As a result of the NPO’s income, dividends cannot be paid to its members and funds must be used strictly for charitable purposes. They are responsible for adherence to the rules prescribed by the government and obtain a certificate from the central government.
In accordance with the rule, the central government can order the company to be winded up if it fails to comply with the prescribed rules. If the company promotes bogus goals, strict legal actions will also be taken against it.
Section 8 Companies: Eligibility
- The following intentions or objectives of the company must be approved by the Central Government prior to applying by an individual or group of individuals.
- The corporate objective is to make a positive contribution to science, commerce, education, art, sports, research, religion, charity, social welfare, or environmental protection;
- Any dividends or income generated by the company after incorporation will be used to promote the company’s objectives solely;
- Dividends are not paid by a company to its shareholders.
Benefits and privileges of Section 8 companies under the Company Law:
- The process of forming a Section 8 company is simple
- There is no minimum paid-up capital requirement
- Stamp duty is not applicable to it
- An individual registered partnership firm can become a member of a registered partnership firm
- In accordance with Sections 12AA and 80G of the Income Tax Act, the company provides tax deductions to its donors
- It has a greater degree of flexibility
- The process of registering a Section 8 company generally takes 30 to 45 working days. However, it can be shorter if the Regional Director approves the application sooner.
A guide to setting up a section 8 company
- A section 8 company registration can be registered under the Companies Act, 2013. A form INC 12 must be submitted to the Registrar of the company along with the following documents.
- Company’s draft Memorandum of Association (MOA) and Articles of Association (AOA) in Form No. INC-13 (as specified in Act) with subscribers’ photos attached.
- Form no. INC-14 – A Declaration is to be affixed to Form no. INC-14, stating that the draft MOA and AOA comply with all the requirements of Section 8 and are fully compliant with Section 8.
Any of the following individuals should notarize the declaration if it is on stamp paper:
- Secretary of the company
- Qualified accountant
- The cost accountant.
- Form no. INC-15 – A statement in Form no. INC-15 signed by each member of the company applying as well as being notarized.
The company should also copy a notarized copy of the INC-9 form, which should be on official state stamp paper, for each of the first directors.
The company’s future annual income and the expenditure about the companies next three years, also mentioning the source of the income and the purpose of the expenditure.
New & Simplified Section 8 Company Incorporation Process
- To ease the incorporation process, the Sixth Amendment Rules to the Companies (Incorporation) Act of 2019 dated 7th June 2019 have removed the need to file Form no. INC 12, which was previously necessary.
- As a result of this amendment, Section 8 Companies can be incorporated in the same way as other companies.
- Incorporated section 8 companies can be incorporated by reserving names in the Spice+ form, followed by part B, as well as by directly applying for the Spice+ form. A License No. will be provided for section 8 companies during the incorporation process.
Section 8 Company Registration Documents
- Certificate of Digital Signature
- Certificate of Association
- Association Articles
- Photographs the size of a passport
- Aadhar cards, passports, and voter ID cards are acceptable forms of identification
- Name and contact information of the director (when other companies or limited liability companies are members)
- Address Proof
- ID number of the director
The number of directors for a Section 8 company
- According to Section 149(1) of the Companies Act 2013, a company must have at least three directors and at most two directors, respectively, and a maximum of fifteen directors.
For section 8 companies, there is neither a minimum nor a maximum prescription.
- (2) The second proviso to section 149(1) – specifies that women may be nominated as directors in a specific class of companies.
- The Companies Act 2013 stipulates that every company must have a resident director under section 149(3).
- Section 165 of the Companies Act, 2013 – provides that the number of directors in Companies organized under Section 8 will not be included when counting the number of directors. In other words, it won’t count while adhering to the maximum number of directors prescribed in the Act.
- In accordance with section 149(1) of the Companies Act, 2013, a company with Section 8 status is not required to appoint independent directors and is not subject to the risk of failing to comply with the laws that govern independent directors.
- A company registered under Section 8 of the Companies Act must have at least one resident director, who must have lived in India at least 182 days (one hundred and eighty-two days) within the past year.
Quorum and number of board meetings
Section 8 companies must meet at least once every six calendar months and have a quorum of eight directors or 1/4th of their total strength, whichever is less, according to the exemption notification read with sections 173(1) and 174(1). Nevertheless, at least two members should constitute a quorum.
Section 8 Company registration in India must meet the following criteria
- Incorporated under: Companies Act, 2013.
- Licence: Licence to be applied to MCA.
- In a Private Limited Company, a minimum of two directors must be present. In a Public Limited Company, the maximum number is fifteen directors. Additional directors may be appointed after having passed a special resolution.
- Residents of India: At least one director must be a resident of India, which means that he/she must have stayed in India for at least 182 days in the previous calendar year [(Section 149(3))].
- A minimum of two or three subscribers are required if an intention is made to incorporate the company as a private or public company, respectively.
- AoA & MoA: Determine the company’s name, the objects it will pursue, the registered office address, the number of Directors and promoters, the capital authorized, and the number of shares each promoter will subscribe for. Your social objectives must be mentioned in the plan laid out. The ROC (Registrar Of Company) can ask about it.
- Capital: Within 2 months, the Company needs to invest its initial capital.
- Company Property: As per the Companies Act, company property is owned by the company and can only be sold with the consent of the board of directors (Ex: in the form of a resolution).
- It is only possible to disband a Section 8 Company by following its bye-laws. When the society dissolves, its assets and funds are to remain with the members until all debts and liabilities have been settled. Rather, the remaining funds and property will be given to a similar Section 8 Company with a similar objective.
- Annual Compliance: The company is required to file its accounts, statements and returns with the ROC on an annual basis to comply with the law.
- Documents: Registrants must possess a DIN (Director Identification Number) and a DSC (Digital Signature Certificate).