grants due to their non-profit status.
5. Perpetual Succession: A Section 8 company enjoys perpetual existence, unaffected by changes in membership.
Key Differences: Section 8 Company vs. Other Forms of Company Registration
| Feature | Section 8 Company | OPC Registration | Private Limited Company |
| Objective | Non-profit | For-profit | For-profit |
| Minimum Members | 2 | 1 | 2 |
| Tax Benefits | Yes | No | No |
| Profit Distribution | Not allowed | Allowed | Allowed |
Prerequisites for Section 8 Company Registration
Before registering for a Section 8 company, you must fulfill the following requirements:
-Minimum Members: At least two individuals are required as members.
-Director Identification Number (DIN): All directors must obtain a DIN.
-Digital Signature Certificate (DSC): A DSC is necessary for online filings.
-Unique Name: The company name should reflect its charitable purpose and comply with naming guidelines.
-Memorandum of Association (MOA) & Articles of Association (AOA): These documents must specify the company’s objectives and operational framework.
Step-by-Step of Section 8 Company Registration Process
Step 1: Obtain a Digital Signature Certificate (DSC)
The first step is to secure a DSC for all proposed directors. This certificate is essential for filing forms electronically on the Ministry of Corporate Affairs (MCA) portal.
Step 2: Apply for Director Identification Number (DIN)
Next, apply for a DIN through the SPICe+ form available on the MCA portal. This unique identifier is mandatory for directors.
Step 3: Choose a Name
Choose a unique name for the company by submitting the Part-A of SPICe+ form. The name should clearly indicate the charitable or non-profit nature of the entity.
Step 4: Draft MOA and AOA
Prepare the MOA and AOA, specifying the mission, vision, and operational structure of the company. These documents are crucial for approval.
Step 5: File SPICe+ Form
Complete the SPICe+ Part-B form, which includes details such as the company’s objectives, address, and director information.
Step 6: Apply for Section 8 License
Submit Form INC-12 to obtain a Section 8 license. Attach the MOA, AOA, and a detailed declaration of the company’s intent.
Step 7: Register with the ROC
Once the license is approved, file the incorporation documents with the Registrar of Companies (ROC). Upon verification, the ROC issues a Certificate of Incorporation.
Documents Required for Section 8 Company Registration
-Identity Proof of Directors: PAN card, Aadhaar card, or passport.
-Address Proof of Directors: Utility bill, bank statement, or voter ID.
-Registered Office Address Proof: Rental agreement or property ownership document.
-NOC from Property Owner: No Objection Certificate from the office property owner.
-MOA and AOA: Signed copies of the MOA and AOA.
-Declaration of Non-Profit Objective: A formal declaration by directors.
Compliance Requirements for Section 8 Companies
After incorporation, Section 8 companies must adhere to strict compliance norms, including:
-Annual Returns: File annual returns with the ROC.
-Tax Filings: Submit income tax returns and claim exemptions if applicable.
-Audit of Accounts: Maintain transparent financial records and undergo periodic audits.
-Board Meetings: Conduct regular board meetings and maintain minutes.
Common Challenges in Section 8 Company Registration
1. Documentation Errors: Incomplete or incorrect documentation is a major hurdle in the registration process.
2. Naming Issues: Names that conflict with existing entities or lack relevance to the company’s objectives may be rejected.
3. License Approval Delays: Obtaining the Section 8 license can be time-consuming due to strict scrutiny.
4. Compliance Burden: Ensuring adherence to regulatory compliance requires meticulous effort and financial resources.
Comparison: Section 8 Company and OPC Registration
One Person Company Registration: An OPC is ideal for solo entrepreneurs looking to establish a business with limited liability. Unlike a Section 8 company, OPCs can operate for profit and distribute earnings.
| Parameter | Section 8 Company | OPC Registration |
| Purpose | Non-profit | Business Profit |
| Members Required | Minimum 2 | 1 |
| Tax Exemptions | Available | Not Available |
Why Choose Section 8 Company Over Trusts or Societies?
-Higher Credibility: Section 8 companies enjoy better credibility due to government recognition.
-Structured Operations: They operate under stricter regulations, ensuring accountability.
-Easier Fundraising: The legal framework enables easier access to grants and donations.
Conclusion
Registering a Section 8 company is an excellent choice for individuals passionate about social welfare and development. Its numerous benefits, including tax exemptions and credibility, make it a preferred option for non-profits. The company registration process, complying with regulations, and maintaining proper documentation are critical for success. If you’re considering company registration, evaluate your objectives and choose the structure—be it Section 8 or OPC registration—that aligns with your goals.
Frequently Asked Questions (FAQs)
1. What is the cost of Section 8 company registration?
Ans. The cost varies depending on professional fees and government charges but typically ranges between Rs.15,000 to Rs.30,000.
2. Can a Section 8 company distribute profits?
Ans. No, all earnings must be reinvested to achieve the company’s objectives.
3. What are the post-registration compliances?
Ans. Compliances include annual filings, tax returns, financial audits, and conducting board meetings.
4. Can foreign nationals be directors in a Section 8 company?
Ans. Yes, foreign nationals can be directors, provided they meet eligibility criteria and possess the necessary documentation.
5. How long does it take to register a Section 8 company?
Ans. The process typically takes 15–30 days, depending on the submission of accurate documents.
6. What is the validity of the Section 8 license?
Ans. The license is valid perpetually unless revoked due to non-compliance.
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