SECTION 8 COMPANY

SECTION 8 COMPANY

A Section 8 company is a non-profit organization (NPO) registered under the Companies Act, 2013, for the purpose of promoting areas such as arts, science, commerce, education, research, sports, religion, charity, and social welfare. The key feature is that any profits or income earned must be used to further the company's charitable objectives and cannot be distributed as dividends to its members. 

Key characteristics

• Charitable objectives: The company's primary focus is social welfare rather than profit-making.
• Legal identity: It is a distinct legal entity separate from its members, with the capacity to hold property and enter into contracts in its own name.
• Limited liability: Members' liability is limited to their share capital or a guarantee, protecting their personal assets.
• No minimum capital: There is no minimum capital requirement for incorporation, making it accessible to individuals with limited funds.
• No dividend distribution: All income must be used for the company's non-profit objectives.
• No suffix required: Unlike other companies, a Section 8 company does not need to use the words "Limited" or "Private Limited" in its name. Instead, it can use terms like "Foundation," "Forum," or "Association".
• Government license: The company requires a license from the Central Government to operate. 

Registration process

1. Obtain Digital Signature Certificate (DSC): All proposed directors need to obtain a DSC for electronic filing with the Ministry of Corporate Affairs (MCA).
2. Apply for Director Identification Number (DIN): Apply for DIN for the proposed directors using the integrated SPICe+ form.
3. Name approval: Apply for name reservation through SPICe+ Part A. The name must be unique and should reflect the company's non-profit objectives. Proposed names should avoid using words that might suggest a commercial motive.
4. File Form INC-12: After the name is approved, file Form INC-12 to apply for the Section 8 license from the Central Government. This form must be submitted with a draft Memorandum of Association (MOA), Articles of Association (AOA), and a statement of estimated income and expenditure for the next three years.
5. File for incorporation: After receiving the Section 8 license (in Form INC-16), file SPICe+ Part B along with the e-MoA (Form INC-13), e-AoA (Form INC-33), and other attachments. The company will be issued a Certificate of Incorporation upon approval.
6. Post-incorporation steps: Open a bank account and file a Declaration for Commencement of Business (Form INC-20A) with the ROC. 

Annual compliance

Section 8 companies must follow strict regulatory requirements to maintain transparency and public trust. 

• Meetings: Conduct regular board meetings and hold an Annual General Meeting (AGM).
• Financial statements: File financial statements in Form AOC-4 with the Registrar of Companies (ROC).
• Annual return: File an annual return in Form MGT-7 with the ROC.
• Audits: Mandatorily conduct an audit of accounts every financial year.
• Income Tax Return (ITR): File ITR, especially Form ITR-7 for charitable organizations.
• Director KYC: File e-KYC (Form DIR-3 KYC) for all directors. 

Tax exemptions

To avail tax exemptions, a Section 8 company must comply with the Income Tax Act. 

• Section 12A registration: The company can apply for this to get an income tax exemption on its surplus income, provided the funds are used for its charitable objectives.
• Section 80G registration: The company can apply for this to provide tax deductions to donors, encouraging contributions.