Section 8 Company in India

Are you thinking of starting an NGO? If yes, Section 8 Company Registration is the best foot forward for you. As you know, India is already home to countless organizations focused on social development and public welfare. Among them, Section 8 Companies hold a unique position as regulated non-profit organizations formed under the Companies Act, 2013. These non-profit entities are instrumental in achieving social goals like promoting education, healthcare, environmental protection, or sports development and are better placed than trust and societies in India as the Companies Act, 2013, regulates section 8 company registration. For finance professionals, including CFOs, Section 8 Companies represent a structured way to create a positive social impact while adhering to legal and financial standards.

In this GrowthX article, CA Manish Mishra talks about their framework to effectively plan, establish, and operate section 8 organizations.

What is a Section 8 Company?

A Section 8 Company is a not-for-profit organization established under Section 8 of the Companies Act, 2013. Unlike commercial entities, Section 8 Companies focus on promoting objectives such as education, charity, arts, environment conservation, or any other purpose contributing to social welfare.

One can incorporate a section 8 company either limited by shares or limited by guarantee. It is recommended to incorporate limited by guarantee to avoid ISIN Creation and Demat Applicability under Rule 9B.

Key Characteristics

• Non-Profit Focus: All income and profits are reinvested into the organization’s mission.
• Separate Legal Entity: Operates independently of its members, with its own legal standing.
• Governance: Managed by directors who oversee the implementation of objectives.

Example: NGOs, foundations, and social welfare organizations often register as Section 8 Companies to ensure credibility and transparency.

Key Features

• Objective-Driven Operations: Focused exclusively on philanthropic goals like education, health, poverty eradication, or culture promotion.
• No Profit Distribution: The company cannot distribute dividends to its members.
• Regulatory Oversight: Monitored by the Ministry of Corporate Affairs (MCA) for compliance with regulations.
• Perpetual Succession: Continues to exist irrespective of changes in membership or leadership.
• Ease of Fundraising: Eligible to receive donations, grants, and foreign funding.

Benefits

Tax Benefits

• Section 8 Companies qualify for tax exemptions under Section 12AA (for organizational income) and Section 80G (to encourage donations).

Credibility with Stakeholders

• Being registered under the Companies Act, 2013 enhances the organization’s trustworthiness for donors, stakeholders, and government bodies.

Limited Liability

• Protects the personal assets of directors and members, limiting liability to their shareholding or investment.

Fundraising Opportunities

• Eligible to accept funding from government agencies, CSR funds, and international donors through FCRA registration.

Operational Flexibility

• Can engage in various activities across India and internationally with appropriate permissions.

Eligibility Criteria

To register a Section 8 Company, the following criteria must be met:

• Charitable Objectives: The company must aim to promote education, arts, science, sports, environmental protection, or other socially beneficial objectives.
• Profit Utilization: Any profits earned must strictly support the organization’s objectives.
• Minimum Membership:
  • Private Limited: Minimum 2 members and 2 directors.
  • Public Limited: Minimum 7 members and 3 directors.
• Resident Directors: At least one director must be a resident of India.
• No Profit Distribution: The organization must not pay dividends or distribute profits among its members.

Documents Required

To ensure a smooth registration process, the following documents are required:

For Directors and Members

• PAN Card (mandatory for Indian citizens).
• Passport (for foreign nationals).
• Aadhaar Card or Voter ID for identity proof.
• Latest utility bill for address proof.

For Registered Office

• Utility bill (electricity, water, or gas bill) as proof of address.
• Rent Agreement (if the office space is rented).
• NOC (No Objection Certificate) from the property owner.

Additional Documents

• Draft MOA (Memorandum of Association) detailing the objectives.
• Draft AOA (Articles of Association) defining the operational framework.

Step-by-Step Process 

Step 1: Reserve a Unique Name

• Use the RUN (Reserve Unique Name) service on the MCA portal.
• The name must align with the company’s objectives and should not conflict with existing names.

Step 2: Draft MOA and AOA

• MOA should outline the organization's objectives, while AOA defines operational rules.
• These documents must comply with Section 8 guidelines.

Step 3: Submit SPICe+ Form

• Fill out the SPICe+ form (Simplified Proforma for Incorporating a Company Electronically) on the MCA portal.
• Attach required documents, including MOA, AOA, and identity proofs.

Step 4: Obtain Certificate of Incorporation

• Once the MCA verifies all documents, it issues a Certificate of Incorporation, granting legal recognition to the company.

Role of the MCA

The Ministry of Corporate Affairs (MCA) plays a pivotal role in the registration and regulation of Section 8 Companies.

Responsibilities of MCA

• Reviewing and approving the SPICe+ form submissions.
• Issuing the Certificate of Incorporation.
• Monitoring compliance with legal and financial regulations.

Tax Benefits and Exemptions

Tax benefits include:

• Income Tax Exemptions: Through 12AA certification.
• Donor Tax Benefits: 80G certification allows donors to claim tax deductions.
• GST Concessions: Exemptions on certain goods and services used for charitable purposes.

Legal and Financial Compliance Requirements

Section 8 Companies must adhere to:

• Annual Return Filings: Submission of financial statements to MCA.
• Board Meetings: At least two meetings per year.
• Audits: Annual audit of accounts by a certified professional.

If you need a consultation on Section 8 company incorporation or its compliance, feel free to contact us.