What is a Section 8 company ?
One of the main benefits of running a NGO is that you have an opportunity to serve the community via funds and volunteer work. It’s also an opportunity to solve an issue, which is not good for the community.
Section 8 Company Registration is named after Section 8 of the Companies Act, 2013, allows us to establish a NGO with the objects – ‘for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object’, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members.”
Section 25 Company (under Companies Act, 1956) and Section 8 (under Companies Act, 2013) both are same.
Section 8 Companies are a legal structure of Non-Profit Organizations (NPOs) or Non-Governmental organizations (NGOs) with the authority to work across the country. It is similar to a Trust or Society, the only difference is of the governing authorities. A Section 8 Company is registered and governed under the Central Government’s Ministry of Corporate Affairs whereas Trusts and Societies are regulated under State Government regulations.
The main object of these companies is to ensure the promotion of above-mentioned fields, provided the profit can only be used for promoting only objects of the company as per Sec 8(1)(b)). Sec 8 (1) (c) there is a prohibition of payment of any sort of dividend to its members.
Section 8 Company does not require to use words ‘LTD’ or ‘PVT LTD’ as suffix in their name. They require to add Foundation or Association as suffix. Also, there is no such requirement regarding the minimum capital, from June 5, 2015.
Section 8 companies have a license provided by the government under Section 8 Companies Act, which gives them advantage of better credibility to Section 8. There are three main conditions for granting the license, which are –
• The company objective can only include the charitable purpose.
• Income and profits (if any) should be used towards these objects only.
• The company can’t pay any dividend to its members
Why Section 8 Company as NGO ?
• It has organized operations and greater flexibility.
• No requirement of a minimum paid-up capital.
• Can avail tax benefits under section 12AA and 80G of the Income Tax Act.
• It can accept donation from any individual and organization and provide them a benefit of tax saving.
• CSR funds – According to rules companies with turnover of more than 2Cr are required to donate 2% of their profit to NGO as cooperate social responsibility (CSR)
• Unlike trust and societies registration there no physical presence required during registration during section 8 registration.
Requirements for Section 8 Company Registration
• A company must be working and promoting commerce, art, science, sports, education, research, social welfare etc.
• A company Intends to apply its profits, if any, or other income in promoting its objects only not outside its objects
• A company can’t pay any dividend to its members
• A prior approval of the Central Government is required if any alteration are to done in the provisions of its memorandum or articles of association.
Advantage of Section 8 Company Incorporation
• Ease of formation- A Section 8 company can be formed by two persons only.
• Limited liability
• Separate legal entity – A section 8 company is a separate entity having its own rights & obligations
• Perpetual Succession – Just like any other company, a Section 8 company being a separate legal entity also have a benefit ‘perpetual succession’, i.e. it continuous existence and is unaffected by the death or departure of any member until it is legally dissolved.
• It can enjoy tax benefits under 12AA and 80G of Income tax act
• Section 8 being separate legal entity can acquire, own, enjoy and alienate, property in its own name.
• Capacity to sue and to be sued.
Documents Required for Section 8 Company Incorporation
• Identity proof of all Directors (Aadhar card, Driving License, PAN card, Passport)
• Address Proof all directors (Voter ID card, Passport)
• Address proof of company registered office (Rent agreement, Possession letter etc.)
• Electricity Bill of the registered office building
• Bank statement/ passbook of the directors
• Trademark registration Certificate (if any)
Steps to Incorporate Section 8 Company?
The Registration of Section 8 Company is almost similar to other company registration, with an additional requirement of taking License from Central Government after name approval.
Step 1: Obtain DSC (Digital Signature Certificate)
• It’s necessary to apply for a Digital signature of the designated partners before starting the private limited company registration.
• The DSC is important as all the documents before submission are required to be digitally signed.
Step 2: Apply for DIN (Director Identification Number)
• The application for DIN is mandatory for each director.
• The DIN application has to make in Form DIR-3.
Step 3: Name Approval and its Reservation
• The section 8 company name approval is an important step to establish a company.
• RUN (Reserve Unique Name) form is filled for the reservation of the name given by Section 8 Company.
• The name provided must be as per the rule 8 of Company Registration Act, 2013
Step 4: Application for License
Form INC 12 is filed with the ROC of the same state in which the company is being incorporated, is to be filled for the issuance of a License with the following attachments:
• INC 13, MOA
• AOA
• INC 15 – subscriber’s declaration
• Income & Expenditure Statement
• List of Directors of the Company.
• It mandatory that the subscriber page of MOA & AOA should be handwritten along with the signatures of subscriber and witness.
Once the INC 12 is approved, the License is issued in Form INC 16.
Step 5: Preparation of form INC 32
This step involves the drafting SPICe (INC 32), along with the following attachments –
• Memorandum of Association (MOA) and Article of Association (AOA).
• Professional’s deceleration in Form INC 8.
• Affidavit by each subscriber of the Memorandum in Form INC 9.
• Subscriber’s address and identity proof.
• Specimen signature in Form INC 10.
Step 6: Approval of the documents
• Once the SPICe form INC– 32 is approved and Directors are appointed under form DIR 12, the registrar provides the company identification number (CIN) along with PAN and TAN of the company
Good to know –
There is the change in regulation in the filling process. the section 8 company incorporation takes long time to get approved, in order to make the incorporation process hassle free and less time consuming, government has came up with a new process. Under this provision, we do not have to file INC-12 separately; we can file it along with the SPICe form i.e. INC 32.
Other Certificates Which can be Required in Order to Avail More Benefits
• 80G Certificate
• Under Income Tax Act, 1961, it exempts an individual or organization making a donation to a Section 8 company from paying tax (partially or fully) on the donated amount.
• 12A Registration
• Under Income Tax Act, 1961, it is a one-time registration issued by Income Tax Department. This certificate exempts a NGO from paying income tax on the surplus income.
• FCRA Registration
• Organizations seeking foreign contributions in order to promote their activities/ work mentioned in their company object have to obtain FCRA registration. According to the regulation, it shall not receive any foreign contribution without the Government’s approval.
Latest Notification
“Pursuant to Section 135 of the Companies Act, 2013 and Rule 4(1) and (2) of Companies (CSR Policy) Rules, 2014 states the any charitable institution either Society, Trust or Section 8 Company duly registered under an Act of Parliament or State Legislature with recognition of Income Tax Department or else, need to get listed or registered in Ministry of Corporate Affairs duly filing form called CSR-1 with effect from 1st April, 2021. Further the form is applicable to existing entity as well as new entity formed thereafter the applicable date. The required form to be filed by such entity is already published and put on website for the use of stakeholders. It is 3 page form simply asking for entity form, registration details and address with valid certificate of registration and PAN Card copy of entity in addition to details of Trustee/Chairman/Director details on issued Form. Upon filing of Form, entity will received Unique Code and it establish the legal identity as well as give opportunity to such entity to serve in mega CSR Project of various entity in India to which Section 135 is applicable.
This is precisely record taking of all NGO in India doing charitable activities either under Corporate Social Responsibility or else to track the CSR expenditure and make transparent procedure for organization which want to do CSR activity from registered entity in Ministry of Corporate Affairs.
Therefore it is mandated by Government of India to get such entity registered with Ministry of Corporate Affairs.
Further it is again redeliberated to such NGO organization to get registered with Darpan Portal for better appearance and transparency.”
Over and above with the amendment introduced by the Finance Act, 2021 with effect from 1st April, 2021 the long-awaited renewal proposal for 12A/80G already registered entity with Income Tax Department has to renew its registration again by 30th June, 2021 is been finally implemented. The amended provision of Governing Act, Income Tax Act, 1961 is now fully enforceable regarding this provision and upon failure to fulfill the renewal requirements the existing registration of 12A/80G stands withdrawn. Department is working on form and its execution mode.