How to Successfully Register a Section 8 Company Explained

Section 8 Company registration is a popular choice for individuals or organizations aiming to promote charitable objectives such as education, art, science, sports, or social welfare. These companies are registered under Section 8 of the Companies Act, 2013, in India, and they operate without a profit motive. This guide will provide a detailed overview of what a Section 8 Company is, its advantages, registration process, and post-registration compliance requirements. If you are passionate about making a difference in society, establishing a Section 8 Company can be instrumental.

1. What is a Section 8 Company?

A Section 8 Company is a type of non-profit organization formed with the primary objective of promoting commerce, art, science, research, sports, education, social welfare, religion, charity, or environmental protection. It is like a Trust or Society but is registered as a company with limited liability.

a. Key Features of a Section 8 Company

-No Profit Distribution: Profits or income generated by the company are utilized solely to promote its objectives. Distribution of dividends to members is strictly prohibited.

-Limited Liability: Members’ liability is limited to the amount they have agreed to contribute to the company.

-Separate Legal Entity: The company is legally distinct from its members, allowing it to own property and enter contracts independently.

b. Examples of Section 8 Company Purposes

-Establishing free educational institutions or vocational training centers.

-Promoting environmental awareness campaigns.

-Supporting scientific research or cultural initiatives.

2. Advantages of a Section 8 Company Registration

Setting up a Section 8 Company offers several benefits, especially for non-profit activities:

a. Tax Exemptions and Financial Benefits:

-Income Tax Benefits: Section 8 Companies can avail themselves of numerous tax exemptions under the Income Tax Act.

-CSR Funding Eligibility: Companies are eligible to receive funding under Corporate Social Responsibility (CSR) initiatives from various corporates.

b. Credibility and Recognition:

Section 8 Companies are more credible in the eyes of donors, government agencies, and other stakeholders compared to unregistered entities or trusts.

c. Minimal Stamp Duty:

Unlike other types of companies, Section 8 Companies are exempt from paying hefty stamp duties for registration.

d. No Minimum Capital Requirement:

There is no minimum capital requirement, making it financially feasible to start a Section 8 Company with limited initial funding.

3. Eligibility Criteria for Section 8 Company Registration

Before starting the section 8 company registration process, it’s important to understand the eligibility criteria.

a. Objectives Requirement:

The main objective of the company must be to promote fields like charity, education, art, science, or social welfare, without any intent to generate profit for distribution.

b. Number of Members and Directors:

-A minimum of two directors and two members are required for Section 8 Company registration. In the case of a private limited setup, the same individuals can serve both roles.

-At least one of the directors must be a resident of India.

c. Nationality and Age Restrictions:

There are no restrictions on the nationality of members, but they must be competent adults, as per the Indian Contract Act, 1872.

4. Step-by-Step Registration Process for a Section 8 Company

The process of registering a Section 8 Company is streamlined, but it requires adherence to various regulations and documentation.

Step 1: Obtain Digital Signature Certificates (DSC)

Every director must have a Digital Signature Certificate (DSC) to sign electronic documents. These can be obtained from government-authorized certifying agencies.

Step 2: Apply for Director Identification Number (DIN)

Directors must apply for a DIN, which is a unique identifier for individuals designated as directors of a company. The DIN application can be made online by submitting Form DIR-3, along with identity and address proofs.

Step 3: Name Reservation

-Application in Form INC-1: Apply for reserving the company name through the Ministry of Corporate Affairs (MCA) portal. The name should reflect the nature of the company’s objectives and must end with "Foundation," "Forum," "Association," or similar words, as Section 8 Companies cannot use "Limited" or "Private Limited" in their name.

-Name Approval: Ensure the name is unique and not like any existing registered entity.

Step 4: Draft the Memorandum of Association (MOA) and Articles of Association (AOA)

-MOA: Defines the company’s objectives and the scope of activities it will undertake.

-AOA: Outlines the company’s internal management and governance structure.

Step 5: File Incorporation Application

Submit Form INC-12 for the issuance of the License under Section 8. Attach all required documents, including:

-MOA and AOA: Signed by all members.

-Declarations: From directors and an affidavit by promoters.

-Financial Statements and Income Projections: For the next three years, detailing the proposed income and expenditure.

Step 6: Government Verification and License Approval

The Registrar of Companies reviews the application and may seek clarifications. Once satisfied, the Registrar issues a License under Section 8. This license serves as permission for the company to operate as a charitable organization.

Step 7: Incorporation Certificate

After license approval, file Form SPICe+ for the Certificate of Incorporation, which legally establishes the Section 8 Company. Once the Certificate of Incorporation is issued, the company is officially registered.

5. Documents Required for Section 8 Company Registration

The documentation company registration process for a Section 8 Company is extensive but straightforward:

-Director Identity Proofs: PAN Card, Aadhaar Card, or Passport.

-Address Proofs: Bank statements, utility bills, or property documents.

-Registered Office Proof: Rental agreement, utility bills, or property ownership documents.

-Declarations and Affidavits: Signed by directors and promoters stating compliance with the Companies Act.

6. Post-Registration Compliance for Section 8 Companies

Operating a Section 8 Company comes with ongoing compliance responsibilities to ensure the company adheres to legal standards.

a. Annual Filings:

-Form MGT-7: Annual return filed with the Registrar of Companies.

-Form AOC-4: Financial statements and audited accounts must be submitted annually.

b. Board Meetings:

Section 8 Companies are required to hold at least two board meetings every year, and the interval between two meetings should not exceed 90 days.

c. Maintaining Books of Accounts:

Detailed financial records must be maintained, and accounts should be audited annually by a certified Chartered Accountant.

d. Tax Filings and Exemptions:

Section 8 Companies must file income tax returns and can apply for exemptions under Section 12AA and 80G of the Income Tax Act for tax benefits.

7. Common Challenges in Section 8 Company Registration

Registering and running a Section 8 Company is not without challenges:

a. Complex Documentation: The volume of paperwork and legal formalities can be overwhelming for first-time entrepreneurs or organizations.

b. Regulatory Scrutiny: Since Section 8 Companies enjoy tax exemptions, they are often subject to detailed scrutiny by authorities to ensure compliance with charitable objectives.

c. Restrictions on Profit Distribution: While this ensures funds are used for charitable purposes, it can limit financial flexibility for the company.

Conclusion
Registering a Section 8 Company is a strategic decision for individuals and organizations committed to social causes. It provides a structured, legally compliant framework to promote philanthropic activities while enjoying various benefits like tax exemptions and increased credibility. However, it also entails significant responsibilities, including strict regulatory compliance. By the registration process and adhering to legal norms, you can effectively use this structure to drive positive change in society.

8. FAQs About Section 8 Company Registration

Q1: Can foreigners be members of a Section 8 Company?

Ans. Yes, foreigners can become members, but they must comply with the regulations of the Foreign Contribution Regulation Act (FCRA) if foreign funding is involved.

Q2: What is the validity of a Section 8 Company license?

Ans. The license is valid if the company adheres to its objectives. Non-compliance may lead to license revocation.

Q3: Is there a minimum capital requirement for registration?

Ans. No, Section 8 Companies do not have a minimum capital requirement.

Q4: Can a Section 8 Company convert into a normal company?

Ans. Yes, but the process is cumbersome and requires approval from the Regional Director and the Registrar of Companies.

Q5: How does a Section 8 Company differ from a Trust or Society?

Ans. A Section 8 Company has more regulatory oversight, provides limited liability protection, and is generally more credible to donors compared to a Trust or Society.